How to Make Smart Business Decisions When Risk is Involved

Barbara Bickham -

You want to invest in a product that is still new and unpopular - a product that the market doesn’t care about yet and could tank. But you have an excellent feeling about it. You wonder if investing in it is a risky business decision.

What decides risk? How much you may have to lose when things don’t go according to plan? When your success or failure depends on the outcome of that decision, different risks fall under this umbrella in the business world.

A career risk could lose you your career. A time risk could mean you’ll spend a lot of time on a failed idea and need to start over. And a financial risk would mean losing all your money and even going into debt.

Implement these ideas to draw the line between taking a business risk and being negligent:

  1. Do your research. Avoid investing your money into projects for no reason. If you can’t answer almost every question you’re asked about the project, it’s probably a bad idea to put your money into it. Be aware of how many extra hours you need to invest in the project.

● Six months on a failed project is six months you’ll never see again. Also, think about how the decision will affect your reputation in whatever field you’re in.

  1. Set a risk level. Set a limit on how much money and time you’re willing to commit to the decision. Look at how much profit or turnover you can make before investing more at a particular price point. Weigh the risk and see if your business will survive if you take it.

● If taking a risk will ruin you if it doesn’t pan out, it may not be the best investment. Never play with money you can’t afford to lose. Society always puts up examples of people who “put it all on the line” as heroes.

● But most of these people had backup plans. Risks have to be calculated. Otherwise, you’ll join the countless number of businesses that have crashed and burned.

  1. Write out a list of pros and cons. This list will help you clarify what you want and identify the risk. You, therefore, have a level ground to assess your risks. Balance your risk to reward ratio.

● Low risks may prevent many failures and losses, but you may not be as aggressive as you need to be in the market space. Carefully consider your chances of failure and how often you can continue to fail and stay in business.

  1. Talk to people you trust. Ask for advice. It helps so you don’t make impulsive decisions. Avoid asking too many people for advice. Many thoughts and opinions can confuse you and make it harder for you to decide. Stick to one or two trusted opinions.

  2. Stay committed. You can plan and plan and plan but get tired and quit halfway through. Commit and follow through to the end. Observe how things turn out. Whether it succeeds or fails, pay attention to every step.

  3. Don’t wait for things to fall perfectly into place. Even when you’re not aware of it, you’re taking risks in business all the time. You’re always mitigating risks to an extent. And somehow, you can stomach the risks, so don’t wait too long. Just go with it. Doing something is risky. Doing nothing is risky.

  4. Rely on intuition. Suppose the above process doesn’t yield an overwhelmingly specific path. Go with your gut. It’s rarely wrong. Even if it is incorrect, you’ll be able to accept responsibility for your error.

All successful businesspeople have failed at least once and started over. The experience gained is always valuable. Understand that a business decision could go either way.

If the risk of failure is high, but not too high for you, never be nervous about failing. If you never take a risk, you’ll never grow and never know your chances of succeeding. Do a careful evaluation and then decide. You will not regret it.