For most businesspeople, risk is like temperature. It is always there, but sometimes it’s high and sometimes it’s low. High in the case of new product launches, where the success rate for big firms has never been higher than one in five (i.e. a failure rate of 80%). Low in the case of established cost-cutting measures, such as buying a robot to replace staff on an assembly line.
So isn’t a low-risk decision always preferable to a high-risk one? The answer depends on the level of estimated reward involved. Businesspeople often refer to this as the risk:reward ratio. A one in five chance of new product success might be an attractive level of risk if the rewards from success are huge.
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