Managing risks - finding the balance between "prevention" and "cure"

A popular idiom is that "a pound of prevention is better than an ounce of cure".

Broadly speaking, I've subscribed to this philosophy in my personal and professional life.

I've been fortunate enough not to suffer any major personal or professional catastrophes that have been the result of my actions (or inaction). 

Which is in part due to luck. We are all exposed to things happening. We all make mistakes. We all overlook things or aren't aware of certain things that could go wrong. There is always the potential to be blindsided. I'm not special in that regard.

It is also due, in part, to the fact that I've worked hard to think through my actions and try to see what could go wrong. And I take steps to ensure they don't happen.

But I have a confession to make. There have been many times when I've taken this philosophy too far.

If a pound of prevention is better than an ounce of cure, what about two pounds of prevention? Is one and a half pounds of prevention better than an ounce of cure?

When it comes to prevention and cure, there is a fine balance. There are times when focusing on prevention is counterproductive. There are times when you should take the risk and simply be prepared to wear the consequences. 

There have been many cases where I've been too risk averse. Personally, I've had a tendency to favour prevention especially when it comes to conflict. I've spent too much time preparing for contingencies that never happened, when on balance it would have been easier to manage the issue if it arose.

With awareness, and consciously focusing on my conflict management skills, I expect this to change.

Prevention is not always better than a cure. There's no right equation or weighting. It varies from case to case. What is important is having risk awareness, and making decisions that incorporate the uncertainty.

I've worn the "no catastrophes" badge with too much honour. Not only am I failing to recognise the degree of luck involved. I'm also limiting my success. Because if you're not "failing" sometimes, you're not pushing the envelope enough.

Risk management isn't just about prevention. It's also about cures.

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Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.