Risk Versus Reward for BusinessesPublié le 5 March 2021
All businesses find themselves weighing the benefits of risk versus reward when planning for the future. The leaders of organizations must balance the continued welfare of the company and its employees with the opportunity for expansion and increased success.
Companies that take risks are industry leaders. From Netflix recognizing the appeal of streaming over physical media to Apple designing an edge-to-edge screen with the iPhone, they made risky decisions that went against common industry trends at the time. This is not to say that every company is one risky maneuver away from becoming a giant corporation bent on marketplace disruption, but the same principles and theories still apply.
When considering risk versus reward, leaders must weigh important factors. These include the potential business rewards – both tangible and intangible – and the impact on employees, while also using tools such as cost-benefit analysis and risk assessment software as part of a strategic management approach.
Performing a Risk Assessment
Just because a project is seen as a risk, it does not mean that it should be treated as an unknown. Do not mistake taking a risk for being unprepared. As part of a company’s strategic management plan, a full risk assessment will still provide a wealth of information regarding potential scenarios. All available information should be collected and organized in order for company leaders to make an informed decision.
For large corporations, the emerging field of risk assessment software has grabbed a lot of industry attention. Using customizable programs, the risk is quantified and analyzed using a series of statistics and probabilities in order to arrive at a conclusion. While this approach is appealing for conglomerates, medium-sized business will do well to remember the human element in their organizational chart. They have a more limited audience, and therefore consumer trends may also be more limited.
A Cost-Benefits Analysis
While taking a risk is potentially beneficial from the viewpoint of expanding your company, you still need to ensure that the benefits from such a risk align with your company goals. Once you have collected as much data and information as possible regarding a new project it is time for a cost-benefit analysis. This is an important component of good strategic management and will ensure that you remain on track with your large-scale business goals.
Steps of Cost-Benefit Analysis
There is a proper methodology which should be followed when performing a cost-benefit analysis. Important factors to be considered include:
- Determining if the venture aligns with current company goals
- Identifying how much of your current resources (time, budget and employee attention) will be required
- Estimating the financial compensation and deciding if it outweighs new onboarding costs
- Creating a timetable of achievements, milestones and stretch goals
- Setting a date to reanalyze the current strategy and determine if changes are required
Of course, it will be impossible to predict exactly how any new business plan will work out until it has been put into practice. A thorough cost-benefit analysis with proper methodology will provide you with an accurate view of your company’s current state and objectives, on which you can base your decision when deciding risk versus reward.
The Impact of Risk on Employees
Proper risk assessment and risk management must also extend to a company’s most valuable resource: the employees themselves. Many workers would consider stability and certainty to be important factors in the workplace, and undertaking risky ventures will definitely introduce an element of instability into a company.
As a company leader, it should be a top priority to reduce stress and pressure in the workforce. Without doing so, it can lead to serious exhaustion and employee burnout. Employees that experience less stress are more productive, produce better results, feel more loyal and consequently do whatever they can to improve a company’s standing and reach stretch goals. A new business project will entail more uncertainty, in addition to the increase in the daily workload required to achieve success.
It is important for businesses to take employee health into account when considering risk versus reward, as workers who feel burnt out, disgruntled or unappreciated will be less inspired to contribute fully to a new project. A new business project may even entail revising your organizational chart to ensure that the increased workload will be handled without additional strain on workers. By making sure that your employees understand the rewards for themselves and the organization, you will put the company in a better position to succeed.
The Importance of Strategic Meetings
It is important that your company instils a corporate culture among employees which supports risk-taking and its potential awards. Employees should also be involved in processes of considering risk versus reward. After presenting a thorough risk assessment analysis, strategic meetings are a perfect way to foster unity among team members while mapping out company plans, as long as they are organized correctly.
Presenting the positive rewards and negative risks of a new strategy to the entire team will result in a range of opinions. By allowing your team a voice, you are guaranteeing a diversity of viewpoints which may highlight factors and possibilities that have been overlooked. They can point out unseen issues, shape the organizational approach for the better and suggest stretch goals should a new project prove successful.
Ensuring open communication between team members will reinforce a culture of intelligent risk-taking within your company, and let employees know that they are encouraged to think outside the proverbial box.
Tangible and Intangible Business Rewards
The simplest reason for undertaking a risky endeavour is that it will be rewarding to your business. Things become complicated, however, when trying to determine the tangible and intangible business rewards. In terms of strategic management, both can greatly impact your decision, but only one is easy to determine when considering risk versus reward.
Tangible rewards are easily quantifiable and backed up by hard data. These include financial rewards such as increased revenue, the improvement of the company’s overall worth, and even performance bonuses for employees. An additional tangible reward that is very valuable for a company is an expanded customer base. These rewards can be estimated before beginning a project and compared to the project costs.
Intangible rewards are difficult to quantify because they do not produce monetary results in the same manner. These rewards include increased brand awareness, image improvement through affiliation, and the possibility of marketplace disruption. If you have determined that the tangible rewards are already a strong enough incentive, intangible rewards can be considered stretch goals which can positively impact the overall value of a company.
All businesses take risks. The very act of starting a company is in itself an incredibly risky venture, but one that can bring with it great reward. When considering the risks versus the rewards of a new business project, it is important to be thorough and prepared in your assessment. By taking into account all the available information and ensuring that it aligns with company goals and operating principles, your business can put themselves in the best possible situation to succeed and be rewarded.