The Different Types of Risk
Risk, Calculated Risk, and Smart Risk:
What’s the Difference?
In life and business, we often face situations that require stepping into the unknown. Whether we are making a career move, launching new products, or even trying new workout routines, understanding the difference between a risk, a calculated risk, and a smart risk is crucial. Each type of risk comes with its own level of thought, preparation, and alignment with our goals. Let’s break it down.
What is a Risk?
A risk is simply an action taken with uncertain outcomes. It’s often driven by impulse, lacking deep analysis or planning. While risks can lead to exciting opportunities, they also carry a high level of unpredictability—and often, avoidable mistakes.
Key Characteristics of a Risk:
Impulse-Based: Decisions are made on a whim or gut feeling.
Unclear Consequences: We might not fully understand what’s at stake or the possible outcomes.
No Safety Net: There’s little or no strategy to mitigate potential negative consequences.
Example: Jumping into a new market without doing any research because it “feels right.”
What is a Calculated Risk?
A calculated risk is a step forward with thought and analysis behind it. It’s not simply about making a decision but making an informed decision. With a calculated risk, we weigh the pros and cons, assess the likelihood of success, and take precautions to minimize potential losses.
Key Characteristics of a Calculated Risk:
Data-Driven: Research and information guide the decision-making process.
Risk vs Reward Analysis: We understand the trade-offs and are comfortable with the potential outcomes.
Contingency Plans: We prepare backup strategies to limit the impact of any missteps.
Example: Entering a new market after studying trends, analyzing competitors, and identifying customer demand, with a plan to pivot if necessary.
What are Smart Risks?
This is where things change for me, smart risks go beyond calculation—it’s a decision that aligns with our long-term goals, leverages our strengths, and positions us for significant growth or innovation within our area of purpose. Smart risks combine preparation with purpose, ensuring that even if we fail, the experience moves us closer to our vision.
Key Characteristics of Smart Risks:
Purpose-Driven: The risk aligns with our values and long-term objectives.
Optimal Timing: We take the leap when the conditions are right to maximize our chances of success.
Growth-Focused: The risk has the potential to create opportunities for innovation, learning, or significant progress.
Example: Entering a new market after thorough research, knowing it complements our brand identity and long-term goals, while also introducing the unique competitive edge and aligned with our individual purpose.
Why It Matters
Understanding these distinctions has helped me approach decision-making very differently. Acting on a whim might lead to occasional success, but it also invites unnecessary pitfalls. It also helps me not have FOMO when something comes up that is new and exciting. Calculated risks help me minimize losses and improve my odds of success. Smart risks, however, take it one step further—they are intentional, strategic, and designed to create meaningful progress and align with my purpose. What is ONE smart risk you can look to take in 2025?
How to Move from Risk to Smart Risk
Pause Before Acting: Before taking any risk, ask yourself if it’s aligned with your long-term goals.
Do Your Homework: Gather as much information as possible to calculate potential outcomes.
Find Your “HOW”: Ensure the decision aligns with your purpose or values.
Prepare for Failure: Even the smartest risks come with challenges, so create contingency plans.
Have Fun: Someone once told me, "If you are not having fun, you are not doing it right!" and I think of this often.
The next time we face a big decision, consider whether we are taking a risk, a calculated risk, or THE smart risk. Moving toward smart risks doesn’t always reduce fear of the unknown—it does help build confidence and positions us for more meaningful success opportunities.What kind of risks are you taking in your life? Are they getting you closer to your goals—or keeping you in motion? Share your thoughts below or you can always email me at ryan@ryanavery.com. Keep being THE!