risk and reward in business plan

How to Highlight Risks in Your Business Plan

Tallat Mahmood

5 min. read

Updated October 25, 2023

One of the areas constantly dismissed by business owners in their business plan is an articulation of the risks in the business.

This either suggests you don’t believe there to be any risks in your business (not true), or are intentionally avoiding disclosing them.

Either way, it is not the best start to have with a potential funding partner. In fact, by dismissing the risks in your business, you actually make the job of a lender or investor that much more difficult.

Why a funder needs to understand your business’s risks:

Funding businesses is all about risk and reward.

Whether it’s a lender or an investor, their key concern will be trying to balance the risks inherent in your business, versus the likelihood of a reward, typically increasing business value. An imbalance occurs when entrepreneurs talk extensively about the opportunities inherent in their business, but ignore the risks.

The fact is, all funders understand that risks exist in every business. This is just a fact of running a business. There are risks that exist with your products, customers, suppliers, and your team. From a funder’s perspective, it is important to understand the nature and size of risks that exist.

• There are two main reasons why funders want to understand business risks:

Firstly, they want to understand whether or not the key risks in your business are so fundamental to the investment proposition that it would prevent them from funding you.

Some businesses are not at  the right stage to receive external funding  and placate funder concerns. These businesses are best off dealing with key risk factors prior to seeking funding.

The second reason why lenders and investors want to understand the risk in your business is so that they can structure a funding package that works best overall, despite the risk.

In my experience, this is an opportunity that many business owners are wasting, as they are not giving funders an opportunity to structure deals suitable for them.

Here’s an example:

Assume your business is  seeking equity funding,  but has a key management role that needs to be filled. This could be a key business risk for a funder.

Highlighting this risk shows that you are aware of the appointment need, and are putting plans in place to help with this key recruit. An investor may reasonably decide to proceed with funding, but the funding will be released in stages. Some will be released immediately and the remainder will be after the key position has been filled.

The benefit of highlighting your risks is that it demonstrates to investors that you understand the danger the risks pose to your company, and are aware that it needs to be dealt with. This allows for a frank discussion to take place, which is more difficult to do if you don’t acknowledge this as a problem in the first place.

Ultimately, the starting point for most funders is that they  want  to invest in you, and  want  to validate their initial interest in you.

Highlighting your business risks will allow the funder to get to the nub of the problem, and give them a better idea of how they may structure their investment in order to make it work for both parties. If they are unsure of the risks or cannot get clear explanations from the team, it is unlikely they will be forthcoming when it comes to finding ways to make a potential deal work.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• The right way to address business risks:

The main reason many business owners don’t talk about business risks with potential funders is because they don’t want to highlight the weaknesses in their business.

This is a fair concern to have. However, there is a right way to address business risk with funders, without turning lenders and investors off.

The solution is to focus on how you  mitigate the risks.  

In other words, what are the steps you are taking in your business as a direct reaction to the risks that you have identified? This is very powerful in easing funder fears, and in positioning you as someone who has a handle on their business.

For example, if a business risk you had identified was a high level of customer concentration, then a suitable mitigation plan would be to market your products or services targeting new clients, as opposed to focusing all efforts on one client.

Having net profit margins that are lower than average for your market would raise eyebrows and be considered a risk. In this instance, you could demonstrate to funders the steps you are putting in place over a period of time to help increase those margins to at least market norms for your niche.

The process of highlighting risks—and, more importantly, outlining key mitigating actions—not only demonstrates honesty, but also a leadership quality in solving the problems in your business. Lenders and investors want to see both traits.

• The impact on your credibility:

Any lender or investor  backs the leadership team  of a business first, and the business itself second.

This is because they realize that it is you, the management team, who will ultimately deliver value and grow the business for the benefit for all. As such, it is imperative that they have the right impression about you.

The consequence of highlighting business risks in your business plan with mitigations is that it provides funders a real insight into you as a business leader. It demonstrates that not only do you have an understanding of their need to understand risk in your business, but you also appreciate that minimizing that risk is your job.

This will have a massive impact on your credibility as a business owner and management team. This impact is more acute when compared to the hundreds of businesses they will meet that omit discussing the risks in their business.

The fact is, funders have seen enough businesses and business plans in all sectors to instinctively know what risks to expect. It’s just more telling if they hear it from you first.

• What does this mean for you going forward?

Funders rely on you to deliver on your inherent promise to add value to your business for all stakeholders. The weight of this promise becomes much stronger if they can believe in the character of the team, and that comes from your credibility.

A business plan that discusses business risks and mitigations is a much more complete plan, and will increase your chances of securing funding.

Not only that, but highlighting the risks your business faces also has a long-term impact on your character and credibility as a business leader.

Tallat Mahmood is founder of The Smart Business Plan Academy, his flagship online course on building powerful business plans for small and medium-sized businesses to help them grow and raise capital. Tallat has worked for over 10 years as a small and medium-sized business advisor and investor, and in this period has helped dozens of businesses raise hundreds of millions of dollars for growth. He has also worked as an investor and sat on boards of companies.

Table of Contents

• Why a funder needs to understand your business’s risks:

Related Articles

4 Min. Read

How to Create an Expense Budget

2 Min. Read

How to Use These Common Business Ratios

1 Min. Read

How to Calculate Return on Investment (ROI)

7 Min. Read

7 Financial Terms Small Business Owners Need to Know

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

Find Study Materials for

• Explanations
• Business Studies
• Combined Science
• Computer Science
• Engineering
• English literature
• Environmental Science
• Human Geography
• Macroeconomics
• Microeconomics
• Social Studies
• Browse all subjects
• Textbook Solutions
• Read our Magazine

Create Study Materials

• Flashcards Create and find the best flashcards.
• Notes Create notes faster than ever before.
• Study Sets Everything you need for your studies in one place.
• Study Plans Stop procrastinating with our smart planner features.
• Risks and Rewards of Running a Business

The terms risk and rewards are often used together to emphasise the risk-taking approach. To gain more rewards, calculated risks must be taken. As Mark Zuckerberg, the founder of Facebook, said:

Create learning materials about Risks and Rewards of Running a Business with our free learning app!

• Instand access to millions of learning materials
• Flashcards, notes, mock-exams and more
• Everything you need to ace your exams
• Business Case Studies
• Business Development
• Business Operations
• Change Management
• Corporate Finance
• Financial Performance
• Human Resources
• Influences On Business
• Intermediate Accounting
• Introduction to Business
• Basic Financial Terms
• Business Enterprise
• Business Location
• Business Ownership
• Business Planning
• Classification of Businesses
• Evaluating Business Success Based On Objectives
• Measuring Success in Business
• Motivation in Entrepreneurship
• Reasons for Business Failure
• Managerial Economics
• Nature of Business
• Operational Management
• Organizational Behavior
• Organizational Communication
• Strategic Analysis
• Strategic Direction

The biggest risk is not taking any risk. In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks."

Understanding a business enterprise

Employees in an enterprise are happy to contribute to its growth by fulfilling the roles that are required of them. They have no stake in the company as far as investment is concerned. They receive their salary at the end of the month. On the other hand, people who follow the route of setting up business enterprises, often face greater risks. Potentially, their rewards can be greater.

A business enterprise is an operation through which factors of production are utilised to produce goods or services with the goal of making profits.

The scale of an enterprise can be different. A company with more than 500 employees, or a small grocery store with only two employees, are both examples of an enterprise.

Risk and rewards of starting a business enterprise

The level of risk associated with starting a business enterprise depends on its scale. If it is a small enterprise, its operations are likely to be less complicated. The level of decision-making required for its operations is also potentially simpler. Hence, the level of risk is often at a low level. On the other hand, if it’s a big enterprise, with many operations proceeding at the same time, the decision-making could be complex, and the risks are often high.

One of the most famous investment principles is 'the risk-return tradeoff', which states that when there is a higher risk, there is a higher potential reward.

A lot of factors need to be assessed when turning a business idea into reality. When the market is uncertain, the one who shows courage and makes the first move could get a head start in the race. In marketing, this is known as the first-mover advantage . In such a scenario, the one who makes the first move could get big rewards.

Types of risks in business

There are a few risks that impact the future of a business.

Risks and Rewards of Running a Business: Market u ncertainty

It is a common practice to conduct market research before devising strategies and visions for the business. It helps in reducing market risks to an extent. However, examining every possible scenario is one thing; experiencing market reactions to your business offering is another thing altogether. In a market, there are lots of unpredictable factors. For example, a change in government policy on the import of raw materials could entirely change the situation for business owners.

Risks and Rewards of Running a Business: Financial r isk

Starting a business requires capital, be it through investment by the owner themselves, or other investors. In either situation, it presents a financial risk. Therefore, it requires comprehensive financial management to reduce this risk. An owner should have multiple financial plans in store in case of unpredictable situations. Financial inflows and outflows must be managed effectively to ensure the business is on track to meet financial objectives . However, even with more than one emergency financial plan, the risk can only be reduced to a certain extent.

Risks and Rewards of Running a Business: Health r isk

Setting up a business enterprise can often come with lots of health risks too. Business owners have the ultimate responsibility in making decisions. They are the ones who lead the enterprise, and this could affect their physical as well as mental health. Starting a business means putting in more effort and time to plan everything and to execute the ideas. It means working extra hours and managing all the business aspects yourself. All of this adds pressure on business owners, and it could lead to mental and physical burnout.

Risks and Rewards of Running a Business: No guaranteed returns

As mentioned before, a business enterprise has financial risks. Even if everything is planned and executed effectively, there are no guarantees on returns. It all depends on how consumers react to the business offering. If it works then huge returns can be expected; but if it does not work, then huge losses are incurred.

However, there are people who still want to take this path. The reason is simple: greater risks often give greater rewards.

Types of rewards in business

Let's look at some reasons why people will take the risk of setting up a business enterprise.

Risks and Rewards of Running a Business: Autonomy

Having your own business enterprise ensures more freedom. It gives owners a sense of ownership. They make key decisions and are viewed as leaders. This freedom allows owners to take up responsibility, ensuring more flexibility in decision making .

Risks and Rewards of Running a Business: G rowth opportunities

It is often said that business ownership gives far more freedom and responsibility than a paid job. A business owner can assess the market opportunities and can decide to benefit from them, without having to take permission from any supervisor. These opportunities would also enable him to constantly learn and grow as an owner and a leader.

Risks and Rewards of Running a Business: Greater financial rewards

Since starting a business enterprise comes with many risks, it also grants more financial rewards in most cases. The owners put so much at stake for business enterprises to grow, it is only fair that they get greater financial rewards for their efforts.

Risks and Rewards of Running a Business: More satisfaction

The motivation to work hard depends on the level of satisfaction you get during the whole process. A job that gives you satisfaction will always drive you to push for more, and achieve bigger goals. Freedom, a sense of ownership, and the ultimate responsibility that comes with running a business will keep you motivated.

Examples of risk and reward in business

In 2006, Google acquired YouTube for $1.65 billion. At the time YouTube had been around for less than two years. The video hosting platform was already well-known, but nobody had expected it to reach such heights. It was a bold move from Google to spend that amount of money on a relatively fresh company. Many business analysts thought Google had overpaid for this acquisition. The financial risks associated with this acquisition were enormous.

Google took the risk and now it is safe to say that it was a smart investment. They have got huge rewards. Now, YouTube has an estimated worth of $170 billion.

Different people have different aspirations in life. People who do not want to take risks, tend to prefer conventional job roles. To start a business enterprise is certainly risky, because of a lot of uncertainty in the external environment . However, people who assess the situations and take risks, are often rewarded.

Risks and Rewards of Running a Business - Key takeaways

• People who start business enterprises often face greater risks; they can potentially get proportionally rewarded.

To gain more rewards, calculated risks should be taken.

• The risk-return tradeoff states that when there is a higher risk, there is a higher potential reward.
• Market uncertainty, financial risk, health risk, and no guaranteed returns are the risks associated with starting a business enterprise.
• There are many rewards of running a business; these include freedom, job satisfaction, and financial gains.

Flashcards in Risks and Rewards of Running a Business 15

What did Mark Zuckerberg say about risk and reward? 

"The biggest risk is not taking any risk,". And also: "In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks." 

What is one of the things required for more rewards? 

What is the difference between risk-takers and non-risk takers?

Risk-takers prefer roles that are non-conventional, whereas non-risk takers prefer conventional job roles.

What is the definition of a business enterprise? 

What is the risk-return tradeoff principle?

When there is a higher risk, there is a higher potential reward.

What does first-mover advantage mean?

It means the one who makes the first move in the market could get big rewards, such as a competitive advantage. 

Learn with 15 Risks and Rewards of Running a Business flashcards in the free Vaia app

We have 14,000 flashcards about Dynamic Landscapes.

Already have an account? Log in

Frequently Asked Questions about Risks and Rewards of Running a Business

What are the risks of running a business? 

Market uncertainty, financial risk, health risk, and no guaranteed returns are the types of risks in running a business.

What are the 3 risks of running a business? 

What are the rewards of running your own business? 

Autonomy, growth opportunities, greater financial rewards, and more satisfaction are the rewards of running your own business.

What are the risks and rewards of starting a business?

Market uncertainty, financial risk, health risk, and no guaranteed returns are the types of risks i8nvolved with starting a business. 

Autonomy, growth opportunities, greater financial rewards, and more satisfaction are the rewards of starting a business.

What are the ways that risk and reward can impact on business activity?

Knowing and understanding the existing or potential risks will help businesses prepare better and take necessary action. It will help businesses in understanding their strengths and weaknesses, as analysing and preparing for risks involves an in-depth analysis of both internal and external factors of the business, thereby improving the business.

Knowing the rewards that come with undertaking the risks motivate entrepreneurs in running the business. It gives them a sense of ownership, freedom, and satisfaction. These motivating factors help entrepreneurs run the businesses better.

Discover learning materials with the free Vaia app

Vaia is a globally recognized educational technology company, offering a holistic learning platform designed for students of all ages and educational levels. Our platform provides learning support for a wide range of subjects, including STEM, Social Sciences, and Languages and also helps students to successfully master various tests and exams worldwide, such as GCSE, A Level, SAT, ACT, Abitur, and more. We offer an extensive library of learning materials, including interactive flashcards, comprehensive textbook solutions, and detailed explanations. The cutting-edge technology and tools we provide help students create their own learning materials. StudySmarter’s content is not only expert-verified but also regularly updated to ensure accuracy and relevance.

Vaia Editorial Team

Team Business Studies Teachers

• 7 minutes reading time
• Checked by Vaia Editorial Team

Study anywhere. Anytime.Across all devices.

Create a free account to save this explanation..

Save explanations to your personalised space and access them anytime, anywhere!

By signing up, you agree to the Terms and Conditions and the Privacy Policy of Vaia.

Sign up to highlight and take notes. It’s 100% free.

Join over 22 million students in learning with our Vaia App

The first learning app that truly has everything you need to ace your exams in one place

• Flashcards & Quizzes
• AI Study Assistant
• Study Planner
• Smart Note-Taking

Privacy Overview

Get unlimited access with a free vaia account..

• Instant access to millions of learning materials.
• Flashcards, notes, mock-exams, AI tools and more.
• Everything you need to ace your exams.

More From Forbes

How to mitigate risk and maximize rewards as a startup entrepreneur.

• Share to Facebook
• Share to Twitter
• Share to Linkedin

Stephen Scoggins is the founder and CEO of Scoggins International Inc.

As an entrepreneur, I know that the core difference between successful and unsuccessful businesses lies in the ability to risk and reward equally.

According to data from the U.S. Bureau of Labor Statistics , "approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years." With this in mind, entrepreneurs need to understand how to mitigate risks and maximize rewards to increase their chances of success.

Removing And Reducing Risk: Three Core Areas

The scales must be balanced with equal risk and reward at any given moment. To achieve this balance, I believe it is crucial for entrepreneurs to understand how to evaluate risks effectively. This requires thinking like an investor rather than a traditional entrepreneur or banker. As an investor, I evaluate risks and expect a four-to-one return on every dollar I put to work.

Entrepreneurs must have a risk removal (mitigation) plan to evaluate risks effectively. This plan should cover three core areas, often the root cause of catastrophic business failure: personal, business and acquisitional assets.

Personal risks include risking assets and resources, while business risks include finance, reputation and team management. Acquisitional asset risks, on the other hand, relate to assets acquired over time from business operations.

Best Travel Insurance Companies

Best covid-19 travel insurance plans, the four phases of risk evaluation.

To evaluate risks effectively, I recommend entrepreneurs consider four key phases. Within each phase, there are several considerations that entrepreneurs must keep in mind. These phases are:

1. Professional impact. Under the professional impact, entrepreneurs should consider their leadership, mentorship, communication, legacy and ability to identify bottlenecks.

2. Reputational impact. Under the reputational impact, entrepreneurs must consider honesty, integrity, relationships and the impact of their decisions on their reputation.

3. Operational impact. This form of impact involves considering flow, fulfillment, cycle times and capital investments.

4. Financial impact. Lastly, entrepreneurs must consider revenue, profit, margin, cash flow, taxes and capital investments under financial impact.

Risk Mitigation Considerations

It is easy to think that one decision can solve a problem. However, when entrepreneurs filter that decision through the four lenses, they can ensure that the solution does not cause exponential problems in other areas.

Some examples of considerations that entrepreneurs should keep in mind include:

• Verifying that their idea or brand is not already taken.

• Claiming key domain names, trademarks and business visual identity.

• Obtaining a corporate veil.

• Understanding their tax bracket and expectations.

• Finalizing an operating agreement, especially when it comes to partners.

Other important considerations include market conditions, the competitive landscape, organizational structure, cash flow management, non-disclosures, competitors, personal leadership, data-driven decisions, overall layers of risk mitigation and those representing their interests, such as legal, financial and operational professionals. Process, systems, and organizational flow are also essential.

Becoming Unstoppable

As entrepreneurs, we have two ways to learn: By making mistakes ourselves or by learning from others who have already made those mistakes and found solutions before us.

In conclusion, entrepreneurs must understand the importance of mitigating risks and maximizing rewards to ensure the success of their businesses. By evaluating risks effectively and considering key considerations, entrepreneurs can increase their chances of success and avoid becoming a statistic.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

• Editorial Standards
• Reprints & Permissions

• SUGGESTED TOPICS
• The Magazine
• Newsletters
• Managing Yourself
• Managing Teams
• Work-life Balance
• The Big Idea
• Data & Visuals
• Reading Lists
• Case Selections
• HBR Learning
• Topic Feeds
• Account Settings
• Email Preferences

How to Build Risk into Your Business Model

• Karan Girotra
• Serguei Netessine

Smart companies design their innovations around managing risk.

Reprint: R1105G

To create value, companies typically focus on revenue, cost structure, and resource velocity. Improving those factors is the main focus of management literature. But all of them are vulnerable to sharp changes in demand and supply.

Companies can innovate their business models to reduce the impact of such swings. But they can also create value by adding some risk. For instance, more than 30 years ago Rolls-Royce identified a major pain point in the aircraft industry: maintenance of airplane engines. An engine breakdown grounds the plane while the airline pays for repair time and materials. So Rolls-Royce offered a service contract whereby the airline would pay for an engine’s flight hours rather than for time and materials. The new contract triggered a completely new value creation dynamic, because Rolls-Royce was motivated to improve its own products and maintenance processes.

Business model innovations are much cheaper than product and technology innovations, and they can be approached in a systematic way. Furthermore, nearly all the big ones have already been done—so you can simply adapt them to suit your own situation.

The Idea in Brief

Many managers find it harder to tell if changes in their business models will work out than to guess whether a new product or technology will catch on.

The secret to systematic business model innovation is to focus on identifying where the risks are in your value chain. Then determine whether you can reduce them, shift them to other people, or even assume them yourself.

If you take this approach, you won’t need extensive experimentation and prototyping to identify very powerful innovations, because many tools for managing risk are available.

In early 2008 four entrepreneurs in Paris started MyFab, an internet-based furniture retailer that is doing more to change the industry than any other company since IKEA. Instead of building large stocks of furniture, as its competitors do, MyFab provides a catalog of potential designs. Customers vote on them, and the most popular ones are put into production and shipped to buyers directly from the manufacturing sites—with no retail outlets, inventories, complicated distribution, or logistics networks.

• KG Karan Girotra is the Charles H. Dyson Family Professor of Management at Cornell Tech and the Johnson College of Business at Cornell University, and a coauthor, with Serguei Netessine, of The Risk-Driven Business Model: Four Questions That Will Define Your Company (HBR Press, 2014). Follow him on Twitter: @Girotrak
• Serguei Netessine is the vice dean for global initiatives and the Dhirubhai Ambani Professor of Innovation and Entrepreneurship at the University of Pennsylvania’s Wharton School and a coauthor, with Karan Girotra, of  The Risk-Driven Business Model: Four Questions That Will Define Your Company   (HBR Press, 2014). Follow him on Twitter: @snetesin

Partner Center

The Risks and Rewards of Business

Starting a new business is a brave move for even the most qualified of entrepreneurs. The rewards can be life-changing if the concept has legs, and the potential for success is enormously inspiring. But in the temperamental world of business, no success is achieved without taking risks and overcoming obstacles.

With the constant development of emerging and evolving technology, and new start-ups cropping up every day, opportunity for innovation is as rife as competition is fierce.

So, are the risks worth taking in order to reap the rewards? We investigated further.

The biggest risks are taken in the first year of business

Looking at some of the biggest risk and reward stories across the business realm, we have identified six of the most common chances that entrepreneurs take when launching or growing their company.

The most significant and highest stake risks that a business will take usually occur in their first year of operation. It takes funding, a sound USP and a strong business model to get the start-up off the ground, followed by manpower and profit to excel growth. If one area fails, then it can have crucial implications for the future of the business.

Read on to find out more about the risks the world’s largest organisations took in their early phases, in order to get the where they are today.

Risk 1: Growth

Some of the world’s most recognised business success stories can be held accountable to the potentially crippling financial risks that they took to build the business and boost growth.

Firstly, without sufficient financial backing, a company’s prospect for profitability is small. While a lot of entrepreneurs turn to crowd-funding platforms (acquiring funding for a project by appealing for public donations – usually via the internet) to get money in the bank, a large portion of start-ups rely on bank loans and investments from external stakeholders.

Of course, if things go to plan, the business should generate enough income to cover the initial investments and beyond, however, if the gamble doesn’t pay off, the financial consequences can be hampering.

The same can be said for acquiring new assets. Whether done to drive growth, monopolise the market or expand the company’s offerings, mergers are good for business, but they can also come with unforeseen side effects and the ROI may prove uneconomical.

FinTech company, Ebury (external link) , discovered that despite the challenges they faced in order to grow the business, it was the growth itself that proved the biggest risk. Hiscox have put together a case study documenting their rise to global success .

Example: Google

The risk: Acquiring YouTube for $1.65 billion in 2006 The reward: Google is now worth $132.1 billion – including a 160% growth on the initial YouTube investment

Google ranks third in the most valuable companies in the world of 2018 [1] , but it could have been an entirely different story if the astronomical £1.65 billion purchase of YouTube hadn’t proven to be the profitable investment they hoped for.

YouTube had only been around for a year or so at the time of the acquisition, but its videos were already being viewed by as many as a million people a day. While it hasn’t been quite as lucrative as Google may have hoped, YouTube continues to dominate the market and it could be argued that the purchase is worthwhile, even if purely to beat rivals such as Facebook to the acquisition.

Google make a point of not releasing the revenue and income of YouTube as a separate entity, however, it’s been estimated that it brings in over $10 billion annually and could be worth as much as $100 billion [2] .

Risk 2: Cutting costs

In a similar vein to acquiring new business assets, sometimes selling on existing assets can be the most economic option – possibly because it’s costing the business too much to run or even if a desirable offer comes in, that simply can’t be turned down.

While this is a risky move, sometimes selling costly assets to focus money and resources on more profitable areas of the business can be a positive move for the progression of the company.

Example: Virgin Group

The risk: Selling Virgin Records for $1 billion to focus on Virgin Atlantic The loss: Air France-KLM bought a 31% stake in Virgin Atlantic business leaving Virgin Group with a minority stake of just 20% [3] .

Having founded Virgin Records in 1972, Branson successfully turned the label from a small successful record shop into a ground-breaker of the music industry, with some of the world’s hugest artists on the bill.

Entrepreneurialism simply runs through Branson’s veins, however, and by 1992 he struck a deal to sell the label for $1 billion to part-fund his new venture – Virgin Airlines. This was a mammoth sum at the time, and it helped to propel the Virgin Atlantic business into success.

In 2018, however, it was reported that Virgin Atlantic has made a loss of £28.4 million for 2017 [4] and Air France KLM bought a 31% stake in the business worth £220 million, leaving Virgin Group with the minority stake (20%), while Delta retain 49%. Based on the price paid for the shares, you could estimate that the Virgin Atlantic business is worth approximately £709 million. This is significantly less than what Virgin Records sold for in 1992, and that’s not even accounting for inflation.

Risk 3: Strategy

It would be wrong to presume the risks taken by businesses are simply optimistic gambles. With so much on the line, realistically, every move is a calculated and very deliberate action. If a business isn’t meeting expectations in those early days, it’s critical that the reason(s) for the short-coming is identified and actioned strategically.

Sometimes a change of strategy is essential for the progression of the business, and in other cases altering the direction of the company altogether to suit market demand, or to navigate obstacles could be what it takes to achieve long-term success.

Perkbox (external link) changed their business model three times before finding success. Read what CEO, Saurav Copra, has to say about the challenges they overcame in a case study .

Example: Dyson

The risk: Borrowing $900,000 to start a manufacturing line instead of selling blueprint The reward: The company is now worth $5.3 billion

Making the decision to start his own manufacturing company – rather than selling on the blueprint for the Dyson vacuum cleaner to an existing retailer – was the best career choice James Dyson ever made.

Having purchased what was allegedly the “most powerful vacuum cleaner on the market” (and subsequently finding that the product was far from efficient), Dyson resolved that he would create a new model that would blow the competing design out of the water. After five years of experimenting with prototypes, the vacuum cleaner was ready, but the anticipated demand from domestic appliance retailers simply wasn’t there.

At this point, he formulated a plan to open a manufacturing line himself – a business that required a $900,000 bank loan [5] . With hard work, determination and a strong sales pitch, he managed to get the Dyson vacuum cleaner into stores across the UK, and by 1996 it was the bestselling vacuum cleaner in Britain. Not long after, it went global.

Today, Dyson is worth an extraordinary $5.3 billion dollars and that $900,000 loan is old news.

Risk 4: Market demand

The starting point for any new business is identifying a gap in the market – because without a strong USP, the company is likely to get swallowed up among competition. For your own assurance, as well as stakeholders, every business leader should thoroughly assess the market demand (or how you could drive this demand) and build a full understanding of how your business could fit into the current landscape.

Introducing a fresh product to an existing market or creating a brand-new market altogether, gives the advantage of lesser market rivalry, however, the customers will need convincing that this innovation will benefit them in some way.

Smart energy company, geo (external link) , took the plunge into launching a new piece of technology, into a basically untouched market. Hiscox has documented how they went on to become a market leader in a case study .

Example: TOMS

The risk: Creating a business model on the premise of giving away free stock The reward: Sold 50% stake to Bain Capital Private Equity in 2014, valuing the company at $625 million [6] .

When TOMS founder Blake Mycoskie hatched the concept for the “one for one” (for every pair of shoes purchased a pair is donated to a child in need) business model that the brand runs on, he didn’t have an easy time finding a shoemaker who would work with him. They all thought he was crazy, and the business would never have legs. Fortunately, he managed to convince a local shoemaker called Jose and the rest is history.

Upon launch of the brand, the press loved the TOMS story and within the first summer 10,000 pairs of shoes had been sold. The company went on to become more and more profitable and in 2014 private equity firm, Bain, took a 50% stake in the then valued $625 million business.

Unfortunately, four years on, TOMS’ earnings are down by a half as sales struggle and the company is facing approximately $350 million of debt, which analysts put down to the company not expanding their product-range enough [7] .

Risk 5: Product demand

For a product to be profitable, it must provide the solution to an existing problem – if not, you’re opening yourself up for a tough ride convincing investors that it’s worth their money and customers that they want to buy it.

Example: flickr

The risk: Investing $450,000 into ditching their existing project for a new product The reward: A 77% growth on initial investment

When Flickr founders Steward Butterfield and Caterina Fake founded the company, they originally intended for it to be a kind of a multiplayer online game, which eventually was turned into a chat system with live photo-sharing options. They later discovered that as the internet is ever changing, their product had to be too. Their users wanted to share photographs, not chat, so that’s the direction they took it in.

In 2005, Yahoo bought flickr for $25 million [8] , from which the site rose in popularity among professional and amateur photographers. Unfortunately, it was still early in the growth of tech start-ups at the time and flickr likely missed out on what could have been a much larger buyout if they had held out for just a few more months, when the market took off – Myspace was sold to News Corp. for $580 million in July 2005 and YouTube was acquired by Google in October 2006 for $1.65 billion.

In 2018, after Yahoo’s acquisition by Verizon, flickr was sold on again to the independent image-hosting firm SmugMug.

Risk 6: Team

The beating heart of every successful business is a strong workforce, who share the same values and goals for the future and progression of the company. A lack of cooperation, or disagreements about key business activities can create roadblocks for maintaining successful growth.

Unfortunately, it’s not uncommon for a business to suffer as a result of personal fall-outs and breakdowns of relationships within the team. On top of this, every company with employees has to consider that they are responsible for their staff’s wellbeing. Employers’ liability insurance is a legal requirement, and can cover the business in the case an employee falls ill or is injured as a result of their work.

Unforeseen circumstances can’t be avoided, but it’s only sensible to take the time to confirm that everyone on board wants the same results before launching the business and you have the right cover in place to protect the business from costly legal fees.

Example: Zipcar

The risk: Starting a business with an unfamiliar partner, with just $68 in the bank The reward: Zipcar was sold to Avis for $491 million,  [9] 6547% the initial investment

For Zipcar founders, Antje Danielson and Robin Chase, the biggest risk of starting the company from nothing wasn’t purely the financial gamble, but also going into business with somebody they didn’t know all so well.

Launching Zipcar in 2000 with just $68 in the bank, a few short months after meeting, it wasn’t long before a rift grew between the pair. This led to Chase firing Danielson in 2001 over a dispute in a board meeting, before Chase was also fired after a fruitless round of funding in 2003.

Ironically, Zipcar went on to become a phenomenal success – it was sold to Avis in 2013 for a colossal $491 million, [10] 6547% the initial investment – but neither benefitted from the riches.

What’s evident from looking at each of the above companies’ stories, is that risk is an inevitable part of every business – nobody said success is easy! While chances still need to be taken to maintain growth and profitability after the business is fully established, it’s the high-stake risks in the early phases of a business that can present the most impactful rewards or obstacles.

Unsurprisingly, financial ventures carry the highest risk and reward potential. After all, money is a central factor in the motivation and operation of business. Other lesser considered risks, such as the humans behind the company’s running and changing market demands can also have a significant impact though.

Having a comprehensive business insurance policy in place can protect your business from many of the common risks faced in the day to day running, so you can have peace of mind and focus your attention on the positive sides of the business.

[1] https://www.forbes.com/sites/kurtbadenhausen/2018/05/23/the-worlds-most-valuable-brands-2018-by-the-numbers/#61276e3b2eed (external link) [2] https://www.thestreet.com/investing/youtube-might-be-worth-over-100-billion-14586599 (external link) [3] https://www.bbc.co.uk/news/business-40745277 (external link) [4] https://www.ft.com/content/a81e071a-2847-11e8-b27e-cc62a39d57a0 (external link) [5] https://www.inc.com/magazine/201203/burt-helm/how-i-did-it-james-dyson.html (external link) [6] https://www.forbes.com/sites/clareoconnor/2014/08/20/bain-deal-makes-toms-shoes-founder-blake-mycoskie-a-300-million-man/#b69dd0556680 (external link) [7] https://thehustle.co/toms-shoes-struggling/ (external link) [8] https://www.theguardian.com/technology/2018/apr/23/flickr-bought-by-smugmug-yahoo-breakup (external link) [9] https://www.theverge.com/2014/4/1/5553910/driven-how-zipcars-founders-built-and-lost-a-car-sharing-empire (external link) [10] https://www.theverge.com/2014/4/1/5553910/driven-how-zipcars-founders-built-and-lost-a-car-sharing-empire (external link)

Disclaimer: At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.

Related articles

What the Brexit trade deal really means for small businesses

The School of Hard Knocks: when should you grow your small business?

Businesses emerging from the pandemic: how can you begin to recover?

DNA of an Entrepreneur 2014: Innovation key to growth

The 10 biggest challenges businesses face today (and need consultants for)

8 key risks all businesses should manage (but often don’t) / Bernard Marr

The Hiscox Experts are leaders valued for their experience within the insurance industry. Their specialisms include areas such as professional indemnity and public liability, across industries including media, technology, and broader professional services. All content authored by the Hiscox Experts is in line with our editorial guidelines .  

Your session will end in 60 seconds!

• Solutions Company creation Business account Certified accounting Invoicing Expense management
• Resources Contact Sales (WhatsApp) Help Center Blog

You are reading...

Home > Start a Business > 5 Tips for Balancing Entrepreneurial Risk and Reward

5 Tips for Balancing Entrepreneurial Risk and Reward

By Bernardo Barbosa

Published on 9 January 2024

5 mins read

In the world of entrepreneurship, uncertainty is a constant companion. Nevertheless, one must embrace this uncertainty and view it as an opportunity for growth and innovation. Taking risks is an essential part of the entrepreneurial journey, and it requires a mindset that is open to new possibilities and willing to step outside of your comfort zone. But how does one even begin with balancing entrepreneurial risk and reward?

To get you started, here are a few key points to keep in mind:

• **Be adaptable:** The ability to adapt to changing circumstances is crucial for success in the entrepreneurial world. Being open to new ideas and willing to pivot when necessary can help navigate uncertain situations.
• **Stay informed:** Stay up-to-date with industry trends, market conditions, and customer needs. This knowledge will enable you to make informed decisions and anticipate potential challenges.
• **Seek support:** Surround yourself with a network of mentors, advisors, and fellow entrepreneurs who can provide guidance and support during uncertain times.

Embracing uncertainty is not about blindly taking risks, but rather about being strategic in your approach. Below, we have listed five important tips that can help you grow your business while taking calculated risks.

Begin your Business Adventure in Portugal Today!

1. Taking Calculated Risks

When it comes to entrepreneurship, taking risks is inevitable. However, successful entrepreneurs understand the importance of taking calculated risks. These risks should be carefully evaluated and analyzed, considering all potential outcomes and consequences. To do so, entrepreneurs should:

• Conduct thorough market research to identify opportunities and assess market demand.
• Evaluate the potential return on investment and weigh it against the potential risks.
• Seek advice and guidance from experienced mentors or industry experts .
• Develop contingency plans to mitigate potential losses.

Taking calculated risks is about finding the right balance between ambition and caution and making informed decisions that have the potential to yield significant rewards.

2. Identifying and Evaluating Opportunities

To identify and evaluate opportunities, start by looking for gaps in the market that your business can fill, and consider the potential profitability of each one. Analyzing the feasibility of different options is equally crucial, as it helps you determine the risks and rewards associated with each opportunity.

To summarize:

• Look for gaps in the market
• Analyze the feasibility of different options
• Evaluate factors such as market size and competitive landscape
• Assess the viability of each opportunity

3. Developing a Solid Business Plan

Here are some key points to consider when developing your business plan:

• Clearly define your business objectives and target market.
• Identify your unique selling proposition and how you will differentiate yourself from competitors.
• Outline your marketing and sales strategies to reach your target audience.
• Develop a detailed financial plan, including revenue projections, expenses, and funding requirements.

A well-crafted business plan helps you secure funding and provides a clear direction for your entrepreneurial journey.

4. Diversifying Your Investments

Here are some key benefits of diversification:

• **Risk reduction:** Diversification helps to minimize the impact of a single investment's poor performance on your entire portfolio. If one investment underperforms, others may offset the losses.
• **Opportunity for growth:** By investing in a variety of assets, you increase your chances of benefiting from the growth of different sectors or regions.
• **Stability:** Diversification can provide stability to your portfolio by balancing out the ups and downs of individual investments.

Diversification is not just about spreading your investments randomly. It requires careful consideration of your risk tolerance, investment goals, and time horizon. Consulting with a financial advisor can help you develop a well-diversified investment strategy that aligns with your specific needs and objectives.

5. Implementing Risk Management Strategies

• **Identify potential risks:** Conduct a thorough analysis of your business operations and identify any potential risks that could impact your business.
• **Assess the likelihood and impact:** Evaluate the likelihood and potential impact of each identified risk to prioritize your risk management efforts.
• **Develop risk mitigation plans:** Create a plan to mitigate each identified risk, outlining specific actions and strategies to minimize their impact.
• **Monitor and review:** Regularly monitor and review your risk management strategies to ensure their effectiveness and make necessary adjustments.

Implementing effective risk management strategies is an ongoing process that requires continuous evaluation and adaptation. By proactively managing risks, entrepreneurs can safeguard their businesses and increase their chances of long-term success.

Was this helpful?

Written by bernardo barbosa.

Our specialised team focuses on bringing relevant and useful content everyday for our community of entrepeneurs. We love to stay updated and we thrive on sharing the best news with you.

Subscribe to our newsletter

Receive the latests insights and trends to help you start and run your business.

Start your 30-day free trial

Full flexibility. cancel anytime. no hidden fees., available on.

4.8 on Trustpilot

4.6 on App Store

4.4 on Play Store

Want to stay updated with our latest news.

No spam, ever. Your email address will only be used for the company news.

Shopping Cart

No products in the cart.

Balancing Risk and Reward in Business Ventures

Embarking on a business venture is like navigating uncharted waters. It’s an exciting journey filled with opportunities, but it also comes with its fair share of challenges. Understanding how to balance risk and reward is crucial for entrepreneurs, and it’s a skill that even high school and homeschooling students can benefit from as they prepare for the future. In this comprehensive guide, we’ll delve into the definitions of risk and reward in the business context, explore the challenges faced by entrepreneurs, discuss the potential rewards, and provide practical strategies for maintaining equilibrium.

Defining Risk and Reward

Before we delve into the intricacies of balancing risk and reward, it’s essential to understand these fundamental concepts. Risk, in the business realm, refers to the possibility of encountering negative outcomes or financial losses. On the other hand, reward encompasses the positive outcomes and financial gains associated with a successful business venture. Both elements are inherently intertwined in the entrepreneurial landscape, creating a delicate balance that requires strategic decision-making.

Entrepreneurial Risks

• Financial Risks: Entrepreneurs often invest personal savings or secure loans to fund their ventures.Fluctuations in the market can lead to financial instability, affecting cash flow and profitability.
• Market Risks: Consumer preferences, competition, and technological advancements can impact the market demand for a product or service.
• Operational Risks: Challenges in supply chain management, production processes, or unforeseen disruptions can pose operational risks.
• Regulatory Risks: Changes in government regulations can impact industries, leading to compliance challenges and potential legal consequences.

Entrepreneurial Rewards

• Financial Gains: Successful business ventures can yield significant profits, providing entrepreneurs with financial independence.
• Personal Fulfillment: Entrepreneurship allows individuals to pursue their passions and bring their innovative ideas to life.
• Professional Growth: Building and managing a business fosters valuable skills, such as leadership, decision-making, and adaptability.
• Job Creation: Successful businesses contribute to the economy by creating job opportunities for others.

Balancing Risk and Reward

• Strategic Planning: Develop a comprehensive business plan that outlines goals, potential challenges, and mitigation strategies.
• Diversification: Spread investments across different sectors or products to minimize the impact of market fluctuations.
• Risk Assessment: Regularly assess potential risks and update strategies to adapt to changing market conditions.
• Financial Management: Maintain a healthy financial structure, including a contingency fund, to navigate unforeseen challenges.
• Continuous Learning: Stay informed about industry trends, market dynamics, and emerging technologies to make informed decisions.

School or Homeschool Learning Ideas

• Business Simulation Games: Utilize business simulation games to teach students about decision-making, risk analysis, and the consequences of their choices.
• Entrepreneurial Case Studies: Explore real-world entrepreneurial case studies, discussing both successful ventures and those that faced challenges.
• Guest Speakers : Invite local entrepreneurs to share their experiences and insights with students, offering firsthand perspectives on risk and reward.
• Budgeting Exercises: Engage students in practical budgeting exercises, helping them understand financial management and the importance of contingency planning.
• Business Plan Development: Guide students in developing a basic business plan for a hypothetical venture, emphasizing risk assessment and strategic planning.

What Our Children Need to Know

• Recognizing Opportunities: Encourage children to identify opportunities in their surroundings, fostering an entrepreneurial mindset from a young age.
• Failure as a Learning Opportunity: Emphasize that failure is a part of the entrepreneurial journey, providing valuable lessons and opportunities for growth.
• Ethical Decision-Making: Teach the importance of ethical decision-making in business, emphasizing the long-term benefits of integrity and responsibility.
• Adaptability and Resilience : Instill the qualities of adaptability and resilience, preparing children for the dynamic nature of the business world.

The Big Questions

• What motivates entrepreneurs to take risks in the business world?
• How can individuals balance the pursuit of passion with the need for financial stability in entrepreneurship?
• Do you believe that failure is an inherent part of the entrepreneurial journey, or can success be achieved without facing significant setbacks?
• In what ways can entrepreneurs contribute positively to their communities while achieving financial success?
• Is there an age limit to starting a business, or can individuals of any age pursue entrepreneurial endeavors?

Balancing risk and reward in business ventures is a skill that transcends age and educational backgrounds. Entrepreneurs must navigate a complex landscape, making strategic decisions to achieve success while minimizing potential pitfalls. By instilling these principles in students and homeschooling learners, we empower the next generation to approach challenges with resilience, creativity, and a strategic mindset.

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Cancel reply

Restricted Content

There was a problem reporting this post.

Block Member?

Please confirm you want to block this member.

You will no longer be able to:

• See blocked member's posts
• Mention this member in posts
• Invite this member to groups
• Message this member
• Add this member as a connection

Please note: This action will also remove this member from your connections and send a report to the site admin. Please allow a few minutes for this process to complete.

Upgrade to become a Premium Member and avail 20% discount on all courses.

• Search Search Please fill out this field.

What Is Business Risk?

Understanding business risk, reducing business risk, the bottom line, business risk: definition, factors, and examples.

Business risk is the exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Anything that threatens a company’s ability to achieve its financial goals is considered a business risk .

There are many factors that can converge to create business risk. Sometimes it is a company’s top leadership or management that creates situations where a business may be exposed to a greater degree of risk.

However, sometimes the cause of risk is external to a company. Because of this, it is impossible for a company to completely shelter itself from risk. However, there are ways to mitigate the overall risks associated with operating a business ; most companies accomplish this by adopting a risk management strategy.

Key Takeaways

• Business risk is any exposure a company or organization has to factor(s) that may lower its profits or cause it to go bankrupt.
• The sources of business risk are varied but include changes in consumer taste and demand, the state of the overall economy, and government rules and regulations.
• Risk can be created by external factors that the business doesn’t control, as well as by decisions made within the company’s management or executive team.
• While companies may not be able to completely avoid business risk, they can take steps to mitigate its impact, including the development of a strategic risk plan.

Xiaojie Liu / Investopedia

When a company experiences a high degree of business risk, it may impair its ability to provide investors and stakeholders with adequate returns. For example, the chief executive officer (CEO) of a company may make certain decisions that affect its profits, or the CEO may not accurately anticipate certain events in the future, causing the business to incur losses or fail.

Business risk is influenced by a number of different factors, including:

• Consumer preferences, demand, and sales volumes
• Per-unit price and input costs
• Competition
• The overall economic climate
• Government regulations

A company with a higher amount of business risk may decide to adopt a capital structure with a lower debt ratio to ensure that it can meet its financial obligations at all times. With a low debt ratio, when revenues drop, the company may not be able to service its debt (and this may lead to bankruptcy ). On the other hand, when revenues increase, a company with a low debt ratio experiences larger profits and is able to keep up with its obligations.

To calculate risk, analysts use four ratios: contribution margin, operation leverage effect, financial leverage effect, and total leverage effect. For more complex calculations, analysts can incorporate statistical methods.

Business risk usually occurs in one of four ways: strategic risk, compliance risk, operational risk, and reputational risk .

Types of Business Risk

Strategic risk.

Strategic risk arises when a business does not operate according to its business model or plan. When a company does not operate according to its business model, its strategy becomes less effective over time, and the company may struggle to reach its defined goals.

For example, imagine ABC Store is a big box store that strategically positions itself as a low-cost provider for working-class shoppers. Its main competitor is XYZ Store, which is seen as a destination for more middle-class consumers. However, if XYZ decides to undercut ABC’s prices, this becomes a strategic risk for ABC.

Compliance Risk

The second form of business risk is compliance risk, sometimes known as regulatory risk. Compliance risk primarily arises in industries and sectors that are highly regulated. For example, in the wine industry, there is a three-tier system of distribution that requires wholesalers in the United States to sell wine to a retailer, which then sells it to consumers. This system prohibits wineries from selling their products directly to retail stores in some states.

However, many U.S. states do not have this type of distribution system; compliance risk arises when a brand fails to understand the individual requirements of the state in which it is operating. In this situation, a brand risks becoming noncompliant with state-specific distribution laws and may face fines or other legal action.

Operational Risk

The third type of business risk is operational risk . This risk arises from within the corporation, especially when the day-to-day operations of a company fail to perform.

For example, in 2012, the multinational bank HSBC faced a high degree of operational risk and, as a result, incurred a large fine from the U.S. Department of Justice when its internal anti-money laundering (AML) operations team was unable to adequately stop money laundering in Mexico.

Reputational Risk

Anytime a company’s reputation is ruined, either by an event that was the result of a previous business risk or by a different occurrence, it runs the risk of losing customers and its brand loyalty suffering. The reputation of HSBC faltered in the aftermath of the fine it was levied for poor anti-money laundering practices.

Business risk cannot be entirely avoided because it is unpredictable. However, there are many strategies that businesses employ to cut back the impact of all types of business risk, including strategic, compliance, operational, and reputational risk.

The first step that brands typically take is to identify all sources of risk in their business plan . These aren’t just external risks—they may also come from within the business itself. Taking action to cut back the risks as soon as they present themselves is key. Management should come up with a plan to deal with any identifiable risks before they become too great.

Finally, most companies adopt a risk management strategy . This can be done either before the business begins operations or after it experiences a setback. Ideally, a risk management strategy will help the company be better prepared to deal with risks as they present themselves. The plan should have tested ideas and procedures in place in case risk presents itself.

Once the management of a company has come up with a plan to deal with the risk, it’s important that they take the extra step of documenting everything in case the same situation arises again. After all, business risk isn’t static—it tends to repeat itself during the business cycle. By recording what led to risk the first time, as well as the processes used to mitigate it, the business can implement those strategies a second time with greater ease. This reduces the time frame in which unaddressed risk can impact the business, as well as lowering the cost of risk management.

What Are the 4 Main Types of Business Risk?

The four main types of risk that businesses encounter are strategic, compliance (regulatory), operational, and reputational risk. These risks can be caused by factors that are both external and internal to the company.

Why Is Risk Management Important in Business?

Businesses face a great deal of uncertainty in their operations, much of it outside their control. This uncertainty creates risk that can jeopardize a company’s short-term profits and long-term existence. Because risk is unavoidable, risk management is an important part of running a business. When a business has a thorough and carefully created risk management plan in place, and when it is able to iterate on that plan to deal with new and unexpected risks, the business is more likely to survive the impact of both internal and external risk.

What Are Internal Risks That Can Impact a Business?

Internal risks that can impact a business often come from decisions made by the management or executive team in pursuit of growth. These decisions can create physical or tangible risks. For example, on-site risks such as fires, equipment malfunctions, or hazardous materials can jeopardize production, endanger employees, and lead to legal or financial penalties. Policies that guarantee a safe working environment would, in this instance, be an effective strategy for managing internal risks.

In business, risks are factors that an organization encounters that may lower its profits or cause it to fail. Sources of risk can be external, such as changes in what consumers want, changes in competitor behavior, external economic factors, and government rules or regulations. They can also be internal, such as decisions made by management or the executive team.

No company can completely avoid risks, especially because many risk factors are external. However, businesses can put risk management strategies into place. These strategies can be used to reduce risk and to mitigate the impact of risks when they arise. By documenting the sources of risk and creating a strategic plan that can be repeated, businesses can reduce the overall impact of risk and deal with it more efficiently and effectively in the future.

National Alcohol Beverage Control Association. “ Alcohol Regulation 101: Three-Tier System .”

National Alcohol Beverage Control Association. “ Alcohol Regulation 101: Structure of U.S. Alcohol Regulation .”

U.S. Department of Justice, Office of Public Affairs. “ HSBC Holdings Plc and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations, Forfeit $1.256 Billion in Deferred Prosecution Agreement .”

• Terms of Service
• Editorial Policy
• Privacy Policy

Live revision! Join us for our free exam revision livestreams Watch now →

Reference Library

Collections

• See what's new
• All Resources
• Student Resources
• Assessment Resources
• Teaching Resources
• CPD Courses
• Livestreams

Study notes, videos, interactive activities and more!

Business news, insights and enrichment

Currated collections of free resources

Browse resources by topic

• All Business Resources

Resource Selections

Currated lists of resources

• Study Notes

Starting a Business: Risks and Rewards (GCSE)

Last updated 22 Mar 2021

• Share on Facebook
• Share on Twitter
• Share by Email

An entrepreneur cannot avoid risk in a start-up and everyone knows that a large proportion of new businesses eventually fail. The trick is to assess:

• What the main risks are in a new business (e.g. unexpected costs, lower than expected sales, failure to secure distribution)
• The probability of the risks happening (this has to be an estimate)
• What would happen if the risks occur – cost, cash etc

The third part of the assessment above is perhaps the most important. For the small business, often starved of cash, even a relatively small event can prove disastrous. The entrepreneur has to assess the potential impact on the business of a risk, but also assess the upside (where things turn out to be better than expected).

So, a calculated risk can be defined as follows:

"A risk that has been given thoughtful consideration and for which the potential costs and potential benefits have been weighted and considered"

Entrepreneurs take calculated risks everyday, since they take decisions everyday. Each time they take a decision they are weighing up the significance of the options and (often intuitively) working out whether to go ahead.

Rewards from enterprise

That's enough about the negative side of setting a business up. What about the rewards? We looked earlier at the motivations for setting up a business. Many of the intangible rewards that arise from being in business happen because these motives are achieved.

• A sense of satisfaction
• Building something
• Being in control
• Making that first sale
• Opening a new location
• Employing more people
• Getting an industry award or good publicity
• Getting great feedback from customers

These are the kind of non-financial rewards that give entrepreneurs a buzz.

However, ultimately, it is the financial rewards that justify the effort and make taking the risk worthwhile.

You should also remember that there is a strong tradition of entrepreneurs who have built and sold one business for a substantial amount going onto build other successful businesses. They never lose the entrepreneurial buzz. Such people are called " serial entrepreneurs ".

• Risk-taking
• Calculated risk
• Entrepreneur

You might also like

Generating business ideas for a start-up (revision presentation).

Teaching PowerPoints

The Big Bang Theory does Business Studies

15th September 2015

CEO Secrets

28th December 2018

BREXIT and Contingency Planning

22nd February 2016

Brexit: A Failure of Contingency Planning?

29th March 2016

Introducing Topic Plus PowerPoints for Edxcel GCSE Business (9-1) - Theme 1

11th September 2017

The rise of the freelancer

15th August 2018

How to start an airline

1st March 2021

Our subjects

• › Criminology
• › Economics
• › Geography
• › Health & Social Care
• › Psychology
• › Sociology
• › Teaching & learning resources
• › Student revision workshops
• › Online student courses
• › CPD for teachers
• › Livestreams
• › Teaching jobs

Boston House, 214 High Street, Boston Spa, West Yorkshire, LS23 6AD Tel: 01937 848885

• › Contact us
• › Terms of use
• › Privacy & cookies

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.

• Resume & Cover Letters
• HR & Workforce Management
• Finding a Job
• Career Growth
• News & Trends

Risk Versus Reward for Businesses

Find your new job.

Look for your perfect career match with the Jobillico job search!

All businesses find themselves weighing the benefits of risk versus reward when planning for the future. The leaders of organizations must balance the continued welfare of the company and its employees with the opportunity for expansion and increased success. 

Companies that take risks are industry leaders. From Netflix recognizing the appeal of streaming over physical media to Apple designing an edge-to-edge screen with the iPhone, they made risky decisions that went against common industry trends at the time. This is not to say that every company is one risky maneuver away from becoming a giant corporation bent on marketplace disruption, but the same principles and theories still apply.

When considering risk versus reward, leaders must weigh important factors. These include the potential business rewards – both tangible and intangible – and the impact on employees, while also using tools such as cost-benefit analysis and risk assessment software as part of a strategic management approach.

Performing a Risk Assessment

Just because a project is seen as a risk, it does not mean that it should be treated as an unknown. Do not mistake taking a risk for being unprepared. As part of a company’s strategic management plan, a full risk assessment will still provide a wealth of information regarding potential scenarios. All available information should be collected and organized in order for company leaders to make an informed decision.

For large corporations, the emerging field of risk assessment software has grabbed a lot of industry attention . Using customizable programs, the risk is quantified and analyzed using a series of statistics and probabilities in order to arrive at a conclusion. While this approach is appealing for conglomerates, medium-sized business will do well to remember the human element in their organizational chart. They have a more limited audience, and therefore consumer trends may also be more limited.

A Cost-Benefits Analysis

While taking a risk is potentially beneficial from the viewpoint of expanding your company, you still need to ensure that the benefits from such a risk align with your company goals . Once you have collected as much data and information as possible regarding a new project it is time for a cost-benefit analysis. This is an important component of good strategic management and will ensure that you remain on track with your large-scale business goals.

Steps of Cost-Benefit Analysis

There is a proper methodology which should be followed when performing a cost-benefit analysis. Important factors to be considered include:

• Determining if the venture aligns with current company goals
• Identifying how much of your current resources (time, budget and employee attention) will be required
• Estimating the financial compensation and deciding if it outweighs new onboarding costs
• Creating a timetable of achievements, milestones and stretch goals
• Setting a date to reanalyze the current strategy and determine if changes are required

Of course, it will be impossible to predict exactly how any new business plan will work out until it has been put into practice. A thorough cost-benefit analysis with proper methodology will provide you with an accurate view of your company’s current state and objectives, on which you can base your decision when deciding risk versus reward.

The Impact of Risk on Employees

Proper risk assessment and risk management must also extend to a company’s most valuable resource: the employees themselves. Many workers would consider stability and certainty to be important factors in the workplace, and undertaking risky ventures will definitely introduce an element of instability into a company.

As a company leader, it should be a top priority to reduce stress and pressure in the workforce. Without doing so, it can lead to serious exhaustion and employee burnout . Employees that experience less stress are more productive, produce better results, feel more loyal and consequently do whatever they can to improve a company’s standing and reach stretch goals. A new business project will entail more uncertainty, in addition to the increase in the daily workload required to achieve success.

It is important for businesses to take employee health into account when considering risk versus reward, as workers who feel burnt out, disgruntled or unappreciated will be less inspired to contribute fully to a new project. A new business project may even entail revising your organizational chart to ensure that the increased workload will be handled without additional strain on workers. By making sure that your employees understand the rewards for themselves and the organization, you will put the company in a better position to succeed.

The Importance of Strategic Meetings

It is important that your company instils a corporate culture among employees which supports risk-taking and its potential awards. Employees should also be involved in processes of considering risk versus reward. After presenting a thorough risk assessment analysis, strategic meetings are a perfect way to foster unity among team members while mapping out company plans, as long as they are organized correctly .

Presenting the positive rewards and negative risks of a new strategy to the entire team will result in a range of opinions. By allowing your team a voice, you are guaranteeing a diversity of viewpoints which may highlight factors and possibilities that have been overlooked. They can point out unseen issues, shape the organizational approach for the better and suggest stretch goals should a new project prove successful.

Ensuring open communication between team members will reinforce a culture of intelligent risk-taking within your company, and let employees know that they are encouraged to think outside the proverbial box.

Tangible and Intangible Business Rewards

The simplest reason for undertaking a risky endeavour is that it will be rewarding to your business. Things become complicated, however, when trying to determine the tangible and intangible business rewards. In terms of strategic management, both can greatly impact your decision, but only one is easy to determine when considering risk versus reward.

Tangible rewards are easily quantifiable and backed up by hard data. These include financial rewards such as increased revenue, the improvement of the company’s overall worth, and even performance bonuses for employees. An additional tangible reward that is very valuable for a company is an expanded customer base. These rewards can be estimated before beginning a project and compared to the project costs.

Intangible rewards are difficult to quantify because they do not produce monetary results in the same manner. These rewards include increased brand awareness, image improvement through affiliation, and the possibility of marketplace disruption. If you have determined that the tangible rewards are already a strong enough incentive, intangible rewards can be considered stretch goals which can positively impact the overall value of a company .

All businesses take risks. The very act of starting a company is in itself an incredibly risky venture, but one that can bring with it great reward. When considering the risks versus the rewards of a new business project, it is important to be thorough and prepared in your assessment. By taking into account all the available information and ensuring that it aligns with company goals and operating principles, your business can put themselves in the best possible situation to succeed and be rewarded.

Navigating Career Development in a Globalized Job Market

XR Technology: The Solutions Transforming the Global Job Market

Why Nursing is Becoming the Most In-Demand Profession in 2024 

10 Reasons To Live and Work in Canada in 2024 

4 Major 2024 HR Trends

2024 Statutory Holidays in Ontario: The Complete List 

• Business Essentials
• Leadership & Management
• Credential of Leadership, Impact, and Management in Business (CLIMB)
• Entrepreneurship & Innovation
• Digital Transformation
• Finance & Accounting
• Business in Society
• For Organizations
• Support Portal
• Media Coverage
• Founding Donors
• Leadership Team

• Harvard Business School →
• HBS Online →
• Business Insights →

Business Insights

Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

• Career Development
• Communication
• Decision-Making
• Earning Your MBA
• Negotiation
• News & Events
• Productivity
• Staff Spotlight
• Student Profiles
• Work-Life Balance
• AI Essentials for Business
• Alternative Investments
• Business Analytics
• Business Strategy
• Business and Climate Change
• Design Thinking and Innovation
• Digital Marketing Strategy
• Disruptive Strategy
• Economics for Managers
• Entrepreneurship Essentials
• Financial Accounting
• Global Business
• Launching Tech Ventures
• Leadership Principles
• Leadership, Ethics, and Corporate Accountability
• Leading Change and Organizational Renewal
• Leading with Finance
• Management Essentials
• Negotiation Mastery
• Organizational Leadership
• Power and Influence for Positive Impact
• Strategy Execution
• Sustainable Business Strategy
• Sustainable Investing
• Winning with Digital Platforms

What Is Risk Management & Why Is It Important?

• 24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

Access your free e-book today.

What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

• Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
• Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
• Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

• Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
• Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
• Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
• Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

About the Author

Making Risk and Reward Decisions

Every decision, personal and corporate, is a decision of risk and reward.

The concept of risk and reward is timeless. From the scripture that says, “What does it profit a man to gain the whole world but lose his soul?”, to the gospel of Warren Buffett, “Risk comes from not knowing what you are doing. Never invest in a business you cannot understand.” Then and now the benefits of managing risk are numerous and the downside is zero. The process of evaluating and mitigating the risks we face and the risks we take can be complicated, but it doesn’t need to be when we manage risk using a structured method.

Management of the risks we face is typically the day-to-day responsibility of anyone in an organization concerned with events that are uncertain and would involve a loss to the corporate objectives should they occur; executives commonly perform this task. Management of the risks we take is considered throughout an organization, by anyone who makes decisions, both large and small. Most choices involve some risk that should be considered when deciding between alternatives in the pursuit of achieving your objectives. Unfortunately, we often overlook the deliberate step of assessing risk when making decisions.

Kinds of Risk – Sources of Risk:

First, we need to understand the categories of risk; broadly there are seven kinds and sources of risk:

• Strategic – Industry Dynamics
• Compliance – Government Regulations
• Financial – Company Practices
• Operational – Internal Processes
• Reputational – Established Goodwill
• Other Risks – Multiple (i.e., natural disasters, and political or economic instability)
• Residual – Unmitigated

A Four-Step Process:

Then use the four-step process to approach and address each risk:

• Identify – Describe events that could negatively impact the objective.
• Assess – Prioritize the events based on likelihood and severity using a ration scale, and determining acceptable levels of risk.
• Control – Implement cause and corrective actions and gap analysis, mitigating risk to an acceptable level.
• Monitor – Regularly measure mitigation effectiveness.

Integration Risk Management to Strategic Planning:  

The next step is to integrate risk management into your strategic planning process where the risks you take and the risks you face are viewed in light of the mission, strategy, objectives, and resulting initiatives. It is impossible to separate risk management from strategic planning as risk must inform the strategic plan.

Doing it Right:

The lack of communication regarding risk between the levels and functions in the organization, bottom-up and top-down up-stream and down-stream, is a significant issue for most organizations, and even for those with risk management programs in place. There must be a common risk language and a multi-directional conduit of information flow that allows decisions at all levels to align decisions to the strategic plan and its related risk tolerance. Communication must be safe for all – no shooting the messenger! Also, there is no such thing as over-communication regarding corporate objectives and risk tolerance; even if their heads are nodding up and down that does not mean they understand nor does it mean all are aligned. I have often wondered if these success-critical messages should be set to music so everyone can sing along.

The use of intuition for risk identification and measurement without hard operational data and proportionality is a trap. Mitigations need to have a business case based on scientifically-valid data that will provide the maximum risk reduction within a budget. Also, you must be able to consider other constraints, such as dependencies, time, and political considerations. By scientifically valid, we mean that measurements of likelihood and severity must possess proportionality. Most risk assessments multiply ordinal measures of likelihood and severity; ordinal measures can be worse than having no risk measures at all and yield incorrect results.

The processes of making risk-related decisions are as varied as the number of people in an organization. A standard decision-making process, in concert with organizational alignment, will assist in creating the common language fundamental to success. We use the decision process popularized by Chip Heath in his book, “Decisive.” Although the decision process contained in Heath’s book includes additional considerations and steps, Heath says, “To make better choices, we must avoid the most common decision-making biases. Being aware of these biases isn’t sufficient to avoid them, but a process can help. The WRAP process can help us make better, bolder decisions.”

• W iden your options
• R eality-test your assumptions
• A ttain distance before deciding
• P repare to be wrong

The use of an outside facilitator, who can assist you and your team in the Risk Management and Strategic Planning processes, is hugely beneficial. This resource will keep you on track, challenge the prevailing mentality, and incorporate proportionality measures. They will point out and assist in sidestepping pitfalls to an optimal result.

There are pitfalls to avoid, and the biggest one of all is thinking that you have no more to learn about risk management, decision making, and strategic planning, or that you have it covered – this is the most significant risk of all!

We recommend the following:

• Open a safe conduit with a common language between organizational levels and disciplines. Over-communicate the corporate objects and the risks you are unwilling to tolerate!
• Use a tool-set that gives scientific validity to your intuition, operational data, and constraints.
• Implement a structured decision-making process throughout the organization.
• Engage an outside facilitator to guide you and your team through the process.

For more information on how to Make Risk and Reward Decisions, or for assistance with Strategic Planning, contact us here for a complimentary consultation.

Related case study, related toolkit.

A top-down + bottom-up Risk Management approach provides a balanced and prioritized risk management program that may be part of the strategic planning process.

SGC Partners addresses the full range of Sales Growth and Operations Improvement solutions all focused on your unique business needs

• 1615 Walnut Street, Floor 2 Philadelphia, PA 19103
• +1 (214) 912-8550
• Contact@SGC-Partners.com

We're not around right now. But you can send us an email and we'll get back to you, asap.

Start typing and press Enter to search

Lorem ipsum test link amet consectetur a

Risk and Reward Analysis

A risk-reward analysis is a very simple tool which can help you assess the risk and reward profile of completely different options. It works in the same way as a risk-return analysis which you may already be familiar with.

The template works by having risk plotted along one axis and reward along the other. In the diagram below I’ve divided the template into four sections to show you how to interpret the information.

The four categories from the diagram above are as follows:

How to Use it

At this stage some options will appear to have a more favourable risk-reward profile than others, such as outsourcing in the above example, but it is work taking the time to investigate whether any options can have their risks mitigated, or if there are options that can have their rewards boosted, before making a final decision on which option to go with. In the above example, if the risk of developing new products could be mitigated somehow then that option would become more favourable than outsourcing.

Cite this article

Minute Tools Content Team, Risk and Reward Analysis, Minute Tools, Jul, 2011 https://expertprogrammanagement.com/2011/07/risk-and-reward-analysis/

Related Tools

Hoshin planning explained, porter’s generic strategies, the balanced scorecard, horizontal vs. vertical integration, cage distance framework, the ansoff matrix, porter’s five forces, porter’s value chain, diffusion of innovation theory, vrio framework, in our course you will learn how to:.

So if you’ve always wanted to be your own boss and have the flexibility and freedom that entails, then…

• Why Risk and Analytics?
• Specialized Master’s Advantage
• Program Leadership
• Connect With Us
• Meet Faculty
• Customize Your Degree
• Program Format
• Student Experience
• Meet Students and Alumni
• Class Profiles
• Student Ambassadors
• Industry Engagement
• Your Application
• Who Should Apply?
• Application and Deadlines
• Tuition and Financial Aid
• Admissions Events
• Military Information
• Talk With Admissions
• Your Career
• Career Services
• Risk and Analytics Careers
• Lifelong Career Support
• Request Info

Risk and Reward: Three Ways Risk Management Adds Value

By Samantha Beavers

For some business leaders, there may still be uncertainty as to the value of risk management – is it sheer damage control, or something more? Ericka Kranitz, director of Poole College of Management’s Master of Management, Risk and Analytics concentration , weighs in on the discussion.

“Companies with robust risk management processes know how to stop, pivot and quickly change direction without losing focus of their strategic initiatives. They also know how to make smart business decisions and position themselves for long-term success,” Kranitz says. “Risk management illuminates the greatest threats and the potential opportunities, allowing companies to become resilient, stronger organizations.” From raising risk awareness to enhancing resource allocation, effective risk management benefits organizations in a variety of ways. And at the end of the day, it gives companies a strategic advantage in a competitive, crowded market.

Here’s how.

Bringing focus to strategic objectives

With strong risk management processes in place, organizations can tackle the right risks when they matter most. The key, though, is to integrate risk management into the strategic planning process. Companies might consider conducting an annual assessment where they identify and assess the various risks that could affect the organization, ranking risks according to their potential impact and probability, or likelihood, of occurring. Which risks are more likely to derail the company’s strategic objectives? Which ones have the highest potential impact on the bottom line? What needs to be prioritized to ensure long-term success? In putting these risks in front of executive leaders, board members and other decision-makers, companies prioritize high-impact risks and make informed, strategic decisions. Some organizations, understanding the importance of weighing opportunities and threats, even use these risk insights to drive the board’s agenda. With this approach, companies are less likely to bark up the wrong tree, diverting attention away from critical matters by focusing on lower-impact risks. Rather, they can focus their efforts and resources on strategic initiatives that will support an organization’s long-term success. In doing so, they enhance resource allocation, prioritize what’s most relevant and protect what’s most valuable. 

Preventing surprises and promoting resilience

By regularly scanning the landscape for high-impact risks, companies can also adopt a proactive approach to risk management rather than a reactive one.

This gives them more time to monitor the risks and prepare their responses, helping them act in a timely manner to minimize business disruptions and potential losses. Employers can also take note of any root causes, examine possible risk overlaps and consider external industry trends.

And with an enterprise-wide approach to risk, organizations can uncover high-impact risks that are either hidden or overlooked. For example, companies may find that a seemingly insignificant risk emerging in one area may actually have sweeping consequences across the entire company. The right tools, like key risk indicator dashboards, can increase risk communication and help organizations pinpoint risks in need of attention – before they come to a head. In the end, this promotes an organization’s resilience and helps them get a leg up on the competition. 

Preparing for the future

Additionally, risk management adds value by helping companies set themselves up for success in future business ventures. “Risk management helps companies get ahead of the game and seize the right opportunities at the right time,” Kranitz explains. “This includes identifying emerging risks, perhaps many years down the road, that could impact their ability to achieve their long-term goals.” 

There are a number of methods companies can use to identify emerging, long-term risks, including benchmarking, which evaluates an organization’s risks in light of its industry and competitors, and scenario analysis, which thoroughly examines the impact of a potential event should it occur. Depending on the organization’s size, industry and international presence, it may be beneficial to conduct a Black Swan analysis – which measures the potential repercussions of low-probability, high-impact events like natural disasters. Another way entities can identify long-term risks is by regularly tracking emerging risks that may have a more significant impact than originally thought – or those events that were not even on the radar – each year. By examining how their risks have changed over time and identifying patterns in emerging risks over the years, they have a better likelihood of flagging the longer-term risks that lay ahead. 

And whether it’s retaining their talent pool or addressing the impacts of climate change, Kranitz notes that companies need to be honest about all the risks they face and what action steps they need to take to prevent or mitigate their impact. These actions may also include exploring new opportunities, even though these may seem like a risk themselves at the time. Communication throughout the organization needs to be ongoing, both top-down and bottom-up, about those risk events that could impact an organization’s ability to achieve its strategic goals and position itself for long-term success.   “Companies need to ask themselves, ‘Where do we want to be in 10 years?’ and then identify the risks that can derail or advance that,” Kranitz says. “Most success-driven organizations recognize they need to start thinking that far out and brainstorming about the unknown risk events that may not even be on the radar. At the end of the day, continually applying a risk lens to future strategic initiatives is a key leadership skill.”

Interested in a career in risk management? Click here to learn more about the Master of Management, Risk and Analytics (MRA) program at NC State’s Poole College of Management.

• Thought leadership

Featured Search

How to balance risk and reward in your organisation, finding the optimal balance to make better decisions.

Organisations, or more precisely, the employees of organisations, make hundreds, if not thousands of decisions a day.  Some are major, such as deciding on strategy or whether to purchase a new system while many are small, such as whether to take the stairs or elevator or where to place your coffee on your work desk.

The aggregate outcome of all of these decisions is what determines the success or otherwise of the organisation, and more personally, the individual within the organisation.

Making better, more informed decisions, must therefore in the long run, optimise the value of the organisation. We can attempt to program machines to make decisions but the quality of that decision making is still dependent on the logic programmed in, by a human!  Humans make decisions in more complex, and often less logical ways.

Much is written on human decision making covering the drivers of things such as emotion, fear, perception and anchored thinking. I will not focus on these but instead focus on the more logical elements of reward and risk that should be factored into all good decisions.

Optimal decisions involve maximising the reward (reward is taken to mean “net reward” being the net of both positive and negative impact) from the decision over the period that the decision impacts the organisation (its life). 

To better understand this we need to:

Define what we mean by reward.

Determine how reward is affected over the whole of life of the decision and how we can measure reward.

Determine how we can assess whole of life reward at the beginning of the decision’s life.

What is reward? 

Reward should be measured against the objectives that the decision is aiming to achieve. This may include financial and non-financial such as customer service / satisfaction, environmental, social, employee wellbeing and so on. 

This gives rise to the first difficulty, how do we measure non-financial reward? The accounting profession has struggled with this and, as a result, has focussed primarily on financial reward.

More recently developments in “Integrated Reporting” have tried to address this by considering non-financial impacts of an organisation as well as financial.

Until we become more capable of measuring non-financial impacts we must do our best with what we have, which is a combination of quantitative and qualitative measures.

The second issue is determining how reward is affected over the life of a decision. We can split the reward of a decision into three parts. I will focus only on financial impacts to illustrate.

Known reward: This is the income and expense that is known with reasonable certainty. When purchasing a new machine, this would include the capital cost and any known servicing costs etc.

Estimated reward: This is the estimated future expense and income which is not certain. This would include revenue generated from the machine and related running costs which would be dependent on output volume. We usually estimate this using a budget.

The impact of uncertainty on reward: This is the effect of future potential events that are not known with certainty that could have an impact on the budgeted reward. This would include unscheduled outages, unforeseen breakages and other factors affecting the machine such as power failure, fire etc. These are our risks, risks being defined in the ISO 31000 Risk Management standard as “the effect of uncertainty on objectives”. Measuring the risk is not easy. Conceptually we need to consider the range of risks in the decision, assess their probability and impact and apply probability theory and discounting to give a “net present value of risk” or as Protecht refers to it “risk debt”.

We then need to aggregate three parts to determine a whole of life reward to decide whether the decision is worthwhile and/or optimal. 

We generally refer to items a) and b) above as “Reward” and item c) as “Risk”. Whole of life decision making is therefore more commonly known as Risk / Reward decision making. This then brings us to determining how best we can make risk / reward decisions. 

The simplest view is to consider the reward and risk of a decision and apply the following steps:

Assess whether the risk is within the organisation’s risk appetite. This requires a well articulated risk appetite that can be applied to the measurement of the risk in a particular decision. If it is not within appetite we should not proceed further (or we may consider asking the Board for a larger risk appetite). If the decision’s risk is within appetite we should progress to step 2.

Compare the reward against the risk. Where the reward is greater than the risk, do it!  Where the reward is less than the risk, do not do it! Where you are comparing alternatives, select the alternative that has the highest reward to risk.

Consider the decision as to whether to maintain one of your current IT systems for the next 5 years or invest in a new system. The old system needs substantial maintenance and is fragile meaning that there is substantial risk of outages and failure. The new system requires much less maintenance and is more robust and less likely to fail or have outages. We will assume that the output of each system is the same so we then do not need to assess income, only expense.

A comparison using only known capital and operating cost would favour continuing with the existing system. Taking into account risk, the decision changes in favour of the new system. 

Practical steps for you to improve your decision making

Given that the process set out above is far from exact and that we have a long way to go to be able to quantify all risk in a robust manner, what steps can you take now to move to better decision making? We would suggest the following:

Ensure that risk is considered before a decision is made, not as an afterthought.

Develop a well articulated risk appetite statement at the board level and cascade this through the organisation to allow it be used in step 1 of decision making to compare the risk against appetite.

Get better at identifying, recording and assessing all risks in your decisions and strategy.

Articulate the size of risk better using quantitative and qualitative measures.

Educate your decision makers to ensure they assess risk and reward (whole of life) when making decisions and make decisions on a rational rather than emotional basis.

Last week I did a webinar for NSW Business Chamber about this topic. I invite you to play the recording HERE. 

If you would like to know more about how Protecht can help you turn Risk Management, into Value Adding Management by helping you make better decisions, contact  [email protected]

About the author

David Tattam is the Chief Research and Content Officer and co-founder of the Protecht Group. David’s vision is the redefine the way the world thinks about risk and to develop risk management to its rightful place as being a key driver of value creation in each of Protecht’s clients. David is the driving force in driving Protecht’s risk thinking to the frontiers of what is possible in risk management and to support the uplift of people risk capability through training and content.

You may also like

Operational Risk Management 3 –Risk and Controls Self-Assessment applied in a Business Context

Svb collapse: which voices were they listening to, non-financial risk: why the big focus.

Share this article

Straight to your inbox

Subscribe today to get the latest thought leadership on risk management, governance and compliance industry trends, challenges, and insights.

Our experts bring you unbiased investing platform reviews, answer readers' most pressing questions, and provide the latest investing news. From cryptocurrency to stocks, compare the best options for you.

The best products and services

Our experts did the research so you don’t have to., best investment apps, best stock trading apps, best online brokers, best real estate investing apps, best robo-advisors, best online financial advisors, best roth iras, best gold iras, best custodial accounts, get the answers you need..

• Are we in a recession? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
• What is an NFT? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
• What is the prime rate? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
• What is a brokerage account? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
• What is cryptocurrency? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
• What are I bonds? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.
• What is a financial consultant? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

Expert reviews

Pros, cons, and everything in between., popular articles, see our readers’ top picks..

Latest coverage

We have money on our minds..

• River City Live
• Newsletters

AI experimentation is high risk, high reward for low-profile political campaigns

Copyright 2024 The Associated Press. All rights reserved.

Adrian Perkins sits for a portrait in his office in Chicago, Thursday, June 13, 2024. When Perkins was running for reelection as mayor of Shreveport, La., in 2022, a satirical TV commercial, paid for by a rival political action committee, used artificial intelligence to depict Perkins as a high school student who had been called into the principals office. Although the ad was labeled as being created with "deep learning computer technology," he didnt have enough money or campaign staff to counteract it, and thinks it was one of many reasons he lost the race. (AP Photo/Nam Y. Huh)

Adrian Perkins was running for reelection as the mayor of Shreveport, Louisiana, when he was surprised by a harsh campaign hit piece.

The satirical TV commercial, paid for by a rival political action committee, used artificial intelligence to depict Perkins as a high school student who had been called into the principal’s office. Instead of giving a tongue-lashing for cheating on a test or getting in a fight, the principal blasted Perkins for failing to keep communities safe and create jobs.

Recommended Videos

The video superimposed Perkins’ face onto the body of an actor playing him. Although the ad was labeled as being created with "deep learning computer technology," Perkins said it was powerful and resonated with voters. He didn’t have enough money or campaign staff to counteract it, and thinks it was one of many reasons he lost the 2022 race. A representative for the group behind the ad did not respond to a request for comment.

“One hundred percent the deepfake ad affected our campaign because we were a down-ballot, less resourced place,” said Perkins, a Democrat. “You had to pick and choose where you put your efforts.”

While such attacks are staples of the rough-and-tumble of political campaigning, the ad targeting Perkins was notable: It's believed to be one of the first examples of an AI deepfake deployed in a political race in the U.S. It also foreshadowed a dilemma facing candidates in scores of state and local races this year as generative AI has become more widespread and easier to use.

The technology — which can do everything from streamlining mundane campaign tasks to creating fake images, video or audio — already has been deployed in some national races around the country and has spread far more widely in elections across the globe . Despite its power as a tool to mislead, efforts to regulate it have been piecemeal or delayed, a gap that could have the greatest impact on lower-profile races down the ballot.

Artificial intelligence is a double-edged sword for candidates running such campaigns. Inexpensive, user-friendly AI models can help them save money and time on some of their day-to-day tasks. But they often don't have the staff or expertise to combat AI-generated falsehoods, adding to fears that an eleventh-hour deepfake could fool enough voters to tilt races decided by narrow margins.

“AI-enabled threats affect close races and low-profile contests where slight shifts matter and where there are often fewer resources correcting misleading stories,” said Josh Lawson, director of AI and democracy for the Aspen Institute.

National safeguards lacking

Some local candidates already have faced criticism for deploying AI in misleading ways, from a Republican state senate candidate in Tennessee who used an AI headshot to make himself look slimmer and younger to Philadelphia's Democratic sheriff , whose reelection campaign promoted fake news stories generated by ChatGPT.

One challenge in separating fact from fiction is the decline of local news outlets, which in many places has meant far less coverage of candidates running for state and local office, especially reporting that digs into candidates' backgrounds and how their campaigns operate. The lack of familiarity with candidates could make voters more open to believing fake information, said U.S. Sen. Mark Warner of Virginia.

The Democrat, who has worked extensively on AI-related legislation as chair of the Senate Intelligence Committee, said AI-generated misinformation is easier to spot and combat in high-profile races because they are under greater scrutiny. When an AI-generated robocall impersonated President Joe Biden to discourage voters from going to the polls in the New Hampshire primary this year, it was quickly reported in the media and investigated, resulting in serious consequences for the players behind it.

More than a third of states have passed laws regulating artificial intelligence in politics, and legislation aimed specifically at fighting election-related deepfakes has received bipartisan support in each state where it has passed, according to the nonprofit consumer advocacy group Public Citizen .

But Congress has yet to act , despite several bipartisan groups of lawmakers proposing such legislation.

“Congress is pathetic,” said Warner, who said he was pessimistic about Congress passing any legislation protecting elections from AI interference this year.

Travis Brimm, executive director of the Democratic Association of Secretaries of State, called the specter of AI misinformation in down-ballot races an evolving issue in which people are “still working to figure out the best way forward.”

“This is a real challenge, and that’s why you’ve seen Democratic secretaries jump to address it and pass real legislation with real penalties around the abuse of AI,” Brimm said.

A spokesperson for the Republican Secretaries of State Committee did not respond to the AP’s request for comment.

How do you regulate integrity?

While experts and lawmakers worry about how generative AI attacks could skew an election, some candidates for state or local office said AI tools have proven invaluable to their campaigns. The powerful computer systems, software or processes can emulate aspects of human work and cognition.

Glenn Cook, a Republican running for a state legislative seat in southeastern Georgia, is less well-known and has much less campaign cash than the incumbent he is facing in a runoff election on Tuesday. So, he has invested in a digital consultant who creates much of his campaign’s content using inexpensive, publicly available generative AI models.

On his website, AI-generated articles are peppered with AI-generated images of community members smiling and chatting, none of whom actually exist. AI-generated podcast episodes use a cloned version of his voice to narrate his policy positions.

Cook said he reviews everything before it is made public. The savings — in both time and money — have let him knock on more doors in the district and attend more in-person campaign events.

“My wife and I did 4,500 doors down here,” he said. “It frees you up to do a lot.”

Cook’s opponent, Republican state Rep. Steven Sainz, said he thinks Cook “hides behind what amounts to a robot instead of authentically communicating his opinions to voters.”

“I’m not running on artificially generated promises, but real-world results,” Sainz said, adding that he isn’t using AI in his own campaign.

Republican voters in the district weren't sure what to make of the use of AI in the race, but said they cared most about the candidates' values and outreach on the campaign trail. Patricia Rowell, a retired Cook voter, said she likes that he's been in her community three or four times while campaigning, while Mike Perry, a self-employed Sainz voter, said he's felt more personal contact from Sainz.

He said the expanded use of AI in politics is inevitable, but wondered how voters would be able to differentiate between what's true and what's not.

“It’s free speech, you know, and I don’t want to discourage free speech, but it comes down to the integrity of the people putting it out," he said. "And I don’t know how you regulate integrity. It’s pretty tough.”

Local campaigns are vulnerable

Digital firms that market AI models for political campaigns told the AP most of the AI use in local campaigns so far is minimal and designed to boost efficiency for tedious tasks, such as analyzing survey data or drafting social media copy that meets a certain word limit.

Political consultants are increasingly dabbling with AI tools to see what works, according to a new report from a team led by researchers at the University of Texas at Austin. More than 20 political operatives from across the ideological spectrum told researchers they were experimenting with generative AI models in this year’s campaigns, even though they also feared that less scrupulous actors might be doing the same.

“Local-level elections will be so much more challenging because people will be attacking,” said Zelly Martin, the report’s lead author and a senior research fellow at the university's Center for Media Engagement. “And what recourse do they have to fight back, as opposed to Biden and Trump who have many more resources to fend off attacks?”

There are immense differences in staffing, money and expertise between down-ballot campaigns — for state legislator, mayor, school board or any other local position —- and races for federal office. Where a local campaign might have just a handful of staffers, competitive U.S. House and Senate campaigns may have dozens and presidential operations can balloon to the thousands by the end of the campaign.

The campaigns for Biden and former President Donald Trump are both experimenting with AI to enhance fundraising and voter outreach efforts. Mia Ehrenberg, a spokesperson for the Biden campaign, said they also have a plan to debunk AI-generated misinformation. A Trump campaign spokesperson did not respond to the AP’s questions about their plans for handling AI-generated misinformation.

Perkins, the former Shreveport mayor, had a small team that decided to ignore the attack and keep campaigning when the deepfake of him being hauled into the principal's office hit local TV. He said he viewed the deepfake ad against him as a typical dirty trick at the time, but the rise of AI in just two years since his campaign has made him realize the technology’s power as a tool to mislead voters.

“In politics, people are always going to push the envelope a bit to be effective,” he said. “We had no idea how significant it would be.”

Burke reported from San Francisco, Merica from Washington and Swenson from New York.

This story is part of an Associated Press series, “The AI Campaign,” exploring the influence of artificial intelligence in the 2024 election cycle.

___ The Associated Press receives support from several private foundations to enhance its explanatory coverage of elections and democracy, and from the Omidyar Network to support coverage of artificial intelligence and its impact on society. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Click here to take a moment and familiarize yourself with our Community Guidelines.

Money blog: PrettyLittleThing deactivates customers for making too many returns - days after introducing fee

Welcome to the Money blog, your place for personal finance and consumer news and advice. Let us know your thoughts on any of the topics we're covering using the comments box below.

Tuesday 25 June 2024 07:18, UK

• PrettyLittleThing deactivating customers' accounts for making too many returns
• Easiest (and hardest) places in UK to find a job revealed
• Barcelona to ban all holiday apartment rentals by 2028
• What are your rights if your flight is cancelled?

Essential reads

• Money Problem : 'I bought a new car but it's been back to dealership six times with same fault - what can I do?'
• Basically... Guarantors
• The mortgage chokehold facing old-age Britons
• Women in Business : 'How I went from mum with no qualifications to owner of big law firm'
• Best of the Money blog - an archive

Ask a question or make a comment

PrettyLittleThing has started deactivating customers' accounts for returning too many items. 

The online fashion giant sent out emails over the weekend, telling customers they had been banned from placing orders due to their "unusual high returns activity". 

It comes just days after the company introduced a £1.99 fee for every item sent back. 

Several angry customers posted screenshots of the email online. 

Many complained they had already paid £9.99 for PrettyLittleThing's royalty service, which gives them unlimited next day delivery for a year. 

Others hit out at the brand, saying it should improve the quality and sizing of its clothing. 

"Maybe if your clothes weren't so s***, people wouldn't have to send them back," one person said. 

"If your clothes sizing were actually what you stated, then surely you wouldn't be getting so many returns. Don't even get me started on the quality of some items," said another. 

Social media marketing specialist Katy said she didn't remember sending back any items so far this year. 

Some customers pointed out that PrettyLittleThing doesn't have physical stores, so people can't try items on.

Sky News has contacted PrettyLittleThing for comment.

The number of job vacancies across the country has marginally increased this month, but there are areas where companies appear to be hiring more. 

Research by Adzuna found London has the most job vacancies, with 154,506 roles being advertised, followed by the South East with 131,973 - an increase of 1.2% since April. 

In Northern Ireland, the number of opportunities has fallen by 1.5% to just 7,790.

In terms of cities, Cambridge offers the most chance of finding a job with just 0.34 unemployed people per role and 7,276 jobs available. 

This is followed by Guildford (0.49) and Exeter (0.63).

Bradford remains the hardest city to find a job, with 7.94 jobseekers per role. 

Rochdale and Middlesbrough also have high jobseeker-to-role ratios, at 4.86 and 4.57 respectively. 

Monthly advertised salary figures have also fallen for the first time since October 2023, down 0.11% to £38,765. 

This is despite the recent National Living Wage hike to £11.44 per hour.

While slightly weaker salaries could help relieve some tightness in the labour market, it may also suggest increasing vacancies for entry or junior-level roles with lower salaries.

In comparison, annual salaries are still up 2.69% compared with May 2023. 

Unsurprisingly, London was found to be offering the highest average salaries at £44,863, which is up 1.47% on last year. 

Wales was the region with the lowest typical salary at £34,048. 

Basically… a guarantor is someone who agrees to cover another person's bill in the event they can't pay it.

Guarantors are sometimes required when taking out a loan or mortgage, or moving into a rented property, if the person responsible for the bills doesn't meet income requirements.

For renting, a landlord might also request a guarantor if the tenant has limited renting history, a low credit score or other factors that would deem them at risk of missing payments.

Who can be a guarantor, and what are they responsible for?

The simple answer is - almost anyone.

Often it'll be a parent - especially for young people renting for the first time or taking their first steps onto the property ladder - or a spouse.

But friends and other relatives can be guarantors too.

The basic requirements for being a guarantor are:

• Aged over 18, or over 21, depending on who is making the request
• Good credit history
• Financial stability - a certain amount of savings or income

Being a homeowner will also make you more desirable as a guarantor, as it shows that you have a way of covering costs if you need to. You usually have to live in the UK too.

What the guarantor is legally responsible for can vary depending on what's written in the guarantee.

In the case of renting, the guarantor is usually responsible for paying rent if the tenant can't for any reason. They might also have to cover repairs if the tenant damages the property.

In extreme cases, the guarantor might be called on to cover legal costs faced by the landlord due to the tenant.

What happens if the guarantor can't pay?

If you can't pay the lender or landlord what you owe, they may turn to your guarantor at this point, if another agreement can't be worked out.

In the rare event that the guarantor can't - or even won't - pay, they could be taken to court. It's likely that remediation action would be taken before it gets to this point, but the guarantor signs a legally binding contract, so it can happen.

Not paying the debt could also impact the guarantor's credit history.

Read other entries in our Basically series...

Taylor Swift fans have taken to social media to complain at paying hundreds on tickets for her Wembley shows only to end up with a restricted view. 

While the reviews of the show have been glowing, many were less than impressed with ticket sellers failing to say whether certain seats had "restricted" views - which usually makes a ticket a bit cheaper. 

One said...

Another fumed at the blocked view despite the £200 price...

It comes after a fan who saw Swift in Glasgow at the start of the month complained after parting with £680 only to have "a lovely view of a tent"...

Betting tips scrapped on flagship BBC show

BBC Radio 4's Today programme has scrapped its daily horse race betting tips, its host has announced.

Amol Rajan said the "break in tradition" would not affect major race days, with the broadcaster still set to offer tips for the biggest events in the calendar. 

"We will very much continue to cover horse racing, as we do so many other sports, not least through interviews with leading lights in the racing world," Mr Rajan said.

"And we will sometimes continue to broadcast from the big ticket events like the Grand National festival, or Cheltenham Gold Cup week."

Want to earn triple Nectar points?

Sainsbury's is offering the incentive for customers with electric vehicles who choose to charge up with them via their new "Smart Charge" bays. 

From today until 31 August, Sainsbury's customers can collect 3x Nectar points on Smart Charge transactions when they add their Nectar account number before purchase.

To do so, customers need to scan the QR code on the Smart Charge charging unit after they pay and add their Nectar card number on the web page provided. Points will be added to customers' accounts once they have paid.

Getir shareholders back break-up of food delivery group

Investors in Getir, the food delivery group that is abandoning its UK operations, have approved a break-up of the company that will trigger a fresh capital injection of up to $250m (£197.5m).

Sky News has learnt that Getir, which is based in Turkey, held an extraordinary general meeting yesterday at which shareholders backed plans to split it into two independent companies.

Read more of our city editor Mark Kleinman 's exclusive here ... 

Restaurants, cafes and hotels have been told to immediately withdraw meat products dubbed "unsafe" by the Food Standards Agency (FSA).

Hospitality operators in London and South East England were issued the food safety alert for meat supplied by a cutting plant in Swanley, Kent.

"We have alerted Environmental Health, Trading Standards Services and Official Veterinarians to take action to remove meat and meat products manufactured by Block and Cleaver from the market," the FSA said in a statement.

"These products... may not have been produced in accordance with GB food law requirements and therefore may be unsafe."

These products may have incorrect use by dates, are subject to traceability breaches and should not be eaten as they were not prepared in line with food safety and hygiene legislative requirements. 

All of the following products should be withdrawn immediately:

Over the weekend, hundreds of flights from Manchester Airport were cancelled due to a major power cut. 

Passengers flying from Terminals 1 and 2 were told not to go to the airport, while those already inside faced huge delays.

Flights finally started departing this morning, but what are your rights if yours has been cancelled? 

Watch: Travel disruption after Manchester Airport power cut

Here's what you need to know

Your flight is covered by UK law if it departs from a UK airport, arrives at a UK airport on a UK or EU airline, or arrives at an EU airport on a UK airline.

Under UK law, if your flight is cancelled, the airline must either give you a refund or book you on an alternative flight - either with them or a rival airline.

It is up to you whether you still want to travel at that time - or reschedule your holiday for a later date.

If another airline is flying "significantly sooner" than yours is able to offer, you may have the right to be booked onto a rival flight, but this has to be negotiated with the company.

What are the airline's policies?

As well as being covered under UK aviation law, each airline has its own cancellation policy for customers.

EasyJet allows customers to either switch to another flight for free, choose a voucher for the full value of the booking, or request a refund.

Ryanair passengers can either claim a full refund or change to an alternative flight, while TUI passengers with cancelled flights should receive a full refund within 14 days - and you may also be entitled to compensation.

British Airways passengers are offered a full refund, while Wizz Air allows passengers to request a refund or rebook onto the next available flight.

If you have booked through a tour operator or travel agent, they will have their own policies.

What if you've booked a package holiday?

If your flight is cancelled, and you've booked a package holiday, you have the same rights as any other passenger, according to trade association ABTA. 

You also have additional rights regarding the rest of your holiday.

Typically, your travel company will contact you in advance to re-arrange your flights. 

But, if you're at the airport when the flight is cancelled, you should contact your travel company to talk through your options, ABTA said. 

If your flight can't be rearranged and your holiday has to be cancelled, or new arrangements are made that result in a significant change to your holiday, then the travel company must offer an alternative holiday if they can. 

If not, they must offer a refund of the full package price, not just the flight part.

Generally, a change of more than 12 hours on a 14-night holiday is considered a significant change. 

Barclays has announced rate reductions across a number of its mortgage deals, with brokers suggesting more lenders could follow suit in the coming days. 

The high street bank said the new rates will be available from tomorrow. 

Here are some of the deals:

• Two-year fixed deal with 90% LTV and no product fee will go from 5.76% to 5.48%
• Two-year fixed deal with 60% LTV and no product fee will be reduced from 5.13% to 4.88%
• Five-year fixed deal with 90% and a £999 product fee will decrease from 4.90% to 4.85%

Broker and director of R3 Mortgages Riz Malik said borrowers should expect further reductions from other high street lender this week thanks to improving market pricing. 

"Barclays is the first lender of the week to improve selected mortgage products but my suspicion is that it won't be the last," he told Newspage. 

Simon Bridgland, director at Release Freedom, said the deals were "sizzling hot" - and he thinks more lenders will follow this week. 

"Things look set to heat up not just in our skies but in mortgage rates, too. Expect more lower fixed rates to continue to appear in the days ahead," he added. 

Justin Moy, managing director at EHF Mortgages, said the positive move was thanks to Barclays passing on swap rate improvements to customers. 

Edit : A couple of hours after Barclays' move, MPowered Mortgages also announced cuts across its product range.

If you're wondering what swap rates are, you can read our explainer here...

Barcelona will ban holiday apartment rentals by 2028 in a drastic move to tackle soaring housing costs. 

Mayor Jaume Collboni said he will scrap the licences of the 10,101 flats currently approved for short-term rentals, and the properties will go on the market for residents to rent or buy. 

"We are confronting what we believe is Barcelona's largest problem," he said.

The boom in short-term rentals in Spain's most visited city has caused rents to rise by 68% and house prices to increase by 28% in the past 10 years, Mr Collboni added. 

While the move aims to help locals, hotels could also stand to benefit.

The opening of new hotels in the city's most popular areas was banned by a far-left party governing Barcelona between 2015 and 2023, but Mr Collboni has signalled he could relax the restriction. 

The move comes after Madrid announced an immediate ban on new holiday rentals in a bid to tackle over-tourism 

The Spanish capital decided to stop granting holiday rental licences temporarily, with the suspension expected to last until 2025.

Similar restrictions have already been enforced across the Canary Islands, Lisbon and Berlin.

Princess Diana's family home has gone on the market for the first time in 22 years - but interested buyers should note it comes with a £10.95m price tag. 

The four-story property in Mayfair, London, has a reception hall, a drawing room, a library, two bedroom suits with walk-in wardrobes and ensuite bathrooms, and private underground parking. 

If you're worried about the stairs inside such a tall house, don't be -  it also comes with a lift connecting all levels. 

The top floor is a self-contained suite, with a bedroom, sitting room, terrace, dressing room and bathroom. 

There's also two bedrooms on the lower ground floor, accompanied by two bathrooms, another dressing room and a kitchen. 

The house is where Princess Diana was first introduced to the al Fayed family at a lunch party in 1996. 

Her stepmother, Raine Spencer, had encouraged her to get to know the family, including Dodi al Fayed, who she had a brief relationship with until they died in a car crash in Paris in 1997. 

Mrs Spencer was at 24 Farm Street when she was told about Diana's death. 

Since the early 2000s, the house has belonged to the founders of Pyms Gallery in Mayfair, Alan and Mary Hobart. 

But after Mr Hobart's death in 2021 and Mrs Hobart's death earlier this year, it is now being sold on the instructions of their executors. 

"With its aristocratic and royal connections, we anticipate significant interest in this house from discerning buyers around the world. It is a trophy home with an illustrious history," said Danish Arif, head of Mayfair sales at estate agents Chestertons.

Be the first to get Breaking News

Install the Sky News app for free