Prudent Risk

If your boss or your clients are on the fence to commit and invest in their business in the current turbulent times, it’s helpful to help them think through how to take prudent risk. 

The iron law of risk and reward tells us that if you don’t take any risk, you will not get any reward. If your objective in life is to improve yourself, it’s therefore important to build the habit of taking prudent risk. How to do this?

Worst Case 

If you hesitate to do something, ask yourself what’s the worst thing that can happen? If you can still live with this worst case scenario, it’s a prudent risk you can take.

If you can’t, there are three ways to prevent the worst case scenario from happening:

  1. Eliminate risk: For example, if you want to invest in a new business, set-up a limited liability company if you want to avoid the risk of personal bankruptcy.
  2. Transfer risk: This is often done with business insurance, for example to avoid losses because customers are unable pay.
  3. Reduce risk: In this case, you could simply limit the amount of money you invest yourself in the new venture. 

Risk Myth

It’s a myth that successful entrepreneurs and business executives are courageous and heroic risk takers. Instead, they have a deep understanding of risk and apply sophisticated strategies to reduce its impact.

Which of these strategies would help you, your boss, and your clients to better deal with risk and create a magnificent future?

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