Introduction

When it comes to managing positive and negative risks, I think in terms of “transparency” and “competence.” Many risks are relative, and we have the abilities to enhance resilience, mitigate unwanted exposures, and leverage our best opportunities.

Years ago, I took a first aid and first responder course taught by a fireman with lots of earthquake experience. He emphasized that, after an earthquake, we should not rush into buildings, regardless our intent to help, because we would not know what to look for and would likely make the situation worse. The fireman spoke to how he first confirmed the structural integrity of the building and of each room, looking for cracks in walls and ceilings and other hazards.

The fireman said, “You guys would not know what to look for simply because you lack the experience and training. The risks would not be transparent to you.” Then, if we did recognize the hazards, there’s a chance that we would lack the skills to navigate them.

Transparency and Competence

Transparency asks, “how well do we understand the current situation and how things work on the ground? How transparent are things to me? Do you know what you’re looking at?” This can refer to data, knowledge, dangers, drivers, or anything that identifies and specifies what’s important and matters versus what does not.

Competence asks, “how well am I able to manage when things change? How prepared am I to deal with variation and keep things in context? Do you know how to do something about it?” Competence is about being able to deal with what’s coming at us. That includes having the right skills, attitude, experience, and awareness.

Transparency means “I see it” and understand what I’m looking at. Competence means “I can handle it.” You can survive by being good at either one. Great success can flow to those who do both. Investors. Soldiers. Entrepreneurs. Entertainers. Athletes.

Curveballs and Shark Attacks

This framework applies well to sports. In baseball, with respect to the risk of striking out, transparency means I can see the curveball and competency means I can I hit it. In football, transparency means I can read the defense, and competence means I can make the throw given what I see. In golf, it’s choosing the right club and then being able to use it to make the shot.

With respect to the risks themselves, we tend to worry about the wrong things, or the right things the wrong way. People worry more about the risk of awful deaths, like getting eaten by a shark, versus the “commonplace” risk of dying from heart disease, which is the leading killer in the United States. So it does start with understanding the current situation.

Facts and an Example from Forestry

True negative risk results from ignoring reality and the facts on the ground. We succeed through accounting for the given situation versus failing to control what we can.

For me, one of the biggest risks is the intentional modification or passive avoidance of the facts. What I want to see is the aggressive pursuit of understanding how things work.  Are my employees doing that? Are my leaders doing that? Are my forest industry clients interested in that?

In the 1980s, it took five-and-a-half tons of logs to produce one thousand board feet (MMBF) of softwood lumber, on average. Today, it takes about four tons to produce one MMBF of lumber. That means, as a sector, we can produce the same amount of lumber we did thirty years ago with 20 to 25% less wood thanks to advances in technology.

About ten years ago, I participated in a client meeting with a large timberland firm where we reviewed these technological advances, and one of the executives said, “Well, I don’t believe those numbers. I don’t think we’re that much more efficient than we used to be. I think it’s more complicated than that.”

At the time, I understood that this executive wanted a different story to justify his preferred outlook, project, or scenario. And it was true that the specific factors driving efficiency gains and changes can vary. However, the fact remained, and remains to this day, that we require less wood to produce the same amount of lumber. And ignoring this means we waste time and bake in additional downside risk into any strategic plan or investment decision.

Conclusion

We are affected by what we know. We owe it to ourselves to get the facts and know what is knowable. That means distinguishing between what we can’t control and accepting it, and controlling what we can, and doing it. Even the feathered philosopher Mother Goose understood this. She advised:

For every ailment under the sun

There is a remedy, or there is none;

If there be one, try to find it;

If there be none, never mind it.