The Balance of Opportunity-Cost: Is the Risk Worth the Reward by Sri Gaddam

“The biggest risk is not taking any risk. In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”  Mark Zuckerberg

“In my experience, successful people have a very good intuition in identifying the right opportunities based on their experiences and competencies. This occurs at both an individual and organizational level. In fact, most people have great ideas or have come across many opportunities in life. But very few people will make it big. You have to leave your comfort zone to successfully accomplish your goals by taking calculated risks.

“The biggest difference between success and failure is that successful people are determined to succeed, no matter what they do. When they come across an opportunity, they take action in a timely manner while considering potential risks. Others keep chasing perfection before they act due to fear of failure. They eventually lose focus and move on to a new idea. Then it is too late to act on it. Once successful people decide to pursue their desired goal, they consciously think about it around the clock and build a strong network that is aligned with their vision. They reach out to it when needed. But not before they assess the risk versus the reward.

“For instance, we viewed the recession in 2009 as a great business opportunity. So, we increased our company’s sales and delivery force while several competitors were decreasing theirs. As a result of this intuitive decision, ERP Analysts aggressively marketed ‘Free Assessment and Technology Roadmap” strategies with its increased sales force to attract new customers during a time of great uncertainty in the market. This aggressive strategy not only helped the company gain market share, but it also earned a loyal lifetime number of customers who view the company as a true partner that stood by them during adversity.”

There is this great economist, Daniel Kurt[1], and he said:

‘The idea of scarcity lies at the heart of economics. It’s the concept that, in virtually every decision we make, we face constraints. In short, humans don’t have the money, skills, time — you name it — to get everything we possibly desire. Ergo, we have to make choices. Economists are keen to remind us that decisions don’t take place in a vacuum. Life isn’t only about the choices we make, but the ones we could make. This is where something called opportunity cost comes into play. It’s the term social scientists use to describe the value of the next best alternative to the option we’re considering. 

We actually evaluate opportunity costs on a daily basis. Perhaps when you woke up today, you decided on a big bowl of cereal for breakfast, foregoing the opportunity to enjoy eggs and toast. A little later, you opt to take the train to work, sacrificing the benefits of driving your own car. It’s still early morning, and you’ve already decided on a series of small tradeoffs. 

Calculating opportunity costs may seem like a no-brainer when the only objective is to increase the bottom line. No successful company is going to reinvest its earnings without considering the financial effects of different options. Because of the scarcity of resources, saying yes to one option necessarily means saying no to the alternatives. To make the best decision, one has to consider the value of those other options, too.

 To Summarize:

1. Determining the right balance between resources, risk and opportunities.

2. Determining your desire/ability to tolerate risk.

3. Assessing that risk through a well-conceived business plan.

4. Determining what “success” or your reward will look like.

5. Making a decision quickly and with great purpose.

6. Executing your game plan, maintaining focus, and persevering when times get tough.

“The entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”  Peter Drucker


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