Define a Smart Risk

OVERVIEW FACILITATION GUIDE

SUGGESTED AUDIENCE
By defining our organization’s appetite for risk, we set the
boundaries of comfort for management and offer innovation ● Senior management
teams the opportunity to experiment within a framework.
Use this exercise to help senior management articulate SETUP
specific boundaries around what defines an acceptable ● Conduct this exercise in groups of three
innovation risk. or four.
● Provide one worksheet per team.
HOW IT WORKS
RECOMMENDED TIMING
SETUP. ​Divide all attendees into teams and assign team
Setup. Introduction + Designate Teams: 5 minutes
leaders to capture thoughts on the worksheet.
Step 1. Review Best Practices + Group 30 minutes
Explain that this exercise is to help define what a good or Discussion:
smart risk is for the organization. The purpose is to explore Step 2. Define Smart Risk + Group 30 minutes
risk tolerance and boundaries, so aim for discussion (not Discussion:
necessarily resolution) around your definition of risk. Step 3. Summarize Definition: 10 minutes

STEP 1​.​ Ask teams to review the best practices provided. 75 minutes
Facilitate a brief group discussion on their findings using the MATERIALS
Guiding Questions below.
● Worksheets
STEP 2.​ ​Ask teams to put a stake in the ground for how Use enough for each team and a few extra.
they would define smart risks. They’ll think about smart
risks across three different dimensions: time, investment, ● Whiteboard or flip charts
and people. Utilize the Guiding Questions to facilitate group Write down all group ideas; no idea is a bad
discussion. idea.

STEP 3.​ ​Summarize your definition of a smart risk in the

● Colored whiteboard markers/pens
Separating by color helps organize thoughts.
last part of the worksheet.

GUIDING QUESTIONS

STEP 1 ​(Reviewing Best Practices) STEP 2 ​(Defining Smart Risks)

● Why are these considered smart risks?
● What do you see in common with these innovators?
● Do you see any differences? Why?
● How did you define smart risks for our organization?
● What are the stupid risks we currently take? Why?
● Are there other factors that are not covered in this exercise?
What are they?
● How can we make these smart risks a policy in our organization?

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WORKSHEET
STEP 1. REVIEW BEST PRACTICES
Take a look at how some leading innovators take smart risks in their unique ways. What do you see in common? What can you apply
in our organization?  
 

Experiment, but don’t distract.

Employees aren’t just expected to innovate—they’re given time for it. Through the 20 Percent Time program,
engineers and project managers are granted 20 percent of their day to work on projects unrelated to their job
duties.

Small teams, small timelines.

GOOGLE Teams are deliberately kept small and have quick deadlines. Three to four engineers work in a team, and
have lifelines of three to four months. If the idea they’re working on doesn’t prove to have legs in that
timeframe, teams are disbanded. Teams are expanded only if ideas have demonstrable potential.

Defining good failures.

Google defines good failures as those that fail fast and those that help the team understand why they’ve
failed so they can apply learnings to the next project.
 
 
 
 

Fund as needed. 
The ACS funds its innovation projects in phases. Ideas receive an initial $2,000 for a quick exploration and if
it shows potential, it receives another $25,000 to test feasibility. 

AMERICAN Set timelines. 

CANCER
Innovators are given 18 months to prove the viability of their ideas. 
SOCIETY
(ACS)
Total ownership for faster decision-making. 
The ACS empowers individual innovators to speed up decisions. They’re in charge of seeing their ideas
through and are not encumbered by traditional approval systems. This makes them resourceful and
accountable.
 
 
 
 

Focus on speed.
Jeff Bezos’ innovation mantra is “Maximize invention per unit of time.”

Two-pizza teams.
When exploring experimental ideas, the company still only devotes Two-Pizza Teams—the number of pies it
takes to feed four to six people.

AMAZON Low investments, rapid prototyping.

Teams are encouraged to make lightweight investments and do quick build-and-development cycles. They’re
freed from many constraints and offered a high-change environment.

Track and measure.

Bezos relies on close tracking wherever possible to ensure that ideas have potential. Teams are asked to
develop metrics that help to quickly measure the success of their ideas.
 
 

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Prototyping services.
Bank of America created an Innovation Market at 25 branches, where it conducted prototyping and concept
trials. Teams worked closely with branch managers to set up product trials, quickly refine features, and make
rapid decisions.
BANK OF
AMERICA Setting an accepted failure rate.
Senior management at Bank of America knew that innovative ideas would inevitably produce failures. They
set an idea-failure rate of 30 percent. This would not only encourage experimentation, but ensures that risks
also fall within acceptable limits for management. Remember, a failure rate of 30 percent implies a success
rate of 70 percent.
 
 
 
 

Assigned time for pet projects.

Employees at 3M can spend 15 percent of their time on any project they like—called “dabble time.” This
gives people the freedom to come up with new ideas, while still dedicating 85 percent of their time to their job
duties.
3M
Failure forums.
3M holds formalized meetings called Failure Forums, where teams share details of failed projects in order to
spread learning lessons across the org.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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STEP 2. DEFINE SMART RISKS
For each of the dimensions of risk listed below (resources, time, funding, milestones, failure), think about what boundaries are
right for the organization. Use the Think About columns to help your team define how much risk you are willing to take.

RESOURCES
THINK ABOUT

● What’s the right size for an

innovation team in our
company?
● How many people could we
dedicate full-time to innovation
projects without impacting our
daily operations?

TIME
THINK ABOUT

● How much time do we

currently grant teams to
develop projects? Should we
modify this time frame?
● How many hours a day/week/
month can a team realistically
spend on an innovation project
without adversely affecting
their job duties?

FUNDING
THINK ABOUT

● Should we distribute our

innovation budget on a
per-team basis? Per project?
Per division?
● What’s the minimum amount
of money we can grant for a
new innovation project?
What’s the maximum?

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 MILESTONES
THINK ABOUT
● What milestones should we set
for innovation teams to confirm
their progress without
micromanaging them?
● What development metrics
should we require in order to
continue funding a project?

FAILURE
THINK ABOUT

● What’s an acceptable idea-

failure rate for our organization?
● Can we reduce the number
of approvals needed for an
innovation project without
adding overt risk?

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STEP 3. SUMMARIZE YOUR FINAL DEFINITION 

DEFINITION OF SMART RISK 

1. RESOURCES

2. TIME

3. FUNDING

4. MILESTONES

5. FAILURE

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