Business leaders, like sports stars, deal with assessing risk all the time. In business it may be about assessing the risk of investments in new products while in sports it may be about playing the game for safety or going for broke.

According to new research from the Wharton School of Business, the thought processes in each case of risk assessment are similar. In their study of attitudes to risk, the researchers looked at the performance of golf superstars who stand to win millions on inch-long putts and found that they are subject to the same fear and aversion to risk that can afflict managers. Taking the safe route, however, has its own costs.

The research examined putts during pro golf tournaments and determined that even the best golfers systematically miss the opportunity to score a “birdie” out of fear of having a “bogey”. For many, the agony of a bogey seems to outweigh the thrill of a birdie. The researchers calculate that this type of decision-making bias costs top golfers about $1.2 million in prize money a year. Apparently the golfers avoid the possibility of loss by playing conservatively when they have the opportunity to do better than par, but will try harder if they are at risk of coming in worse than par.

The study explores “loss aversion”, a bias in decision-making that is an important element in the growing field of behavioral economics, which explores how human psychology affects markets and business. This research provides evidence that people work especially hard in order to avoid losses.

Many people assume that experts and professionals don’t show risk biases and that managers have less risk biases than their employees. But is this true and can you measure risk bias?

The answer—yes—by using the “Opportunities-Obstacles Quotient” assessment—also called the QO2. Your answer to the QO2 online assessment measures your approach to risk. Your scores are mapped onto the Opportunities-Obstacles scale, indicating the balance you have between seeing opportunities and seeing obstacles. If you always focus on opportunities, it may prevent you from seeing potential obstacles; if you focus too much on seeing obstacles, it may cause you to miss opportunities.

The QO2 assessment is a great tool to use to help people develop self awareness regarding their attitudes to risk and can be used as a great tool for leadership and team development.

To take a look at a sample QO2 sample report click on the following link: http://www.tms-americas.com/pdfs/QO2_Profile.pdf

Many managers will tell you that their decisions are based on incomplete or erroneous data. This usually leads to suboptimal results. Poor management decisions are often linked to the following six issues:

1. Using obsolete knowledge (relying on previous experience)
2. Decisions based on own strengths rather than accurate analysis
3. Hype and marketing
4. Dogma and belief
5. Blind Ideology
6. Uncritical emulation and casual benchmarking

A new concept has emerged as a reaction to poor decision-making called Evidence-Based Management (EBM). This management approach emphasizes the importance of the conscientious, explicit, and judicious use of current best evidence in decision-making.

EBM encourages managers to:

1. Demand evidence and to make sure specific quantitative information is available and used
2. Examine logic—ask for backup research and pay attention to gaps in exposition, logic and inference
3. Test the evidence by using prototypes, running trial programs, pilot studies, and small experiments
4. Have a healthy respect for what is not known and can’t be known

Let’s take hiring decisions as an example. Many managers count themselves as pretty good at selecting the best candidates; however, it is sobering to learn that regular interviews have a predictive accuracy of as low as 5%! So how can you increase your success rate with an evidence based approach? Here are some of the options.

Research shows that:

• References from past employers (if you can get them) can push up the predictive accuracy to about 23%
• Personality tests can push it up further to 39%, and
• Assessments using work simulations can drive up the predictive accuracy to as high as 65%

Of course, you will never remove all risk of making a bad hire—but 65% accuracy is a lot better than 5%. Encourage your managers to use a more evidence based approach when making decisions in everything from hiring to routine, day-to-day activities and you will avoid some of the poor management decisions that often plague organizations.