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Importance of Taking Calculated Risk

person wearing suit reading business newspaperThe decision making process is often full of uncertainties; one can never be 100% of the outcome of the choices we make in our personal and work experiences no matter the effort we put in making plans. In this article, I am motivated to provide a dependable criterion one can follow towards a conclusive and worthy decision-making process.

Risk means instances when the actual outcome of a certain decision is different from the expected outcome. In such instances, the results are often unwanted to the decision-maker.

For instance, an employee can be contemplating resigning from a rather well-recognized business company to take on an assignment in a much-less stable business. In such an instance, there are two possible outcomes if the worker ends up making the decision: business operations in a less stable company might fail or might succeed. Both outcomes will have a great impact on the personal and professional life of the employee in question.

When starting a partnership business, the vision and investment goals of the two partners must be aligned towards the same end. Again, there is all likelihood that your work partner might go rogue and act in total disregard of an earlier understanding. The probability of indeterminable issues arising between the partners cannot be overlooked.

It is also possible for an investor to lose all their capital investments in a business that runs into bankruptcy from unfavorable market forces or from a change in federal law that outlaws a given line of business.

But why is risk important in life and business?

A lot of people can be grouped into three main categories depending on their appetite to take on risk. They can be categorized as:

1. Low-Risk Takers – These people are very conservative in their tolerance for risk. They are only willing to accept a small amount of risk to minimize the chance of loss or failure. Eventually, probably at retirement, they will have risked very little and consequently, they have earned less as well.

2. High-Risk Takers but Poor Planners – This lot is not frightened of taking a huge risk. However, they do not realize the importance of proper planning. Proper planning not only helps one to identify possible pitfalls but also triggers rationality on how to avoid, reduce or manage risk in an investment development.

Unfortunately, incidences of poor planning or poor-risk identification are far too many, and the losses in outcomes from the poorly planned venture are even manifest among family and close friends. I have lost friends who, in pursuit of adventure have lost lives and left behind widows and fatherless girls.

3. Takers of Calculated Risk – The risk, in this case, has been planned on as aforethought. People in this category have identified and estimated the timing and effect of possible pitfalls in their plan.

People in this category are the winning group among all three categories; they succeed because they have a solid plan based on extensive risk research and analysis activities.

If one who aspires to be rich and successful and has a solid retirement plan must always take calculated risks whether in their careers, personal lives and relationships and their investment plans. It’s even the case in the world of gambling and gaming on sites like idn poker Even the smallest of unnoticed risk sources can be the cause of a major setback. Therefore, a risk analysis must be all-encompassing and done in-depth.

Structure and Criteria for Worthy Decision-making

Out of my rather sharp observation skills, I have learnt a lot from both the successful and the unsuccessful people I have come across. I have learnt the importance of seeking answers to the following questions before I embark on any venture:

What are all the risks involved? – To answer this question conclusively, one must set aside emotional bias or other preconception likely to affect the answers to this question. This is the most important question because, without proper identification, no correct remedy or solution can be achieved

What is the probability of occurrence of the risks identified? – Again, being factual is very key in getting the right answer to this question. Here, one is advised to use data from comparable ventures which can be obtained by talking to people with similar experiences.

What rewards/returns do I get from this venture? People tend to hold unrealistic expectations and you must be very practical in answering this question. You do not want to overestimate the revenue projections from the new venture you are contemplating. Overestimation will lead to poor decision making

What is the probability of attaining the rewards – The rewards/returns from a potential venture might be good but it would matter less if the probability of attaining the rewards was almost nil. One must also determine the likelihood of receiving the rewards/returns without considering the amount of reward or the returns

What are my other available options if what I am seeking fails? To address this question one must consider all other available opportunities and their likelihood of repaying similar rewards as the subject venture. Here you must be creative and consider your options widely.

Do I have to make this decision now? How much time do I have to think, research and explore my options? If the decision need not be urgent, then there is benefit in waiting and getting more insight before making the decision.

You will need to remove all the emotions before answering these questions. You will also need to be aware of what you want based on what you know or what you do not know.

Tips to Guide You When Taking Risks

You can always begin with a small investment – It makes sense to start small and learn to run the business while it is still small. The demands of starting small will give you room to think and plan adequately. Also, in case of loss, the cost to pay is not as high as it would in a comparatively larger investment.

Tame your Greed – This is an important tip of advice. There are many instances where investors will lose capital investment simply because they did not know “when to leave the table”. We always advise people to work with a pre-set profit margin and to be content when they hit your target.

Do not be quick to take on partners – Partners play a more important role compared to most lower-level employees. Partners are shareholders in your dream or the business venture. Rarely do newly-met partners work together successfully unless there is a previously well-established relationship between them.