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All risks, good or bad, have one thing in common – they all require investment. This investment usually includes time and money.
Good Risks vs. Bad Risks
- Measurable/Quantifiable – A good risk is one that can be measured and quantified through due diligence (homework). If the cost of a potential outcome is not measured/quantified, measurable/quantified, then you run an undesirable risk.
- Identify Uncertainty – When you can identify all potential outcomes, good or bad, and you are able to plan for all potential outcomes, then you are taking good risks. When uncertainty is unknown or unknowable, that’s a bad risk.
- Probability of success – If the probability of success is high, then you are taking a high risk. If the probability of success is low or unknown, then you face bad risk.
- Fundable – A risk that can be adequately funded in a worst-case scenario is a good risk. If in the worst case scenario you run out of money, that’s a bad risk.
- Chance of failure – If the chance of failure is low, then you are taking a good risk. If the probability of failure is high, then you run a bad risk.
- Understandable – If you can understand the nature of the risk you are taking, then it is a good risk. If you fail to understand the nature of the risk, you run a serious risk.
