In the world of innovation, we often hear about risk tolerance — how much risk we’re comfortable taking. But there’s another crucial concept that's frequently overlooked: risk capacity. Understanding the difference between these two can be the key to unlocking your association’s true potential for growth and innovation.

Risk tolerance is about comfort levels. It’s subjective and emotional and often based on past experiences or personal preferences. On the other hand, risk capacity is objective. It’s about what your organization can actually handle regardless of how comfortable you feel about it.

Here’s a powerful exercise to help you distinguish between the two:

1. Imagine you had no constraints on budget or resources. What are 10 different ways you could innovate in your organization? This could be around membership, educational offerings, content delivery, or even your volunteer and governance structure.

2. For each idea, ask yourself:

• Do we have the skills to execute this?
• Can our infrastructure support it?
• How would this impact our cash flow?
• What’s the worst-case scenario, and could we recover from it?

3. Now, rate your true risk capacity for each idea from 1-10, where:

• 1 = extremely low capacity: We lack the skills, infrastructure, and financial resources to execute this idea. The worst-case scenario would be catastrophic and unrecoverable.
• 5 = moderate capacity: We have some of the necessary skills and infrastructure, but there are gaps. The impact on cash flow would be significant but manageable. The worst-case scenario would be challenging but not fatal.
• 10 = extremely high capacity: We have all the necessary skills and robust infrastructure to support this idea. The impact on cash flow would be minimal or positive. Even in the worst-case scenario, we could easily recover.

If your organization has Low or Medium Risk Capacity, experimenting and innovating can be challenging but not impossible. Here are some strategies to consider:

1. Start small and incremental:

• Focus on small, low-cost experiments that can be easily implemented and reversed if necessary. For example, rather than changing your entire pricing structure for membership or your conference, why not experiment with a new model before overhauling the entire pricing model?

2. Focus on process innovations:

• Look for ways to improve internal processes, often requiring less investment than product innovations. For example, review your membership renewal process. Does your organization halt efforts to renew members after a period, such as three months? What if you continued your efforts to get members to renew until there were diminishing returns?

If your organization has High Risk Capacity, you have a significant advantage in pursuing innovation. You can be more ambitious and take on larger, potentially transformative projects. Embrace disruptive innovation and actively seek out opportunities that could redefine your organization or create entirely new markets. Consider establishing an innovation lab with a dedicated group of staff and volunteers to experiment with new ideas and technologies. When appropriate, scale successful experiments rapidly.

If you don’t see a gap, it’s worth considering what might be holding your organization back. Are there invisible constraints or limiting beliefs at play?

Risk capacity is about what your organization can handle, not how comfortable you feel. This distinction is crucial because it allows you to push beyond your comfort zone and tap into your organization’s true potential. By focusing on risk capacity rather than just risk tolerance, you can:

• Make more informed decisions
• Pursue opportunities that you might have otherwise overlooked
• Build resilience in your organization
• Foster a culture of innovation and growth

But how do you put this into practice? Start small. Choose one low-stakes experiment related to an initiative you’re considering and commit to running it in the next 30 days. This approach allows you to test your risk capacity in a controlled environment, gather data, and build confidence for larger initiatives.

Remember, the goal isn’t to become reckless. It’s about making calculated risks based on your organization’s true capabilities, not just your comfort level. By understanding and leveraging your risk capacity, you can push the boundaries of innovation and drive your organization forward in ways you might never have thought possible.

The next time you’re faced with a decision or opportunity, ask yourself, “Am I considering our risk capacity, or am I just staying within our risk tolerance?” The answer could be the difference between maintaining the status quo and achieving breakthrough innovation.

If you want to empower your organization to identify its risk capacity and unlock its potential for innovation and growth, start by understanding your current innovation Capacity Score. To take this assessment, click here: https://sherijacobs.com/risk-capacity-quiz/