How to manage risk depends on your understanding of risk and the idea of base probability of any business outcome. Are you doing what it takes to make your business successful, by diligently doing the “must-do” steps?
The basic role of the entrepreneur is not taking risks, but mitigating risks and increasing the chance of business success. It is important to understand risk and probability. Both are related but different concepts. Risk is a chance that the outcome you desire will or will not happen. Probability is the measure of likelihood that an event will happen.
So risk is that a lady can get pregnant if she copulates. Probability is the measure of the likelihood that she will get pregnant. It depends on whether a number of requisite concurrent factors are in place for pregnancy to be the outcome of the action.
Similarly in business, risks are clearly known if you care to elucidate them, but the uncertainty is about the chance that all or some of them will or will not happen. Every outcome has a natural base probability of occurrence and the associated uncertainty can never be controlled or resolved. But one can influence the outcome but ensuring that the base conditions are met so the base probability is achievable.
Let me explain, imagine that you are required to throw darts to hit the bull’s eye. There is a base probability that this will happen – whoever throws it. But imagine that the dartboard is placed in a dark room, you have a dart that is bent and has broken fins, you are blindfolded, you are drunk and you don’t know which directions the dartboard is. Will you be able to achieve the base probability of hitting the bull’s eye? Surely not! Thus, to achieve the base probability you must be sober and alert, not blindfolded, have an aerodynamically designed dart, you must face the dartboard that is placed in a well lit room, be without distraction and have put in enough practice (skill development). Here you are not doing anything unusual, just doing everything that you must do. The key phrase is “everything”. Not doing even one of the activities listed above can hinder the chance that you will hit the bull’s eye as compared to a person who follows everything in that list above. Every business has a base probability for success (depending on the product, market and competitive presence). All you must do is to have all base events covered; to allow base probability to work. Because entrepreneurs compromise working on some important base factors, due to lethargy, callousness or cost; they sacrifice on occurrence of the base probability for business success. Just as we had to do some base activities to increase chance of hitting bull’s eye, we must identify and execute such base activities that help us achieve base probability for business success. These base activities form what we commonly refer to as Key Success Factors, something we must do so that we will succeed.
In the blog that follows, read about “exponential risk reduction” and how it affects your business success.
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