With bad economic news in all the headlines, I’ve been thinking about risk and what it is? I know, not a very “sexy” topic.
I’m saddened but not surprised that a majority of people do not understand or quantify risk. As children many of us are taught that taking risks is foolhardy and to be avoided. So, why do a majority of us think and act as though life is largely risk-free. Unfortunately, life is not like that–especially for small business owners.
Risk–reality or just our perception?
There is an old saying that “the higher the risk, the higher the return,” but in my limited experience I find: “the higher the risk, the higher the potential return, and the less likely you will hit that return.”
Risk evaluation must look forward into the unknown and measure a variety of possible results. To try to understand the possibilities, you must know your comfort level and be able to gauge the risk in relationship to your comfort level. The risk should pass the “good night’s sleep” test — no reward is worth it, if you can’t sleep at night. Risk is a quality of life question as well.
There is no “right or wrong” amount of risk – it is a very personal decision. One way to help you determine whether a risk is worth taking is to ask the following questions:
What is the best thing that could happen if I do this?
What is the best thing that could happen if I don’t do this?
What is the worst thing that could happen if I do this?
What is the worst thing that could happen if I don’t do this?
Will I be okay with myself with all of those possibilities?
Will others “in my world” (spouse, kids, business partners / associates, etc.) be okay with all of those possibilities?