12.7: Real Versus Perceived Risk

Real Versus Perceived Risk

Real risks are backed by data, evidence, or historical trends. They are measurable and often require proactive mitigation. For example, there is a real risk of a car accident when driving on icy roads during a Canadian winter. This is a genuine hazard as icy conditions have been proven to increase the likelihood of accidents. Individuals can mitigate this risk by installing winter tires, reducing speed, and checking weather reports. A real risk to a manufacturing company is supply chain disruptions due to geopolitical tensions or natural disasters. These risks can halt production or increase costs. By diversifying suppliers, maintaining inventory buffers, and creating contingency plans, a manufacturing company can mitigate this risk.

Perceived risks are based on feelings, fears, or assumptions and may lack concrete evidence. They often result from misinformation, cognitive biases, or heightened awareness. For example, despite the fact that air travel is statistically much safer than driving, some people have a fear of flying in an airplane based on news about airplane crashes. The perception arises from media coverage and the dramatic nature of plane crashes compared to car accidents. A perceived risk for a business starting up is competition from established companies within its market. While this is a valid concern, the more pressing real risk might be inadequate cash flow or poor internal management, which pose a higher likelihood of failure. The perceived risk may distract management from addressing the more immediate operational risks.

It’s important to differentiate real risks from perceived risks in both personal and business contexts. This allows individuals and companies to allocate resources and attention effectively to mitigate genuine threats while avoiding unnecessary anxiety or misdirection.

Media Attributions

“Man In Black Tank Top Hanging On A Rope” by Alexandre Cubateli Zanin, used under the Pexels license.