Risk management is defined as balancing risk and reward, which almost always move up and down together.
- High risk – high reward.
- Medium risk – medium reward.
- Low risk – low reward.
Think about it – the reason we take a risk is to obtain a reward. And, the bigger the risk, the bigger the reward we require to justify the effort or exposure.
For example, skydiving is risky – when it goes bad, it goes really bad! But, you get to experience the thrill of falling through the sky at around 120 mph. So, some people are willing to take the risk for the corresponding reward.
Driving without a seat belt is also quite risky. However, this activity has no accompanying thrill or excitement; therefore, driving (or riding) without a seat belt is a risk most people wisely choose not to take – the added risk offers no real benefit (or thrill).
If you are faced with an opportunity where risk and reward do not seem balanced, proceed carefully. You may be looking at a great opportunity. However, it’s more likely that you’ve missed something in your consideration of the opportunity’s risks and rewards.
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