Managing Business Risk: Avoiding Problems and Maximising Profitability

The acceptance of risk has always been an integral part of business activity. Crucially, value is created in a domain of scarcity –and one of the main factors delivering scarcity is risk. There is a close relationship between the level of risk taken and the likely reward, with the greater risk requiring the higher return.

The acceptance of risk is therefore an integral part of business, as is the principle that the higher the risk the higher the rate of return needs to be. The willingness to take risks of both a personal and financial nature is one of the defining characteristics of the entrepreneurial decision-maker. Interestingly, a study commissioned by PricewaterhouseCoopers concluded that while in continental Europe strategies tend to be oriented towards avoiding and hedging risk, Anglo-American companies view risk as an opportunity, consciously accepting the responsibility of risk management as necessary to achieving their goals. Successful leaders and organisations understand this, taking steps to ensure that the risks resulting from their decisions are measured ones, with the likely consequences well understood. Avoidable risks are identified and eliminated, while others are reduced.