There may be no more common refrain in business than “risk leads to reward.”

Leaders must innovate, show creativity, and take big risks in order to get ahead. But what does this mean in the current economic climate?

As a result of the global health crisis, business is operating very differently than it was one year ago. The advice for leaders, however, seems to be the same. Innovation and agility are particularly important, as is quick recovery from risks that have unexpected results.

Is Risk-Taking Always Good?

Recall that there is a difference between open risk and calculated risk. Open risk is a lot like taking chances without thinking through the potential consequences. Calculated risk involves careful analysis of each scenario. This latter approach is often paired with risk mitigation, before or after the decision is made.

Anna Johansson, writing in Entrepreneur, said this is analogous to playing roulette (open risk) versus playing black jack (calculated risk). Both come with risk, but in blackjack, you can use strategy to turn the odds in your favor.

In the current economic environment, it is harder to calculate risk. The underlying assumptions leaders use to assess situations no longer apply. However, that doesn’t mean risk-taking is out the window. On the contrary, most analysts say risk-taking and innovation are the name of the game.

How Should Business Leaders Take Risks in the Era of COVID-19?

Risk-taking is a given as businesses continue to pivot in the time of COVID-19. But determining how to take calculated risk is a bit different. It’s never been more important to act quickly, while being prepared to shift strategy when you need to.

Question Underlying Assumptions

Prior to COVID-19, you had a set way of running your operations. You had predictable pain points and knew how to respond to ebbs and flows within certain parameters. But now, problems you have never faced are the central focus. Before you respond, reassess where your assumptions lie, and whether they are still relevant.

McKinsey summarizes this process with the advice, “take a breath.” They offer a poignant example: a grocery store. This staple of the local economy has new pressures in the pandemic. Sales have skyrocketed. That’s good for revenue, but puts pressure on the supply chain. Increased demand, as well as impediments to the flow of goods — whether it’s from border restrictions or lack of production capacity — mean the grocer might have empty shelves and desperate customers.

This is a new pain point. It’s in addition to a whole set of new considerations, from complying with public health guidelines to supplying PPE to staff and protecting all members of the team.

In order to make a calculated risk, you have to know your new points of vulnerability. These will likely change, but if you remain agile, you can respond as needed for the health of your business.

Value Expediency Before Perfection

There are a great number of unknowns in the current climate. It’s almost impossible to make a decision with a low risk value. Deloitte recommends quick action over perfect action. There will be time later for reassessment when more data comes to light. In the meantime, do what needs to be done.

That may mean relinquishing control from the top and giving your team members on the ground more agency to make decisions. This involves clear communication about the mission, objective, and overarching priorities. But the result is making changes that are immediately necessary, even if the kinks have yet to be worked out.

This is one example of the changing nature of risk. While at one time, granting autonomy to a greater number of team members may have meant more risk, now it may in fact be the less risky choice. That’s certainly the case when practical, on-the-ground solutions have to be implemented on the spot.

Reevaluate Options to Mitigate Risk

Leaders typically assess risk by predicting the outcomes of one or several pathways of action. By coming up with more options, you can find new ways to reduce risk — and innovate at the same time.

The pandemic is one of the best opportunities for out-of-the-box thinking. Of course, new innovations come with unknowns, which add to potential risk — but since they mitigate known risks, can end up with more strategic benefit.

Gartner calls this a “nonbinary approach to problem-solving.” Instead of choosing between staff layoffs which can hurt your ability to operate effectively, versus no layoffs which may cost too much money, a nonbinary solution may be to reduce hours, offer early retirement, or otherwise find a middle ground.

Update Constantly

The hallmark of the pandemic, when it comes to business, is the preponderance of unknowns. That inevitably leads to rapid changes in strategy. There’s no need to hold fast to a particular course if the environment shifts. Political leaders have little choice but to update policies and action plans as the health crisis evolves. It is incumbent upon business leaders to do the same.

In fact, the greatest risk during a pandemic may be to remain stagnant. Holding the course does not mean the safest route for your organization. As more information comes to light, don’t be reticent about revealing new strategic directions.

Has the Nature of Risk Changed Forever?

There’s little doubt the global health crisis has changed many aspects of work. The nature of how business operates won’t return to normal anytime soon. That may mean adopting new strategies to evaluate risk and new attitudes towards risk-taking. By gathering as much information as possible and acting quickly, you should have the grounding you need to recover when things don’t go as planned.

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