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The Problem With Executives Estimating Risk

Oct 16

I harp on my peers when I speak about our role as HR Pros.  I tell HR Pros it is not our job to eliminate risk, it’s our job to advise risk, then let our executives make choices based on that perceived risk, with our influence.   It sounds really good when I say it live!  It sounds thought provoking and wise.  People take notes.

I might be wrong about all of it, though.

Daniel Crosby, Ph.D. wrote a post over on LinkedIn called You Are Not a Snowflake were he cited a study done by Cook College that explored unrealistic optimism. Here’s some of it:

Cook College performed a study in which people were asked to rate the likelihood that a number of positive events (e.g., win the lottery, marry for life) and negative events (e.g., die of cancer, get divorced) would impact their lives. What they found was hardly surprising—participants overestimated the likelihood of positive events by 15% and underestimated the probability of negative events by 20%.

What this tells us is that we tend to personalize the positive and delegate the dangerous. I might win the lottery, she might die of cancer. We might live happily ever after, they might get divorced. We understand that bad things happen, but in service of living a happy life, we tend to think about those things in the abstract.

Knowing this, it now makes me uneasy to let our executives just go off and make decisions on risk!

HR Pro: “Well, you know if we fire Ken, he’s probably going to sue us and we’ll lose.”

Executive: “Let’s go ahead with it.” (in their mind thinking “we won’t get sued, that’s only other companies who treat their employees like crap. we’re great”)

HR Pro: “Are you sure!? From my experience we are definitely going to be hanging out there on this one.”

Executive: “Yes, I’m sure. Shoot Ken!” (again thinking, “Ken will probably thank us for finally put him out of his misery”)

That is just one silly example.  We constantly mitigate risk in HR.  On a daily basis we are making decisions based on positive and negative outcomes.  If we know we are predispositioned to believe the positive is more likely going to happen, when statistically speaking it won’t more than negative, and we are predispositioned to believe negative things won’t happen, when they likely more than we believe, we are really making some bad decisions over time!

I’m a very confident person.  I’m also decisive.  This makes this concept very concerning to me!  I like to believe in positive outcomes. I don’t believe bad stuff will happen, or if it does I’ll be able to conquer it!

So, HR pros forget what I tell you.  Stop risk in all manners that you can in your organization! Don’t advise.  Mitigate! If you’re anything like me, you’ve probably already had this come back and bite you a time or two.  Also, know you won’t be very well liked taking this course of action, but that’s something else I like to advise to HR pros in which is probably wrong…

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