business
RISKY BUSINESS Managing business risks in uncertain times.
W
e don’t know whether it’s true that we’re living in more uncertain times than we have in the past, but it certainly feels like it. The latest big uncertainty to be thrown into our lives is the spread of the Corona Virus (COVID-19) and how it is going to impact businesses, the economy, and our daily life in general. It comes at a time when uncertainty is already high due to matters such as Brexit and how it will affect our lives in Gibraltar; US presidential elections later this year, extreme weather conditions across the globe, and numerous other concerns. A consistent finding in psychology is that people don’t like uncertainty or risk. It’s called Risk Aversion, and we all have it to some degree. People don’t like risk in part because of the uncertainty. We want to make a good decision but worry about how terrible the consequences will be if we make a bad one. Entrepreneurs and business professionals are no stranger to 18
risk and uncertainty. Whether it’s reaching out to a new client, or releasing a new product, risk and uncertainty influence every business decision. But what are the differences between the two concepts?
THE DIFFERENCE BETWEEN RISK AND UNCERTAINTY Risk is defined as the possibility or probability of an unpleasant or undesirable event. In business, risk might suggest the potential loss of money, time, or information. Most
It forces companies to innovate faster. importantly, risk can be calculated or measured. Entrepreneurs can use market data to calculate whether a new product may be worth introducing. Accountants
can use balance sheets to measure the profitability of certain stores. Calculated risk can be beneficial, as risk takers can also generate significant returns. On the other side, there’s uncertainty. In contrast, uncertainty involves situations with unknown variables, information, and outcomes. Uncertainty cannot be measured or calculated. Since uncertain events are unique and difficult to plan for, they come with even greater downsides for unprepared businesses. The main takeaway from these two concepts: risk can be measured and predicted, while uncertainty cannot.
HOW TO PLAN FOR HIGH-RISK EVENTS One of the unhealthy ways that people cope with uncertainty is to throw up their hands and give up. They decide that if the world is uncertain, then everything’s GIBRALTAR MAGAZINE APRIL 2020
