Taking Risks as an Entrepreneur
Updated: May 18
We can define Risk as a chance of an uncertain outcome associated with an action. Uncertainty means not knowing what will happen in the future, so Risk is uncertainty, and in uncertainty lies opportunity. The higher the uncertainty, the greater the risk.
Everyday we are all exposed to some kind of risk, whether its at work, when we are driving, while walking, when we make an investment or somethings else.
Entrepreneurs make risky decisions every day. The outcome of their decisions is basically not known when the decisions are made. This entails that the outcome may be better or worse than expected.
The two situations that most concern Entrepreneur are:
Is there a high probability of adverse consequences?
Would those adverse consequences significantly disrupt the business?
Risk makes profit possible in business. If there was no risk in business, there would be no return to the ability to successfully manage it. For each decision by an entrepreneur, there is a risk-return trade-off. Anytime there is a prospect of loss (risk), there should also be a moment for profit.
Entrepreneurs must decide between different alternatives with various levels of risk. Those alternatives with little risk may generate little profit, while those alternatives with greater risk may generate the highest possible return but may carry more risk than the entrepreneur will wish to bear. The best choice must balance prospects for profit and the risk of loss. It all comes down to how the organization is being managed, and there are no easy answers
Steps an entrepreneur should take when Managing Risk
Identifying the existing risks
Risk identification mainly involves critical thinking. An entrepreneur reviews all the various sources of risks. Arranging the identified risk in order of priority is the next thing to do because it is not possible to mitigate all existing risks. The prioritization of the risk ensures that those risks that can affect a business significantly are dealt with more urgently.
Assessing the identified risks
Questions like “what caused such a risk and how could it affect the business?” should be asked frequently by the entrepreneur in order to locate the cause of the risk prior to figuring out how best to handle the risk.
Developing an appropriate response to the risk
Once an entrepreneur is set on assessing likely remedies to mitigate identified risks and prevent their recurrence, the following questions are to be asked:
What steps can be taken to prevent the identified risk from recurring?
What is to be done if the identified risk reoccurs?
Developing preventive mechanisms for identified risks
Here the entrepreneur identifies the ideas that were found to be useful in mitigating risks and they are developed into a number of tasks and then into alternative plan that can be deployed in the future. If risks reoccurs, the plans can be put to use.
Entrepreneurs encounter many risks that can affect their survival and growth. As a result, it is necessary to understand the basic principles of risk management and how it can help them mitigate the effects of risks on their business entities.