Ed. Note: Originally published in 2016, this post was updated in April 2025.
When most people think about risk tolerance, they think about financial investing. Investopedia defines risk tolerance as "the degree of uncertainty and financial loss that an investor is willing to take on an investment in exchange for a possible higher return."
Risk Tolerance Beyond Investing
Just as there are different levels of risk tolerance in investing, we have observed that employees are attracted to certain industries, companies, and functions based on their personal comfort with risk. This is part of the reason some people gravitate toward start-ups vs. established companies, sales vs. accounting, or stable industries vs. volatile ones.
Whether consciously or subconsciously, employees weigh the risk associated with an industry, company, and job function against their personal needs when evaluating their careers. And, truth be told, most people’s risk tolerance is relatively consistent across multiple dimensions of life: investing, physical risk, and career choice.
Functional Risk Tolerance in Organizations
Functional risk tolerance is the amount of risk that certain functions within any organization are willing to take on, and it is a key element in career decisions.
Salespeople, for example, are generally viewed as the biggest risk takers, because no one closes 100% of their leads. For them, trying new things is simply a way to improve the odds. By contrast, quality assurance and regulatory functions are often viewed as more risk-averse environments, as their focus is on error prevention. Each of these functions attracts individuals with personal risk profiles that align with the nature of the work.
When there is a mismatch—an employee in a job function that does not align with their personal risk tolerance—they often don’t last long.
The Hidden Cost of Risk Aversion
An individual's risk tolerance is manageable when they work within a single function. However, the true test comes when they advance to cross-functional leadership and, eventually, senior executive roles. Imagine a leader who grew up in the risk-averse world of quality assurance leading a cross-functional team of high performers from Sales, Finance, Marketing, and Technology.
The mix of risk profiles around the table can be highly beneficial in making thoughtful decisions—but only if the leader can step outside their own worldview and engage the perspectives of others.
Risk aversion has another hidden cost: Teams can slow themselves down by overengineering safeguards. Multiple approval steps may be created for “risks” that aren’t really risks at all, which reduces productivity and stifles innovation. In these environments, avoiding blame becomes a stronger motivator than pursuing progress.
From Blame to Learning
This is where Amy Edmondson’s work on psychological safety and failure is instructive. In this LinkedIn post, she describes a spectrum of causes of failure—from sabotage at one end to thoughtful experimentation at the other. The critical insight is that not all failures are blameworthy. Some are, in fact, praiseworthy.
Yet in many organizations, leaders treat most failures as blameworthy, even when they stem from experimentation, uncertainty, or difficult challenges. This gap—between a rational assessment of what is actually blameworthy and the way leaders instinctively react—often drives failures underground. And when failures stay hidden, organizations miss vital opportunities to learn.
Developing Balanced Leaders
So how do you help employees who have spent an entire career in risk-averse functions get comfortable taking more risk? And, just as importantly, how do you help natural risk takers develop the empathy and interpersonal skills to avoid dragging colleagues into higher-risk situations unwillingly?
These are vivid examples of leadership situations that demand the concept of Balancing Leadership™. Ultimately, the question is: How do you develop balanced leaders?
At Insight Experience, we believe the answer lies in experiential, team-based simulations. Telling a leader to “be more empathetic” or “take more risks” is no more effective than telling them to run five miles when they haven’t exercised in six months. But when you put someone on a cross-functional team, in a competitive environment, with strategic imperatives and extreme time pressure, the tensions replicate the real risks inherent in business.
In that setting, leaders can explore their personal behaviors and practice how they engage their team. As they experience and reflect in the learning cycle, they begin to understand the dimensions of their thinking that need to evolve. Just as the tensions are real, so is the learning—and the leader who couldn’t run five miles now has the endurance to do so.
