Risk analysis is one of the most obvious and basic of human qualities we endlessly employ in our day-to-day existence. Our lives, no matter how boring, involve taking hundreds of risks every day and we’ve grown exceedingly proficient at measuring those risks and comparing them to the benefits or our end goals.
You don’t think you’re taking risks? Consider this – every time you eat any food you risk choking. The risk is minor, of course, but a number of people die every year due to choking on food. Every time you cross the road you risk your life, especially if you’re the big city. We’ve been programmed not to think about those risks because they’re not conscious, but that doesn’t mean the peril isn’t there.
Let’s go for something more obvious – drinking and smoking. You know that alcohol and tobacco are immensely hazardous to your health, yet you’ve internally concluded that the benefits outweigh the harm which is why you’re not planning on stopping smoking or drinking any time soon. Whether you’re right or not is a whole different story. My point is that we’re used to measuring risks against possible benefits on a daily basis so it’s not a surprise that we transfer this fundamental tendency into our business. But how does it work?
Risk Analysis in Business
Most of the potential peril I mentioned in the previous paragraph is there, and we know it exists, but we consider the chances so minute that we don’t even think about it. We make our decisions at a near unconscious level. You don’t need to have an internal discussion about the harm of nicotine and other poisons contained in every cigarette, do you? No, you don’t think about it – you just smoke without considering the consequences.
Those principles work a bit differently in business, though. You can still act intuitively and hope for the best – it’s your money and no one can stop you from you from throwing it away. But in most cases careful calculations of the risks and potential benefits is much more advantageous than counting on blind luck.
Before you make an acquisition of another company, for example you need to be sure that the investment will be worth it, otherwise it might not be sound to invest at all. You can never be 100% sure of anything, but the more information you have and the more you think about it, the better the chances of success. This doesn’t work only with investments, though. Careful research before your company releases a certain product is paramount. The more you know, the better prepared you will be and the risks will be more apparent to you, making them that much smaller.
Benefits of Risk Analysis
The benefits are obvious right away. If you manage to calculate that a risk is not worth the profit, then you can simply avoid taking it. Business is not constant, especially in the Internet era. There is a constant process of change and evolution. Take the new YouTube comment system, for example.
Google is one of the largest companies in the world with an immense fan and customer base. When they decided to change YouTube’s comment system and integrate Google+ to the whole ordeal, there was a massive outcry all over the Internet. Had it been any other company taking such a huge risk and angering their users, the consequences would’ve been dire. The only reason Google can take the chance is because they’ve analyzed the risk and decided that people are more likely to come in terms with the change rather than stop using their YouTube services.
However, like I said, had it been any other company, there would’ve been serious ramifications. Risk analysis can help you take apparently insane, yet completely calculated chances. Without a proper analysis of the situation, you’re literally gambling.
Author Bio: Morgan Johnes loves to read and write about business and career development. He has many years of experience in http://www.