Why Risk Is Hard to Talk About

Multiple studies have found that people overestimate their ability to influence events that, in fact, are heavily determined by chance. We tend to be overconfident about the accuracy of our forecasts and risk assessments and far too narrow in our assessment of the range of outcomes that may occur.

We also anchor our estimates to readily available evidence despite the known danger of making linear extrapolations from recent history to a highly uncertain and variable future. We often compound this problem with a confirmation bias, which drives us to favor information that supports our positions $($typically successes$)$ and suppress information that contradicts them $($typically failures$).$ When events depart from our expectations, we tend to escalate commitment, irrationally directing even more resources to our failed course of action$$throwing good money after bad.

Organizational biases also inhibit our ability to discuss risk and failure. In particular, teams facing uncertain conditions often engage in groupthink: Once a course of action has gathered support within a group, those not yet on board tend to suppress their objections$$however valid$$and fall in line. Groupthink is especially likely if the team is led by an overbearing or overconfident manager who wants to minimize conflict, delay, and challenges to his or her authority.

Collectively, these individual and organizational biases explain why so many companies overlook or misread ambiguous threats. Rather than mitigating risk, firms actually incubate risk through the normalization of deviance, as they learn to tolerate apparently minor failures and defects and treat early warning signals as false alarms rather than alerts to imminent danger.

Effective risk$-$management processes must counteract those biases. $$Risk mitigation is painful, not a natural act for humans to perform,$$ says Gentry Lee, the chief systems engineer at Jet Propulsion Laboratory $($JPL$),$ a division of the U$.$S$.$ National Aeronautics and Space Administration. The rocket scientists on JPL project teams are top graduates from elite universities, many of whom have never experienced failure at school or work. Lee$$s biggest challenge in establishing a new risk culture at JPL was to get project teams to feel comfortable thinking and talking about what could go wrong with their excellent designs.

Rules about what to do and what not to do won$$t help here. In fact, they usually have the opposite effect, encouraging a checklist mentality that inhibits challenge and discussion. Managing strategy risks and external risks requires very different approaches.