"What 4th downs say about taking risk": Not just football risk management

Try asking any Monday morning quarterback about blown fourth-down play calls in the NFL and you are guaranteed passionate opinions. In most fourth-down plays, an NFL team will punt or try for a field goal. But, occasionally, teams decide to do something that is viewed as risky—attempt a fourth-down conversion or "go for it." (Credit: iStockphoto)

VANDERBILT (US) — After studying more than 22,000 fourth-down decisions over five NFL seasons, researchers found that teams trailing by three touchdowns or less are more likely to “go for it.”

Teams trailing by wider margins actually became less and less likely to attempt a seemingly risky fourth-down conversion as the game progressed. Researchers say the findings—scheduled for publication in the journal Organization Science—may tell us something about the role of feedback and deadlines within organizations.

“The idea here is that as the deadline approaches, the time available begins to factor in to the decision to try something different in response to underperformance,” says study co-author Ranga Ramanujam, associate professor of management at Vanderbilt University.

The results suggest that as the game clock runs down, teams within striking distance of their opponent grow more and more eager to try out risky plays that might help them win the game at hand. However, teams outside that striking distance grow increasingly concerned with “saving face” or avoiding a risky move that might backfire and make them look stupid.

“We argue that this same tension between chasing organizational goals and avoiding reputational threats can help us understand risk-taking behaviors in other types of organizations,” says study co-author David Lehman from the National University of Singapore.

Looming deadline
The goal of the study was to understand how risky organizational decisions might be shaped by performance feedback (i.e., the extent to which current performance is above or below the aspired level of performance) and deadline proximity (i.e., time remaining before an important deadline such as an earnings report date.)

“We know that deadlines play an important role in organizational life. Part of what we’re trying to understand is how deadlines affect the well-known relationship between under-performance and risk-taking,” Ramanujam says. “In other words, when are organizations more likely to deviate from routines? This is an important question for understanding a variety of important organizational outcomes such as innovation, change and fraud.”

Risk-taking’s the exception
Ramanujam is quick to acknowledge, “Although many managers have a natural talent for finding a football analogy for every business situation, football games are very different from the operations of business organizations. However, they are sufficiently similar in some key respects to make these findings potentially relevant to business organizations.”

For instance, fourth-down decisions typically are organizational decisions in that they are based on the inputs of various people on and off the field and are based on performance relative to a target and in reference to a deadline.

Ramanujam also notes that unlike prior studies that analyzed whether fourth-down conversions are as risky as they are made out to be, this study was about understanding when teams were more likely to go for it.

“What is especially relevant to our study is that teams treat this as a non-routine choice. In more than 80 percent of fourth-down plays, the teams punted the ball,” says Ramanujam.

More news from Vanderbilt: http://news.vanderbilt.edu/research/

via futurity.org

Is this the thinking in your firm - when you most need the push you take the least risk and focus more on the downside risk at the expense of the upside risk?