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All risk, whether good or bad, shares one thing in common – both require an investment. That investment typically includes time and money.
Good Risk vs. Bad Risk
- Measurable/Quantifiable – Good Risk is risk that can be measured and quantified by doing Due Diligence (Homework). If the cost of potential outcomes is not measured/quantified, measurable/quantifiable, then you are taking a Bad Risk.
- Identify Uncertainties – When you are able to identify all of the potential outcomes, whether good or bad, and you are able to plan for all potential outcomes, then you are taking a good risk. When Uncertainties are unknown or unknowable, that’s Bad Risk.
- Probability of Success – If there is a high probability of success, then you are taking a Good Risk. If the probability of success is low or unknown, then you are taking a Bad Risk.
- Fundable – Risk that can be adequately funded, under the worst case scenarios, is Good Risk. If under the worst-case scenarios you run out of capital, then that is a Bad Risk.
- Probability of Failure – If there is a low probability of failure, then you are taking a Good Risk. If there is a high probability of failure, you are taking a Bad Risk.
- Comprehensible – If you can understand the nature of the risk you are taking, then that is Good Risk. If you cannot understand the nature of that risk, then you are taking a bad Risk.
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