How to take a calculated business risk

Written by Callum Sharp

13 percent of businesses lead their business risk making from the front line, according to a report by PwC. From those surveyed, two-thirds of businesses agreed that shifting risk-management decisions to the front line would make their companies more agile.

But moving this to the front line requires those higher up in an organisation to let go of some control, which in itself is a risk.

The point is: risk is everywhere. The question, then, is how can it be calculated?

Pros and cons list

If you’re an SMB – or even a sole trader – and you have a decision to make, it’s worth balancing the argument. For example, buying an elephant might boost your profits at the zoo, but how much will it cost you to feed it?

A pros and cons list is a great way to ensure you haven’t left any stone unturned. Given its simplicity, it lets you visualise your decision without the complexity of over-thinking, which is a likely story if you spend your days internally debating with yourself. Just make sure to prioritise your arguments.

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Turn to others

There are many ways to lead a horse to water. Your opinion is just one of them, and it’s not necessarily correct.

When making a calculated risk, it needs to be thought through. Every angle must be covered before you venture down a rabbit hole, and that requires understanding different points of view.

Every small business owner needs a mentor for times like this. Mentors spur debate and allow you to see things from a new perspective. They challenge you and let you understand what you might have missed off your list.

As put by Richard Branson, seek a second opinion. And then seek a third. You need to bounce around ‘every idea you have off numerous people before finally saying, “We'll give this one a miss,” or ”Let's do it.”’

Acknowledge and accept the failed outcome

No risk, no reward. That’s the motto. Risk-taking implies that you might fail, and to take a risk you need to accept that sometimes, failure is inevitable.

Before you decide, it’s important to understand the consequence of failure. If that means your business enters liquidation the risk is likely too great, but if it means a financially tight few months, it could be worth it.

James Dyson is a good example. He created 5,126 prototypes of the Dyson vacuum before creating a successful prototype. And that was just the beginning of his business.

As Winston Churchill said,

Success is stumbling from failure to failure with no loss of enthusiasm.

Balance emotion and logic

It is difficult to disconnect emotion and logic. Lots of people make irrational, emotionally-charged decisions before understanding both sides of a story. This can lead to ill-calculated risk.

To effectively calculate risk, it requires a balance between your left and right brain. Intense emotions will impair your decision-making ability. For example, making a bad decision can lead to anger and embarrassment, which in turn will lead to long-term risk and self-deprecation. Equally, over-excitement will lead to an overestimation of your decision, which will drastically impact what expectations you set and could blindside you against risk.

Calculated risk must be thought through logically first, emotionally second.

Mitigate your risk with automation

Human error is estimated to cost UK businesses £98.6 billion every year in security breaches. Everybody makes mistakes. As a business owner it’s your job to mitigate these mistakes and reduce the level of risk your business faces.

By outsourcing and automating crucial elements like IT or HR, you can reduce the chance of human error, improve your efficiencies and free up your time to make better calculated decisions. What are you waiting for?

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Entrepreneurship , Leadership , Productivity , Concentration , Small business