How to Take a Risk in a Business - Essay Example

?Hawra AL Mahr Sara Wintz LA 108-09 3/22 How to Take a Risk in a Business The issue of the next big thing is an integral part of most entrepreneurs and businesses but the issue of danger, tension, possible loss and mostly uncertainty acts as the greatest obstacle. Risk is a word that has had very negative connotation thus making most people not to take the bold and calculated steps. What should actually keep people going is that one must bear many failures to strike the next big breakthrough after a long period thus calling for self-discipline, a little more courage, enthusiasms and persistence. It is therefore imperative that to launch a business, risk taking must be embraced and this involves getting out of the comfort zone with an intention of triumphing both economically, socially and technically. All businesses in the current competitive world should take charge of their operations by specifying their target and their plans. This piece of writing offers detailed information on how businesses take risks and the risk taking processes. Various kinds of risks that affect most businesses are strategic risk, compliance risk, financial risk, operational risks, and reputational risks. Risk taking is simply opening oneself to change , honest appraisal of a situation, understanding the risks involved in taking action, weighing the pros and cons of taking the action, making a choice to take the required action and performing the action with full consciousness of the potential outcome. it further requires that a risk taker should accept the consequences of the action taken, ignore others approval in order to make the most appropriate risk, pursue the required action without fear of it affecting others negatively and committing to become an objective in pursuing a rational approach to the problem (Mankiw 605-610). It is especially important to pursue risky decisions to avoid some of the possible regretful situations such as lost business opportunities, avoiding something that one is passionate about, lost market share, outdated technology and finally lose of potential management team. The process of taking business risks starts with carefully calculating the risks by thinking about what the potential risk might be. Calculating risks greatly helps in minimizing some of the most dangerous decisions that may lead to the closure of the business. It is important to identify the risk you want to take and this requires massive intelligence and experience. Gather enough information concerning the risk you are just about to take by determining the most risky activities. Maximize on the actions that you know more about and keep away from the actions you know least about. Risk calculation should be aimed at taking an action that will solve long-term problems. Calculating risks involves consideration of how likely is a situation thus involves the probability and the overall cost of taking the risk. Risk exposures which can be used to prioritize risk, risk reduction leverage that calculates the return on investments are some of the formulas used (Mankiw 605-610). Another important step in risk taking process is minimizing the risks as much as possible by gathering enough information on how to do it. Risk minimization may require categorizing of the type of risk such as industrial changes or financial risks and list specific events and sources unique to the possible actions and list the probable consequences in dollar terms. Calculate each item in 1 to 5 point scale and the consequences that may remain completely vulnerable to the risk. After calculating all the costs of various risks, prioritize all the risks from the less costly to the more costly. The period predicted resources required such as financial support that is required to implement the project must be carefully calculated. However, the cost benefit analysis should be taken into consideration by considering the possible benefit that may be earned by taking the risk and the anticipated cost of the risk. Only a few of resources should be risked at once in order to minimize the loss of everything at ago. The third step in risk taking is careful analysis of the cost of not taking any risk by focussing on the negative result of not taking the risks completely. Managers should consider the issues that may occur or may not arise due avoidance of the risks and compare with the effect of taking risks. Management should therefore resolve to the best option as per the outcome. Another step of risk taking is learning from others who had already taken similar risks by carefully doing research and asking others for advice. The truth about the consequences of the risk can only be known by seeking guidance from the businesses or individuals who had successfully taken the risks (Renee 164-169). A further step in risk taking involves setting standards concerning the risks a business want to take by knowing want can convincingly stop you from continuing with the risk and when to stop the risk. A wiser decision on when whether to drop or continue with the risk must be based on standards concerning what can be dealt with and what is overwhelming. Additionally, it is vital to focus on the positive parts of the risk by considering some of the challenges encountered because of adjusting to a different situation of the business. During tough times, optimistically centre your focus on the eventual benefits of risk taking (Renee 164-169). An additional process of risk taking is ensuring the alignment of risks with the company’s values and priorities by judging whether the risk taking process is constructive or destructive. Business should participate in an operation that goes as per their morals and values in order to maintain the organization’s reputation and line of business. After going through all these processes, there may still be a challenge on whether to take risk or not hence calling for an important step of analyzing the alternative ways of pursuing risk by considering to pursue the risk either now or in future depending on the management preparedness. The necessary sacrifices to trail the risk must be considered before taking risk and the timing of making the risk (Renee 164-169). Lastly, the need to incorporate the risk making policies amongst the employees is paramount as far as the employees’ morale is concerned. Management should ensure that all employees participate right from the CEO to the junior staffs of the company by communicating the responsibility and the role of every worker around risk. The outstanding risk takers should be identified within the organization and be empowered to make decisions in the risk taking process. When workers are involved in risk taking decisions, they become part of the success of the firm hence promoting their performance. Coca cola Company that is one of the successful multinational companies provides an imperative lesson to most businesses globally. Coca cola has really become an agent of change by taking exceptionally calculated risks in the business world. Coca cola has continually challenged most soft drinks firms by its bold steps of taking risks such as in 1985 when it removed its leading home market in US to introduce New Coke that became popular within 24 hours of being launched (Monks & Minow 394-397). However, the customers did not receive the new product well initially since they preferred the old brand to the new brand. The company then resorted to differentiating its brand in a very spectacular and market friendly way that can be witnessed to date. Coca Cola Company has always introduced its new products without fear of competition but instead increased the competition in the soft drink industry. Most players in the soft drink industry have left the market, which has been dominated by coca cola company. Works Cited Mankiw, N G. Principles of Economics. Mason, OH: South-Western Cengage Learning, 2009. Print. Martin, Renee. The Risk Takers: 16 Women and Men Who Built Great Businesses Share Their Entrepreneurial Strategies for Success. New York: Perseus Books Group, 2010. Print. Monks, Robert A. G, and Nell Minow. Corporate Governance. Chichester, England: John Wiley & Sons, 2008. Print. Read More