Risk & Reward

One of the problems I see quite often with clients is that they’re figuring out their “risk & reward” formulas during a crisis and not before they got themselves into a bad deal in the first place.

That’s a dangerous time for figuring out what you want/need from a situation.

However, it is the most common and the one most likely to make us feel stupid. Even though we’re not.

Remember financial theory proves that we emotionally experience the loss of money at a greater rate than we experience the same gain.

A 20% drop in money will feel different from a 20% gain.

Most people don’t move to fix problems until the problem is actually happening.

The front end is always the best time to do your “risk & reward” analysis.

That should always include two major data points

(a) How much time is this going to cost me?
(b) How much money is this going to cost me?

Those are the two key variables on the risk side “time and money.”

To figure out the reward equation we have three key variables to explore.

(a) Was it worth my time?
(b) Did I make more money than I spent?
(c) Did I learn something or many things that will make me more effective, productive and profitable in future business decisions?

Here’s the great thing about rewards – you gain more than you risk!

Think about it.

Let’s say you made a major screw up of a choice that resulted in you losing all your money and all the time spent.

If you stay stuck there you’ll drive yourself crazy or go into vengeance mode.

Once you move into exploring the unexpected outcomes of (c) the gifts arise. Even further the sum of those broken elements is usually greater than the original time and money investment.

Did you learn not to do that again in the future?

If yes, then you’ve saved all that future time by making the choice to not repeat the mistake over and over.

I hear you screaming at the screen – “Great but I lost all the money!”

I would offer a different perspective. You didn’t lose it all. You had it to begin with and forgot to have an exit strategy to cut your losses. Again something that has This is an issue that is best explored on the front-end of a decision decided on the front end – your real risk tolerance.

If you have a low-risk tolerance and you move into a medium-risk deal then you will always lose at the margin outside of your comfort zone.

If you have a high-risk tolerance and you move into a medium and/or low-risk deal – you’ll be bored.

It most likely isn’t exciting enough for you and might even become boring, or emotionally draining. If we are willing to lose it all on the front end; then we’d simply accept the loss and get right into exploring the benefits of (c).

What did you learn?

That education will always bring one more money and opportunities in the future. More important it will always bring you more $$$$ in the future.