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The Three Risk Traps Blocking Innovation

Many valuable innovative solutions get stranded due to the perceived risk of adopting them. Risk should be an important component in all decisions, but it might be counterproductive if it is not put into proper context and perceived adequately. There are especially three risk perception traps that block innovations. Understanding them might help to unlock innovation potential 

Its a wild world

It might be dangerous to get out of bed in the morning: you might burn your fingers, fall over your dog down the stairs, or get run over by the bus. Yet somehow we manage to get out of bed every day anyway. This is because the benefits exceed the risks.

When it comes to technological innovations, the reasoning frequently ends with the equivalent of staying in bed. I remember having several conversations about perceived security risks in relation to novel solutions where I had to remind my interlocutors that the only solution safe enough to satisfy their request would be to turn off the server and unplug it, the infrastructure security analogue of staying in bed. There is however not much benefit in that.

This hyper focus on risk often pops up in relation to new and innovative technologies, which means that their use may be unnecessarily restricted. This is in full effect for Artificial Intelligence at the moment. Organizations are not necessarily wrong about the risks they identify but they may forget to put that risk into context. Let us look at the three risk traps that hold innovations back. 

The equal risk trap

When considering the full meaning of a perceived risk, the first step should be to compare the risk identified with other similar risks that are accepted today. For example the risk that a hacker gets access to the internal knowledge assistant, which is built on top of the company intranet. That is a real possibility, but a hacker may already today also get access to the intranet. The risk identified is therefore the same as the existing risk. This is an equal risk and it should be accepted. If a risk does not increase the probability or severity of an adverse effect it is not worth factoring into a decision. 

Alternatively, if the risk is deemed unacceptable, the comparable solution should also be closed down. Even if it has been in operation for many years without issues. Luck does not affect a risk profile: the non occurrence of an adverse event has just as much impact on real risk as the probability of getting a heads after four consecutive heads in a coin toss: it is stil 50/50. The fact that the intranet has not been breached in the past decade does not make it any less risky.

The smaller risk trap

Now imagine that there is indeed a novel risk introduced with the new solution. It is not trivial and it will be problematic if it occurs. An everyday example could be spraying sun screen on your face before going to the beach. It might happen that the sun screen smear into your eyes which will hurt (just back from summer vacation I am speaking from painful experience). But it reduces a much bigger risk of sunburns or ultimately cancer. Maybe that is not a problem because you got so used to sunburn that it doesn’t bother you, but then the cancer will.  The risk of sunscreen smear hurting your eyes is a smaller but acceptable risk because it reduces a greater risk. It is not necessarily small in an absolute sense but rather in a comparative sense.

These risks are difficult because the smaller risk is often much more visible and salient. They often appeal to emotions and become embedded in politics. Examples are predictive policing, facial recognition, and profiling. If a solution is rejected because of minority risks it is perfectly fine, you just have to do it with open eyes and be honest enough to accept that it is not a risk-based decision, but an emotional or political decision. 

You should consciously accept the responsibility of the greater risk (cancer) occurring when you reject the alternative of the solution associated with the smaller risk (the sun screen), but that is rarely what happens. Smaller risks are rejected because of other reasons than risk. The terror attack that could have been prevented by facial recognition is acceptable because we don’t want a surveillance society where someone could spy on their spouse or neighbor.

The opportunity cost risk trap

Declining to do something due to a risk has an opportunity cost. An opportunity cost is the cost of not doing something. If you are a contractor paid by the hour and you don’t go to work because it is icy and you might fall, the wages you could have earned are the opportunity costs. 

When you don’t implement a customer service chat bot to handle support calls because it might say something silly, that has an opportunity cost equivalent to the customer revenue foregone by those leaving the support line and finding another alternative.

Often the focus on adverse events fall more naturally and opportunity costs are forgotten. But they are still there. A good way to reflect on this risk is to always ask what might happen if we forget about the risk for a moment. If that is significantly better we should accept the risk. Unfortunately, people typically hate losing more than they love winning. 

Real risks and benefits

These three types of risk traps: equal risk trap, the smaller risk trap, and the opportunity cost risk trap relate to real risks but they fail to take into account the wider context of the decision. Many innovative solutions are held back or blocked because of risk arguments that fall into these traps. For innovation to prosper it is necessary see through these traps and challenge the assumptions and look at the wider context.This would help unlock value through innovation. 


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