Risk is what happens

“Risk is what’s left when you think you’ve thought of everything.”

-Carl Richards, The Behavior Gap

These words from Carl Richards hang over the world of finance in a curious way. Risk is traditionally defined in the financial industry as variation from the average result, e.g. “standard deviation” or the variation from the results you were expecting. Thus, when someone says something is risky, it can mean it’s going to go much better or much worse than anticipated. Yet, risk exists in all facets of life, some predictable and measured; controllable. Others, not so much.

Let me provide an example. Some friends of mine own a small business here in town, The Depot and Longmont Liquors. They had accounted for all the risks they could think of: general liability insurance, a sound security system, and reliable and trustworthy employees. They’ve made updates to the building and the property over the years to improve its quality, safety, and overall environment to make it a pleasant place to do business. They had thought of and addressed everything within reason. They did not, however, plan for a drunk driver to smash into the building at 12:20 am this past Sunday morning. Nor did they plan for the store to then be burglarized twice in the following hours by opportunistic criminals. Despite all the best-laid plans, not only were they victims of a random crime but also two intentional crimes of opportunity.

Risk is what’s left when you think you’ve thought of everything.

The ruins of this incident occupied a good part of the owner’s Sunday. Yet, by the time I arrived to help with the cleanup, they had already managed to cover the destroyed wall and door with temporary coverings and rebuilt a doorway. The bulk of the mess was already removed, and despite a thorough need to dust and mop, the business was already re-opened to provide the community with drinks before the Broncos went on to destroy the Panthers.

You can’t account for every possibility. There is no tangible insurance that can keep a drunk driver from smashing into your property, and there’s no amount of cash in a register worth getting killed or killing for. Regardless of what you haven’t accounted for, the case here provides a salient lesson in resilience. Put differently, in the words of Mike Tyson: “Everyone has a plan until they get punched in the face.” It’s what you do after you’ve “been punched” that determines the outcome. This past weekend, a community showed up to help a small business recover from an unplanned disaster, and that community rose to the occasion.

Contemplate then the risks in your life you’re planning for. You probably have homeowner’s insurance, auto insurance, and health insurance. But have you accounted for risks you’d rather not think about? Do you have adequate life insurance should something suddenly and tragically befall you? What about disability insurance should that event not be so perilous but nonetheless harmful? When was the last time you talked to your parents about their plans for long term care when they get up there in years? None of these are risks you’ll have much say in the outcome of, but they are risks you can plan for to some extent. Some risks you can moderate “after the fact,” and others you cannot.

So be mindful of what happens when you think you’ve thought of everything. It’s the things we’d rather not think about that might come back to haunt us when we can least afford it.