The Cost of Failure

Impending Failure

We often judge opportunities based on the potential benefit or “up side” as it’s often called. If we do ‘X’ we get ‘Y’. Typically the risk we consider is simply not getting ‘Y’ if we fail to accomplish ‘X’.

I’ve come to rely on an additional approach to judging both opportunity and risk. I call it the “cost of failure”.

It’s quick, easy, and now one of my most important evaluation tools.

Failure is always an option

A pessimist is someone who doesn’t just consider the chances of something going wrong, they overestimate that chance, sometimes to the extreme.

You don’t have to be a pessimist to factor failure into your thinking. I’d argue that everyone should at least give the chances of something turning out poorly some consideration.

I’m no pessimist, yet I now do this all the time. The difference is that I try — as best I can — to make an objective judgement of the risk. The risk is always there. It may be small, it may be large, but the risk of failure is always present. What’s important is that I acknowledge it.

And then do one more thing.

Failure can be costly … or not

What happens if I fail? What happens if something goes wrong?

What does that look like?

If the results of failure are inconsequential, the “cost” of failure is low. Perhaps the risk is more readily worth taking. On the other hand if the results of failure are painful to even contemplate the “cost” of failure is high. Unless the chances of success are also high (and the rewards of success worth it), the risk might be one best avoided.

It’s easy to visualize success, but all too often we ignore what failure looks like. And yet that’s exactly what we need to do when making decisions about our actions and the opportunities with which we’re presented.

This isn’t about learning from failure

It’s popular right now to consider failure a good thing. Popular self-help and business advice almost always includes statements to the effect that one should always see failure as an opportunity to learn.

I don’t disagree, but that’s not what I’m talking about. You can learn from even the most catastrophic and costly failure. In fact it’s probably most important to learn from your most costly failures so as to avoid them again in the future, but almost any failure can teach us a lesson of some sort.

Lessons are learned after the fact. I’m proposing that you consider failure, and its cost, before.

Failure, large and small

Even though I’m an entrepreneur and this kind of thinking applies to almost everything I do in business, “the cost of failure” has practical application almost anywhere.

Should we put the dog in a crate when we leave the house? Well, the chances of something bad happening are very, very low, but that something bad could be very messy. The cost of failure is high. Into the crate he goes.

Should I make a separate trip to carry the cheesecake, or can I balance it with the other things that also need to be brought from one room to another. Once again, the chances that I’ll drop it are fairly low (depending on who you ask :-)). But the result of such a drop would be pretty painful, in several ways. Thus the cheesecake gets its own, dedicated, two-handed carry.

“What’s the worst that could happen” is your guide. I’m not saying ignore the chances that it could happen, but if there’s even the remotest possibility, it’s worth factoring in to your cost.

Sometimes the worst that can happen is very, very insignificant. Fantastic, full steam ahead!

Sometimes it’s not. And that’s worth factoring into any decision.

Comments

  1. Marcel Demiranda says:

    “Consider” suggests that you feel as though you’re making a “choice”. “Choice” is most often considered as being fundamental to human action, but perhaps “Choice” is an illusion. Perhaps, irrespective of the careful thought one gives to a particular direction one seems to “choose”, that the action seemingly “chosen” was the ONLY action possible; and that the thought that went into sensing the action as belonging to free will is what convinces us that we have “choice”. ==============
    I could only write what I did write.