The Risk Myth
posted by Anna Mar, December 11, 2012Risk is bad and should be minimized … right? The answer isn't what you may expect.
Myth: Risk Should Always be Minimized
Risk is always locked in trade-offs with other factors such as cost, revenue and quality. If you always seek to minimize risk you'll end up with unacceptably high costs, low revenue or low quality.The goal of risk management is to identify, mitigate, control and monitor risks in support of business goals and objectives.
A company that didn't take any risks couldn't make any money. It couldn't hire employees (hiring employees is risky). It couldn't have customer's (customer's might sue them).
Similarly, a society that seeks to minimize all risk end ups with a frozen economy and culture.
Myth: Risk is Always Bad
It's natural to think of risks as bad. After all, you don't hear people speak of the risk that something good will happen.Some fields, such as information security, tend to treat risk as always bad.
Other fields such as risk management (e.g. for investments) treat risks as the chance that something unexpected will happen. In other words, they don't consider risk to be good or bad — just unexpected.
If an investment manager predicts a stock will go up 1-2 percent but it goes up 20 percent, that can be considered risk realization.
The definition of risk as potentially positive is still controversial. However, the majority of risk management professionals recognize the positive side of risk. For example, ISO defines risk as the "effect of uncertainty on objectives". This definition leaves open the possibility of positive risk.
Business Myths (The Big List)
Hype and misinformation incorporated.
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Sustainable competitive advantage is another animal. It's an advantage that keeps going for many years or decades. Ideally, forever. |
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When best practices become strategies unto themselves competitive advantage quickly erodes. |
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Positive risk is almost a philosophical thing. It's all in how you look at it. Many people are convinced it doesn't exist. |
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The relatively new economic concept behind the strategy of innovative companies such as Google. |
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