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How Do You Manage Risk?
Personal Risk Management
Personal Risk Management
There are generally two personalities in play when it comes to risk: Survivors and losers. The survivor knows they can endure risk and manage it through clearly identifying their options. The losers are those who so fear entering a risky situation that they dare not take any chances. Personal risk management encompasses a wide area for each individual. It isn't always related to business or investment risks. Warren Buffet, the Omaha Investment Guru, is a survivor who knows how to identify options, should risk divert negatively. This takes an internal level of self-discipline and self-control to avoid adding emotions to a risky situation and further exacerbating it. To many, it appears that Warren Buffet is a man with nerves of steel. In reality, he is a man possessed of a skill and talent for not allowing negatives to grow out of control.
The Inevitability of Loss
Since few human possess second sight, loss is inevitable. How we react to loss can be the difference between a life shattering scar that doesn't heal and a phoenix rising from the ashes. Degree of loss should be identified first. To what degree does loss impact the future? In his book, "Hard Times," the author Studs Terkel wrote about individual experiences and lives during the Great Depression. It is a record of memories of those who were richest and those who were most destitute. Many famous politicians like Raymond Moley and James Farley, Secy of the Treasury, Kennedy, the burlesque and fan dancer Sally Rand and businessmen like Howard Hopson and Ivan Kreuger (committed suicide,) Bill Benton, Richard Whitney (president of the NY Stock Exchange went to prison), wheat speculator, Arthur Cutton (greatest wheat speculator) and Charles Schwan, president of the largest US steel company (both died financially destitute).
It's always important to understand the potential for risk in any situation. However, the human element is not always in control of risk. In risky situations, attitude plays a huge role in recovering from negativity and loss. Perhaps, the other element is preparation for loss and acceptance graciously and without bitterness. The individual who foolishly believes they can't prevent all losses is merely creating a ripple effect of a more serious loss. This individual is unprepared for the inevitability of loss, can't identify the degree of loss or the options available to recover from loss.
The Design of Personal Risk Management
It should be clear that each individual must design their own life plan for personal risk management. Some choose to live one day at a time and magnify each moment as an opportunity to expand their quality of life. Others waste inordinate amounts of time stressing about the possibility of risk in each minute of every day. Learn what you can control and what you cannot. There are some very wise words within the "Serenity Prayer" that require diligent acceptance, "Accept the things you cannot change." How many people today believe they can change everything and end up disappointed at their failure to make all life change? This particular aspect of human attitude shows clearly the mass potential for unnecessary risks.
"Change the things you can." This is another gem of wisdom. If you can make changes and don't, remaining in a rut can attract higher levels of risk. Perhaps, the most significant wisdom of the Serenity Prayer is the last line, "The wisdom to know the difference." Knowing where are inherent abilities and power lies is one way of pondering what can humanly be changed and what cannot. Don't be fooled. Accessing wisdom isn't like pressing the "Send" button in email. It's more like sitting in a dentist chair knowing a wisdom tooth needs extraction and shoring up one's courage to endure what is inevitable. Risk is as inevitable as loss. It shouldn't be a fearsome dragon about to devour all humanity in one bite. Rather, risk and loss should be worn like a knight's chain mail that protects when life's battle lines are drawn. This is the design of personal risk management at its core.
Financial Loss - The Most Feared Risk
In terms of degree of loss, after loss of life and limb or that of a loved one, financial loss is the most feared risk. Most individuals do not focus as heavily on loss of life or limb or a loved one every minute of every day. Why then do they focus constantly on financial loss? It may seem ironic that Neanderthals emerged from caves without a flush of money. Today, money is represented in small plastic debit or credit cards in a sophisticated flush of currency for spending. What did the Neanderthals know that modern financially obsessed humans don't?
Living in caves was a greater challenge to intelligence and venturing outside those caves meant certain death should T-Rex be in a bad mood. Today, the Dow or NASDAQ rules the intelligence and daily existence of far too many obsessed human beings. The irony is that this highly intelligent obsession has only increased financial risk to the levels of the wealthiest of the early 1900s, who committed suicide or loss their fortunes to financial risks that could easily have been avoided. Is wealth mystically empowered unto itself? Or, is it that individuals empower wealth in ways that grow out of control?
Here's a comparative example: Wealth as an autonomous force uncontrolled by humans that contorts common sense and tricks intelligent minds into believing wealth is a wholly empowering paradigm. If wealth is gold, risk is iron pyrite (Fool's Gold). Analyze your fear of financial loss. Could you survive if you suddenly lost your job, bills were piling up and the cupboard was bare? Try this test. Empty your pockets of all change and try to imagine that change is the sum total of your financial stability. What are your feelings of loss? This is a serious question that determines your success with your personal risk management as it applies to your financial stability.
Failure and Risk
The reality of failure is that risk precipitated the failure. Most individuals who fail to reach their projected goals immediately realize the causes of failure. Beware the tendency to project. Projections are the masks risks wear to deceive individuals into believing their perceptions cannot fail. Sandwiched between projections and failures lies risks that could have been avoided with a more common sense approach to clearly see the direction of each issue or situation. Be vigilant of the course and direction at the outset. This requires a certain learn of learning to be detail oriented. Detail orientation is often lost amid the haste and breakneck speed with which many people live at the present time.
Design Your Personal Risk Management Program
To design your personal risk management program, begin with a list of the most significant factors that impact your life. Create "life organizational chart" that places you at the top of the pyramid and is followed by factors that you feel would impose greatest impact should risk occur. This helps identify where personal risks lie and to what degree these risks might impact your future. You can use color codes as "red flags" if there are currently major risks that require stringent vigilance. When using color codes, design them to reflect your level of fear of risk. For example: red for greatest level of fear. The secret to developing a tranquil sense of attitude toward risk is to reduce fear and to know your survival instincts.