I went to Jean and asked the same questions.Her vision was to have each guest be completely pleased with the cleanliness of the room and to have the room in perfect shape when guests arrived. I asked how she felt about Maintenance. She said that Marty really didn’t care about her or Housekeeping: from his perspective, they were there  to fix things and she was there to clean up after them. “That really annoys me,” she said, “because we are not here to clean up after Maintenance.We’re here to ensure the comfort of our guests and make sure their rooms are cleaned. The engineers are supposed to clean up after themselves—and they’ve been told that a hundred times. They just don’t care. And they know if they leave a mess, it reflects on Housekeeping, not them.” I then asked her about the scheduling of the rooms for cleaning and the housekeepers.

She provided me with all the details of the tasks.  After my discussions with Marty and Jean, I began to understand that they really had more in common than they thought. So I invited them both back to a meeting. At the meeting I showed and explained to them the Partnership Continuum model and asked if they were interested in working through the model together. They both agreed. So I asked each of them to share their personal vision with the other. After they did so, I asked them to come up with a shared vision they could both agree on. Since they had so much in common, it was easy for them to do. The shared vision they agreed on was this: Each guest would have a clean room in which everything worked properly.

It is also sensible to be aware of and take into account the human dimension. People behave differently and inconsistently when making decisions involving risk. They may be exuberant or diffident, overconfident or overly concerned. Or they may simply overlook the issue of risk.

One important priority is to identify significant risks within and outside the organisation and allow these to inform decisions. This makes it easier to avoid unnecessary surprises. Examples of significant risks might be the loss of a major customer, the failure of a principal supplier or the appearance of a significant competitor.

Risk surrounds us all the time. As Harold Macmillan, a former British prime minister, once said: “To be alive at all involves some risk.” Some of the most common areas of risk affecting business are summarised in Table 11.1. It is valuable when attempting to identify risks to define the categories into which they fall. This allows for a more structured analysis and reduces the chances of risks being overlooked.

To this list should be added another, intangible category: the opportunity cost associated with risk. In other words, avoiding a risk may mean avoiding a potentially huge opportunity. There is a tendency for people to be too cautious and risk averse, even though they are often at their best when facing the pressure of risk or deciding to take a more audacious approach. It is also worth considering that sometimes the greatest risk of all is to do nothing.

The acceptance of risk is an integral part of business, as is the principle that the higher the risk, the higher the rate of return needs to be. The willingness to take risks of both a personal and a financial nature is one of the defining characteristics of the entrepreneurial decision-maker.

Interestingly, a 1999 study commissioned by PricewaterhouseCoopers concluded that whereas in continental Europe strategies are generally oriented towards avoiding and hedging risk, Anglo-American companies view risk as an opportunity, consciously accepting the responsibility of risk management as necessary to achieving their goals.

Successful decision-makers understand this. They take steps to ensure that the risks resulting from their decisions are measured, the likely consequences are clearly understood and the danger signals are identified. Avoidable risks are pinpointed and eliminated, and others are reduced. Such decision-makers also take a holistic view of risk, going beyond the direct financial perspective and actively managing risk as it affects the whole organisation.

Accepting that risks exist provides a starting point for other necessary actions. Foremost among these is the need to create the right climate for risk management. People should understand why control systems are needed. This requires communication and leadership so that standards and expectations are set and clearly understood.

Understanding where risks lie and what needs to be done to reduce risk is an important part of the process of financial decision-making. For example, you need to know not only where the break-even point is, but also how and when it will be reached.

Reducing business risks

Reducing the risk inherent in business decisions is rarely a linear process. Instead, it is best achieved by applying principles and techniques appropriate to the specific situation and risk. Several of these techniques are outlined below.