McKinsey Classics | May 2023

Increasing your appetite for risk

Amid today’s ever-changing volatility, it’s all companies can do just to stay grounded. From rising interest rates to supply chain constraints to concerns of a looming downturn, what possible room could there be for companies to take any investment risks?

Over a decade ago, businesses, still reeling from the lasting effects of the financial crisis, found themselves in a similar situation. And while conventional wisdom (including our own) typically warns against overconfidence, our authors at the time wrote that a referendum on risk aversion was in order. To wit, organizations that are unaware of the biases that can lead managers to avoid uncertainty, even when the potential earnings far outweigh the losses, face an even greater risk: stifling growth and innovation. Companies need both now more than ever.

Midlevel managers making routine investment decisions are uniquely positioned to shift how their companies approach risk, and easing the burden of risk aversion can be a strategic advantage. For more on how businesses can identify risk aversion and root out the biases that can stymie potential investment projects, read McKinsey partner Tim Koller’s 2012 classic “Overcoming a bias against risk.”

—Drew Holzfeind, editor, Chicago