Risk tolerance affects culture.

THE MAIN POINT (499 words – 100 seconds reading time)
Risk is based on uncertainty. Uncertainty is the possibility events may occur that affect our work, favorably or unfavorably.  Knowing the risk level in your organization is step one. Remember, leaders have to make decisions about culture all the time and you will make better decisions as you “measure” your organization’s culture with the risk and speed characteristics.Harold Kurstedt

Can we measure the culture and it’s tolerance for risk? Can we diagnose our culture so we know what we have and can compare what we have to what we want? What kind of a culture do you work in?

It’s very difficult to measure the culture, but is possible at some level. The issue is that we’re measuring attitudes rather than behavior. Very few organizations have measured their culture to any degree of precision. But, we can estimate what kind of culture we have. And, we can identify the characteristics of the culture we want (to evaluate or MEASURE our culture.)

Leaders manage (or make decisions about) the culture. I’ll give you an example of the amount of information we can gain from diagnosing your culture by using the taxonomy (a mechanism for classification) of Deal and Kennedy (authors of Corporate Cultures) as an example.

The taxonomy is constructed from two variables: the degree of risk associated with what the company does and the speed at which the company and its employees get feedback on whether their decisions and strategies are correct. When I describe the characteristics of the culture types determined by the taxonomy, I’ll use information from the Deal and Kennedy book as a source.

We’ll get to culture types later and discuss the variable of risk now. If you want to diagnose cultures, perhaps using the information I’ll describe later, the first step in support this diagnosis, is to determine the risk involved in the company we’re looking at.

Risk is based on uncertainty. Uncertainty is the possibility events may occur that affect our work, favorably or unfavorably. (Risk and opportunity are the two sides of the same coin.) Total certainty is where all information is available and known and total uncertainty is where no information is available or known. The mathematically based definition of risk is probability of occurrence (no units) of the event multiplied by the impact of the event (usually determined in dollars). In your work, how high is the probability that something will happen that will unfavorably (risk) or favorably (opportunity) affect your work? Again, the mathematically based definition of risk is probability of occurrence (no units) of the event multiplied by the impact of the event (usually determined in dollars). Sometimes we can quantify this probability and sometimes we resort to estimating high, medium, or low. In your work, if some event occurs, how significant is the impact of that event on the development or result of your work? This too can be quantified specifically in dollars or generally as high, medium, or low. For diagnosing a culture, you only need to distinguish high from low risk. Knowing the risk level in your organization is step one for diagnosing your organization’s culture and we’ll discuss speed of feedback in a following lesson, which is step 2. Remember, leaders have to make decisions about culture all the time and you will make better decisions as you “measure” your organization’s culture with the risk and speed characteristics.

THE FOLLOW UP (462 words – 92 seconds reading time)

Let’s consider the uncertainty in diagnosing your work. We’ll define uncertainty as the ratio of the information you need to the information you have. Therefore, if you need a lot of information and have a little, it’s more uncertain. If you need a little and have a lot, it’s more certain.

I’ve developed a diagnostic tool for classifying uncertainty in your organization. From uncertain to certain, the preponderance of your work can range from a perplexity to a problem to a program to a project to a process. A perplexity is more uncertain and a process is more certain. With just these classifications, what would you consider your work to be? You may have a process with some perplexities; but perhaps you’re preponderantly a process.

In our seminars on the management process for gaining control of your life and work, we discuss the relationship of WWA (Where We Are), WWWTB (Where We Want To Be), and HTGT (How To Get There) to success.

In a perplexity, we don’t know WWA or WWWTB (need a lot and have a little). In a problem, we know WWA but not WWTB. In a program, we know WWA and have a qualitative notion of WWWTB. In a project, we know WWA and work one time toward a specific definition for WWWTB. In a process, we know WWA and repeatedly work toward a specific definition for WWWTB.

Who is responsible for a perplexity? How would you like to work for FEMA and be responsible for an emergency but don’t yet know what the emergency is (hurricane, flood, etc.)? That’s a perplexity. Note that FEMA has its share of programs, projects, and processes; but their basic responsibility is to deal with perplexities. How does FEMA deal with perplexities? They address their responsibility by defining and preparing for a series of problems. If we have a hurricane (a problem), they have a plan. If we have a flood (a problem), they have a plan.

How do we manage a program? We make a series of projects that will address the goals (achieve the qualitative notion of WWWTB) of the program. When President Kennedy said that he intended to put a man on the moon in a decade, he changed a qualitative notion for the space program into a series of projects given a specific definition for WWWTB.

For your consideration of the uncertainty and risk variable in diagnosing your culture, think about what your organization is responsible for: a perplexity, problem, program, project, or process. What’s the probability that an event will affect your work and your success and how significant is such an event?