Note: This article is based on a blog post by Tyler Tervooren, in which he tells us how to take smart risks in our daily lives.
That man decided to climb on the train between the railway cars to pass to the other side of the road. Suddenly his foot slipped, and he lost his balance for a moment. However, fortunately, he regained his balance and passed the moving train safely.
I was completely stunned. I remember looking at my friend and asking, "Did you see what I saw?" He said, "I can't believe he did that," he was just as shocked, and I said at the time that he had taken a really stupid risk.
I think this risk was foolish because he gained nothing from the thing he did. Even a very small failure could have caused something disastrous, and the scales were not in his favor at all.
We all take risks every day we live, even if it's something small, for example, when you drive and run a red light on your way to work, or when you go out and eat a meal of fast food instead of a healthy meal, and even when you secretly distract yourself from work. All of these things are risks.
Sometimes you take greater risks by spending your time doing nothing at all when you could spend the same amount of time doing something useful, and often the things we regret the most are the things we don't do, not the things we do.
However, not all risks are created equal. The risks you take daily can be classified into one of two categories: smart or stupid. For example, the man who climbed the moving train took a stupid risk. There are many people like him who expose themselves to huge losses when they may gain only a little for their bravery.
But only a few have figured out how to spend their days taking smart risks that improve their lives and propel them to new levels of success with little chance of failure or anything else unpleasant.
If you're interested in learning how to take more smart risks in your daily life, keep reading.
The simple and effective “Smart Risk Formula”
Deciding whether the risk you are taking is smart and fruitful or stupid and destructive is very easy when applying simple logic. So far, I have spent more than three years studying risk as a full-time job, and I have created a simple formula that I call the “Smart Risk Formula,” which continues to guide me toward smart risks that improve my life away from stupid risks that may cause me to unnecessary loss.
Here's everything you need to know: The two important variables are the potential loss and the potential reward.
1. Potential Loss
It means "how bad it would be if the venture failed." You can rate it on a scale of 0 to 9. The number 0 means no loss at all while the number 9 means some kind of horrific and unacceptable loss.
2. Potential Reward
It means "what is the outcome of success?" You can also rate it on a scale from 0 to 9. The number 0 means no reward at all and the number 9 means a life-changing reward.
I am only evaluating the good or bad things you might encounter if you took a chance. The simple formula is the potential loss divided by the potential reward equals the risk quotient; i.e. potential loss ÷ potential reward = risk quotient.
In my opinion, you should look for risks in which the potential reward is high and the potential loss is low in order for the risk you will take to be smart. Everyone will judge the variables differently from the other based on their own understanding, but if you follow this equationو you can master taking smart risks.
Note: Those who master risk-taking will notice that there are no smart risks with a large potential loss, and this is consistent with what I mentioned earlier.
Application of smart risk equation
The previous equation is an easy mathematical way to find out if the risk you are about to take is smart or stupid, and it is really very easy, but it is not actually a pure mathematical equation.
The two variables you assign values to will differ depending on who is applying the equation, as we all interpret the same situation differently. What might seem like a smart risk to one person might sound stupid to another, and a risk that might sound stupid to me might sound smart to you because there are other variables to consider when figuring out the potential loss and potential reward.
Nonetheless, you can get really good at evaluating stupid risks in your own life by rehearsing some common scenarios we all face, and adjusting for variables. Think of this as an exercise to master smart risk-taking.
Example of the risk of running a red light
Suppose you are on your way to work, and you are five minutes late, and suddenly you see a traffic light in front of you that turns red. Because you do not want to be late any longer, you decide to take a chance and pass it; That is, you risk your life just to avoid being late any longer. Let us apply the equation I mentioned earlier, potential loss ÷ potential reward = risk quotient, and let's see if it's worth the risk.
I would rate the potential reward - at best - a 2, you'll be late anyway, and the potential loss an 8. Running a red light puts you at risk of a serious high-speed collision that could easily cost you your life.
In this case, our risk quotient is very low, which means that it is a very stupid risk, but suppose there are no cars coming from either direction at that intersection, which means that the chance of a collision is low.
Suppose you work in a hospital and are about to be late for an emergency heart transplant that will save someone's life. In this case, the potential reward is much higher and can reach the number 9. This is because saving someone's life is very rewarding, but the potential loss is still high but highly unlikely. So, we will rate it low.
Thus, the risk quotient will rise, which means the risk may be smart but hard. If the intersection was crowded, it could have gotten worse.
Laxity at work
Suppose you're bored at work, and your mind is distracted by something else, perhaps something funny your friend sent you the night before. You might say, "I'm going to watch some videos to pass the time, no one's around, and I've done a lot today."
Is this a smart risk? It is unlikely that anyone will find out or be punished for such an act, but anything can happen, and I would give a low rating for the potential loss and potential reward, so what do you gain from wasting your time on some videos? Maybe not enough for the risk quotient to be high.
What if you invested your time in emailing potential business partners for the company you're trying to start instead of watching videos? This may raise your potential reward enough to make it worth your time.
But what if you've been warned not to do things other than work tasks before, and you're taking a risk without having any savings you can count on in case something happens? I don't think it's worth the risk.
In conclusion
As you can see, the result of the equation depends on the person calculating the variables. Finding the perfect mathematical equation for calculating risk is not a big deal, but what matters is coming up with a framework that you can put your variables into, which will help you see what risks you want to take in your life. The smart risk formula can tell you everything.
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