Risk Analysis

Risk has a fairly narrow definition related to understanding how an action or a position may put one into a precarious position that might result in injury or loss. Yet, we all understand that everything we involve ourselves in requires a certain amount of risk and that injury/loss can be mitigated by controlled actions, defined exit points, and ceiling/basement levels through which we hold ourselves in check.

Nearly 40 years ago we visited some friends in Las Vegas. He was a Blackjack dealer and he wanted to show me his knowledge and introduce me to Casino life. We had $20 to spend on dinner and I told him we could either eat out or play Blackjack. Needless to say, he was sure of his capability to turn that $20 into something meaningful. My ceiling was to be happy to double the money, my basement was to lose nothing, but I was willing to risk the $20. Quickly that $20 became $60 and then dropped to $40 and I called a halt to the action. “Wait! We can strategize this into something really significant!” “Nope. I’m happy. We’ve doubled the investment with an act of gambling, so, let’s go eat and enjoy our rewards!” He was very disappointed. We had only been at the table for about 10 minutes. I was content. He was bummed.

I was willing to take a Risk but knew my boundaries. I had an escape clause, an exit point, a ceiling and a basement.

Most businesses open their doors taking a Risk on whether it will be a success or utter failure. Each growth step requires similar analysis of understanding success and how to prevent failure. Marriages, raising kids, starting a career, buying a newly remodel of an auto, trying something different, going somewhere new – all have a certain amount Risk.

Some events require you to be “all in” with everything poured into the success and willing to ride out the storm of potential failure. You get to name this for yourself. What’s most important to you that you will not give up no matter the potential failure?

Jesus describes two scenarios (Luke 14:28-33) where a builder and a king took note of the importance of counting the cost. The one whether he could afford to build a tower, and the other whether it was possible to fight a war. The risk analysis was important because it would outline the parameters where the ending would be a failure, but take note of the possible victory and worth the risk. The failure may be an uncompleted project or the extreme loss of life and kingdom. The reward may be that you find shortcuts along the way and complete the project or you may find some resources you that will help you become successful in your endeavor. 

Risk can be found in just about every marketplace, including investments. Some simply call it legalized gambling on a large scale, but my advisor has always asked, “What’s your risk tolerance?” Of course, an answer may be unique to the time frame which includes how close to retirement I am! The closer I get to the age of not adding more to the investment equation the less I’m interested in taking chances. Some chances are easier to take when younger and there’s a long time ahead to recover from a substantial risk and potential loss.

Some folks are just plain opposed to risk of any kind so all their investments end up in a coffee can and buried in the garden, third row and past the rotten stump. Do you know coffee cans might rust? Mice can chew up your paper money! Thieves can steal when the guard dog is sleeping!

My thought this morning has to do with the risk we are willing to take for something to be successful. If you have no aversion to risk and all your analysis says it may be worth the chance, then do not hesitate. But if your analysis gives you pause, then pause! Wait for a more opportune time.