by Jimmy Nightingale

Created on: January 04, 2010

As an accountant and a former bank manager, I would like to say that my approach to risk is a balanced one.  A careful weighing up of the costs and benefits in both qualitative and quantitative terms to maximize the potential returns.  Or to minimize the potential losses. 

In my professional career, I have almost always done exactly that.  In my banking days, I was guided by a mostly prescriptive list of credit guidelines.  Risk was factored into loans through a credit premium determined by the "5 Cs" - collateral, capital, character, capacity and conditions.  Yes, there was some capacity to apply some judgement as a few of the criteria were subjective.  And yes, there was also the scope to 'massage the numbers' to lift a borderline application up into the realms of approval and challenging sales targets were an ever-present temptation to do exactly that.

The risks of yielding to this temptation were twofold.  On the one hand, an auditor went over a sample of my applications with a fine tooth comb and I had to justify any of these subjective assessments.  If I was considered too cavalier, there was a good chance that I would have my credit approval delegation reduced or withdrawn.  Without that delegation, my chances of achieving those sales targets went out the window.  And if the breach of my authority was severe enough, I could have been left without a job.  On the other hand, I had the client to deal with.  Approving low quality credits occasionally paid off - people being appreciative enough to do whatever was necessary to make their loan payments.  Most of the time though, it meant either lots of careful monitoring and follow up or a gradual deterioration where you had to realize on the collateral provided for the loan.  Neither of these options are fun and so objectivity ruled the roost.  Black and white were clearly delineated and the shades of grey, borderline credits that you could reasonably apply a bit of subjectivity to to swing one way or the other, were few and far between. 

But real life doesn't work like that.  Life is more like an infinite palette of varying shades of grey.  Very little in life is wholly black or white and therefore the experience gained in my professional career is only useful in very limited instances.  Having said that, I could live my life through procrastination, putting decisions on hold until I have full information, or at least better information, to which to carefully weigh my decisions.  That's all well and good if one has the time to do this and life rarely affords you such luxury.  Invariably, we make our decisions on the run, reacting to situations on the best available evidence at the time.

And that is my approach to life.  It may seem poles apart from the prudent risk averse role in my professional career, yet in many ways it is the same.  My approach to risk is to make the best possible decision on the basis of the known risks.  Yes, I do make some foolish decisions in my life.  Do I regret some of those decisions?  Of course.  But I am not that enamoured of those decisions that I won't reassess the situation or those decisions when new information becomes available.  In that way, I am minimizing the risks of those decisions and doing by iterations what I've been able to do by way of a checklist in my professional life.  It's a quick mental summation of what is the worst thing that can happen in a given situation and the likelihood of that occurring, then doing my best to make sure that does not happen.

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