How to balance risk vs opportunity in business
There is the opinion that some hold that you cannot get the biggest rewards without taking the biggest risks. Another way of saying this is that opportunity favors the bold, or that to take big risks is to open yourself up to the chance of receiving big rewards. No where is this example more obvious than if we look at the history of certain early Bitcoin investors. Take a hypothetical investor Tammy who invested in Bitcoin when it was under $100 when people were calling it a scam, when everyone was saying it was just for drugs on Silk Road, when people thought the government might ban it, but she decides to risk her money and her personal reputation by betting big on Bitcoin at $100? Well if she held from then until now then that risk of personal reputation and finance would have been richly rewarded.
In business opportunities are either discovered or created. Discovered opportunities are opportunities created by others which your business finds or got invited into somehow. Created opportunities are the sort of situations where your business has to pave a completely new path. Steemit bloggers, early Bitcoin enthusiasts, Ethereum enthusiasts and smart contract developers are creating new opportunities through ingenuity and risk taking. The point being that if you want to pave a new path you often have to be bold and take a risk, or more than a few risks.
Risk management vs opportunity management
Risk management can be described as the process of proactively working with stakeholders to minimise the risks and maximise the opportunity associated with project decisions.[5] Risks are about the possibility of an adverse consequence.[6] Good risk management does not have to be expensive or time consuming but relies on adaptability in response to change.[7] Risk management ensures that an organization identifies and understands the risks to which it is exposed.
These are two different mindsets. Risk management is the security mindset where in order to keep your organization safe you have to be away of and mitigates the threats to your organization's safety. Cybersecurity for instance focuses on risk management and it's about mitigating or controlling risks. This could be anything from disaster recovery, to continuity of operations, to promoting resilience, to physical security of company assets. The risk adverse mindset on the other hand can get in the way of creating opportunity because if no risks are taken at all then your business has no way of creating new open doors.
By Nlreda (Own work) [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
Opportunity management is actually a process of identifying and managing opportunities. Businesses have to be opportunistic to survive in a competitive environment where opportunity might become scarce.
An opportunity management funnel is a framework that allows management to evaluate and select opportunities.[12] An opportunity management funnel is a process whereby many opportunities are put in up front and fewer investment decisions coming out at the end of the funnel.[13] The goal of the opportunity management funnel is to eliminate weak ideas before they consume excessive resources while allowing strong ideas to filter through the process.
A firm could use certain assessment criteria to help identify opportunities and will ensure resources are not wasted on low value opportunities. There are three types of criteria that a firm could use. These include criteria of inclusion, criteria of exclusion and portfolio level criteria. Using assessment criteria would provide a transparent process that will highlight what initiatives to abandon and which initiatives to pursue. Exclusion criteria could be used by the firm, as it saves time and money. It is a simple method of reducing the number of initiatives to evaluate.
So as we can see, an opportunity management funnel is one way for human managers to narrow down a set of ideas. In other words it's an idea curation system where the cream rises to the top to the attention of management. Because attention is the most scarce resource in a business the attention of management has to be preserved and only the top rated ideas should reach management. In the case of high risk high rewards, management could set up a threshold to not want to hear about any ideas which don't offer beyond the threshold of rewards.
Stage gate decision making divides the decision making process into stages where groups evaluate or review an innovation in different stages. This for example could include a feasibility study and review, finding the business case and building a business plan. An idea is found or thought up at the lowest stage and then from there the additional stages seek to determine the utility of the idea to the business, the applicability, feasibility, monetization strategy, market study or testing, and then launch.
So what is the balance between risk and opportunity in a business sense? A business if it is correctly positioned to seize an opportunity and monetize that opportunity is in the ideal position. If a business on the other hand sees an opportunity outside it's scope which it cannot easily make use of, or monetize, or which does not fit it's business, it's brand, or the goals of it's shareholders, then the opportunity may have to be rejected. Not every opportunity is of equal value to a business and many opportunities have to be rejected for the benefit of the business.
Important balance
I think opportunity management is very important in business and the risk involve has to be consider. No body makes it in business without taking risk. You thinking of starting a business is risk on its own. Nice post @dana-edwards
Diversifying your investment is still a key for your portfolio. It allows opportunity manager to be more relax when they add risky investment in their portfolio.
nice
good job
Interesante post @dana-edwards, las oportunidades hay que aprovecharlas y es bien sabido que mas importan las ganas y la decisión que el dinero.
Saludos desde Ecuador :)
Good post.
Risk as we all know is a major characteristic of a good enterpreneur and we shoukd learn to balance the risk as you have said,i find this pist very helpful for those who would like to go into buisness or marketing.
good work. keep it up.