Evaluating Business Risk Monroe MI

Risk is part of business. If you do not like risk, you probably will not like business. Taking risk can bring rewards or disappointment. Here are some risk-evaluating steps:

1. Who else is taking risk? Your competitors! I was at a conference in Miami years ago where an executive from one of America’s greatest companies told of how not taking risk can put you out of business. He showed an example of Company A not taking a risk because of a projected small return. Company B, the competitor, took the risk because they could see a huge return. And where was that return? It was in capturing Company A’s market. Company A failed to evaluate the possibility of Company B taking the same risk. The question was related to new manufacturing technologies, which were available to BOTH companies. Company A was forced to upgrade their factories because Company B upgraded their factories. While they were trying to catch up, they lost a good share of their market.
   
   Let me say this another way. Company A decided that upgrading their factories would not increase their market share. The returns would not justify the cost. Company B with their more antiquated manufacturing methods could see a large reduction in their production cost which would allow them to lower their prices significantly—which would guarantee more market share. Company A overlooked this possibility.
   
   How good are the assumptions you are making about a risk venture? Many manufacturing changes are predicted to increase quality, capacity, and yield. It is easy to let that same "exuberance" that Mr. Greenspan talked about take over realistic thinking. An increase in product yield can make a risk worth taking. But if the yield expectations are not met, you can actually lose money because you were not able to reduce the cost of manufacturing your product. Capital expenditures don’t go away just because the factory is not producing up to expectation.
   
   I was involved in many risky projects during my working career. I found it very common for executives to overlook the reservations that manufacturing supervisors might have about production yield. Well, that is part of their job—to overcome objections. If executives think that they must overcome every objection to a project before proceeding, nothing will ever be accomplished. The problems come when objections are overlooked or not evaluated....

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Author: John T Jones, Ph.D.