In business, every decision has benefits and risks. Risk is not necessarily bad, however, and shouldn’t prevent you from moving forward towards growth because it comes with opportunity. One way to minimize the potential for injury in your business is through calculated risk-taking.
Calculated Risk-Taking in Business
In business, risk can be thought of as the combination of the probability of a loss and the value of that loss.
There’s always a chance of failure or that things won’t go as planned. Strategic partnerships may fall apart before being completed, manufacturing processes might break or new products could completely fail to sell. All of these things will cost your business money and hurt your bottom line.
Pursue risks in a way that you carefully consider everything by analyzing the potential costs and benefits, ensure that the potential risk is minimized and decide whether the benefit outweighs the risk.
How to Calculate Risk
If you are trying to decide whether or not an action is worth taking, how can you calculate the risks? The process can be distilled down into a few basic steps.
- Do your due diligence – Relying solely on intuition and what you think might happen is a bad way to make a decision. Get expert advice from trusted sources. Rely on data and concrete facts and analyze potential numbers in order to guide your decision making. If you can’t put a realistically estimated value on both the potential benefit and the potential loss you’re not taking a calculated risk, you’re just gambling.
- Anticipate problems – Things are bound to happen. Even the best laid plans are bound to fall through sooner or later. Take the time to think about any potential problems that may arise and determine how you might respond to them. Also consider if there are any problems that pose unacceptable risk such as a potential loss so large it’s impossible to recover from.
- Create a roadmap – Have a plan in place to guide your progress through the project. Create a strategy that shows what should be done when, how, and by whom. By detailing out each step you can ensure everything stays on track in order to reduce your overall risk.
- Be decisive when it’s time – Preparation will only take you so far. At a certain point you have to make the decision to either move forward or abandon the project. Once all of the analysis and planning are complete and you’ve decided the risk is acceptable, move forward decisively.
- Be ready to pivot if problems arise – It’s rare that every action goes according to plan in business. There might be a problem that arises, new information that changes your analysis, or some other variable. Be adaptable and reevaluate to determine if you should continue as planned, make adjustments, or scrap the project entirely.
Using Calculated Risk-Taking to Grow Your Business
Taking risks can be intimidating, but by calculating the risk, you will have opportunity to push your business to new levels. Leaders and entrepreneurs in all industries innovate by the willingness to take risks. For more on calculated risk-taking, view the visual below. It outlines a formula to calculate risk, steps to work towards your goal, and successful company examples.