As an entrepreneur, I’ve learned that risk assessment is an extremely important skill set. Before jumping into a new venture, you have to weigh all the risks and compare those to the potential benefits. You then have to evaluate the probability of those risks, and then do the really hard part – make a decision. I’ve also learned that risk assessment is just as important in our personal lives. Think about the big questions you’ve had to consider in your own life for just a moment:
• What am I going to choose to believe as it relates to God?
• Who am I going to marry?
• Where will I go to school?
• Should I take the new job in a different state and move my family?
• How do I handle the specific problem my child is facing?
• Should I sell the house and consolidate my debt?
• Do I retire now or work a couple more years?
• Etc., Etc.
In “every day life”, we are faced with decisions that must be made one way or the other. Choosing to delay a decision is in most cases the same as making a decision. As you evaluate the components of a decision, you must consider the risks and the probability of those risks. We can learn a great deal from how entrepreneurs evaluate risk.
Risk Assessment starts first with identifying all the things that could go wrong. I usually try to focus on the top 3 things that could go wrong as a result of the potential decision I’m about to make. Once I’ve identified those top 3 potential items, I then put my own percentage of probability that they will happen. I have found in my own life that I tend to fear those things that are really not that probable, and I’ll bet you do the same.
As you assess the downsides of making a decision, you must also assess the downside of not making the decision. For example, if I choose to not pursue an advanced degree, what might be the risk for my career over the next 10 years?
Upon completing your assessment of the risks, you must now list the top 3 benefits of your potential decision. What are you getting by making this move or action? You should also list the top 3 benefits of a “no-go” decision.
Once you’ve had the opportunity to look at every angle of your potential decision (top 3 benefits of a yes and a no, top 3 negative outcomes of a yes and a no), you need to do a creative alternatives list. This is an area of risk assessment that many people rarely consider. As a person confronts a decision point in their life, they become so locked on that particular situation, that other alternatives are never considered.
Imagine that you are looking for a new house. Let’s suppose you only look at one house, and it has a lot of potential. As you start evaluating if this is the right home, wouldn’t you continue to look at other homes on the market? Why would you limit yourself to only seeing one house?
Unfortunately many people make the mistake of closing off their mind to the idea of multiple options. It could be that the perfect solution is one that you haven’t considered yet. As an entrepreneur, I have limited capital, resources and time, so as I assess the risk of a potential business, I also have to consider other opportunities that might yield higher results with less risk.
Have you ever heard the term, “higher risk; higher rewards”? Well, this isn’t always the case. I have evaluated several opportunities that were high in risk without much upside potential. In your personal life, the same can be true, and that is why you must take the time and effort to do a proper evaluation.
The final component to your risk analysis should include this one question. “Is there anything that I can do to reduce the risk of this potential decision?” The answer may be no, but it could be that your creative thinking might just develop an alternative that could really be interesting.
Once you’ve evaluated the risks, the probability, benefits of both sides, considered all the potential options and you’ve considered how to reduce the risk, you will be equipped to do great things. In the next blog, I will reveal a great secret to taking the risk out of risk.
Tags: Aaron Broyles, Applying Proven Entrepreneurial Methods to Achieve Success in Every Day Life, Do Great Things, entrepreneurial, Entrepreneurial Methods, Risk
