T4 risk taking & resourcing skills-2013

Risk-Taking & Risk-Taking & Resourcing SkillsResourcing Skills

Mohd Rafi/Ghazali Ahmad, Mohd Rafi/Ghazali Ahmad, Ph.DPh.D

©2009/10©2009/10

Entrepreneurs say Entrepreneurs say they: they:

Often started with a big company, then quitOften started with a big company, then quit Are lone rangers, independentAre lone rangers, independent Are persist, persevering, disciplinedAre persist, persevering, disciplined Are confident, self-reliantAre confident, self-reliant Have a broad education, are generalistsHave a broad education, are generalists Have basic business skillsHave basic business skills Started youngStarted young Are good listenersAre good listeners Engage in calculated risk-takingEngage in calculated risk-taking

Entrepreneurs say Entrepreneurs say they:they: Are opportunity-driven Are opportunity-driven Know how to assess opportunitiesKnow how to assess opportunities Have, or quickly learned, team-building skillsHave, or quickly learned, team-building skills Have strong technical skillsHave strong technical skills Appreciate mentorshipAppreciate mentorship Are able to manage growthAre able to manage growth Understand the importance of social interaction and Understand the importance of social interaction and

common sensecommon sense Play “not to lose”Play “not to lose” Are frequently serial entrepreneursAre frequently serial entrepreneurs

Risk Taking SkillsRisk Taking Skills

APT 2013APT 2013 © 2009 Dr. Rafi/Dr. Ghazali© 2009 Dr. Rafi/Dr. Ghazali 55

Some QuotesSome Quotes

""He who is not courageous enough to take risks will He who is not courageous enough to take risks will accomplish nothing in life.accomplish nothing in life." - " - Muhammad Ali

""Our lives improve only when we take chances -- and the Our lives improve only when we take chances -- and the first and most difficult risk we can take is to be honest with first and most difficult risk we can take is to be honest with ourselves.ourselves." - " - Walter Anderson

""It is easy to be brave when far away from danger.It is easy to be brave when far away from danger." - " - Aesop

""If you don't fail now and again, it's a sign you're playing it If you don't fail now and again, it's a sign you're playing it safe.safe." - Woody Allen " - Woody Allen

““Risk is just like shadow. It follows you wherever you go, so Risk is just like shadow. It follows you wherever you go, so what. Forget about it and focus on what you are doing. what. Forget about it and focus on what you are doing. Remember, no pain, no gain; no risk, no return - Remember, no pain, no gain; no risk, no return - DellDell


Risk – The root of the Risk – The root of the word (morphology)word (morphology)

Rizq (Arabic)Rizq (Arabic)

Risicum (Latin)Risicum (Latin)

Risque (French)Risque (French)

Risk (English)Risk (English)


Risk – Is it good or Risk – Is it good or bad?bad? Good because:Good because:

– It provides opportunityIt provides opportunity– It provides return from ‘investment’It provides return from ‘investment’– It helps us to be meticulous, alert and It helps us to be meticulous, alert and

always mindful when making decisionsalways mindful when making decisions Bad because:Bad because:

– It is unpredictableIt is unpredictable– Leads to stress and anxietyLeads to stress and anxiety– Chance of losing moneyChance of losing money


Concept of riskConcept of risk

RiskRisk is a concept that denotes a potential is a concept that denotes a potential negative impact to an asset or some negative impact to an asset or some characteristic of value that may arise characteristic of value that may arise from some present process or future from some present process or future event. event.

In everyday usage, In everyday usage, riskrisk is often used is often used synonymously with the probability of a synonymously with the probability of a known loss. Paradoxically, a probable loss known loss. Paradoxically, a probable loss can be uncertain and relative in an can be uncertain and relative in an individual event while having a certainty individual event while having a certainty in the aggregate of multiple events.in the aggregate of multiple events.


Risk vs. Uncertainty: Risk vs. Uncertainty: Some DefinitionsSome Definitions Webster's Dictionary:Webster's Dictionary:

– risk:risk: "possibility of loss or injury; peril" "possibility of loss or injury; peril"– uncertainty:uncertainty: "indefinite, indeterminate" "indefinite, indeterminate"

and "not known beyond a doubt." and "not known beyond a doubt." Frank H. Knight (1921):Frank H. Knight (1921):

– riskrisk is present when future events occur is present when future events occur with measurable probabilitywith measurable probability

– uncertaintyuncertainty is present when the is present when the likelihood of future events is indefinite or likelihood of future events is indefinite or incalculable incalculable


Risk vs. Uncertainty: Risk vs. Uncertainty: Some Definitions (Risk)Some Definitions (Risk)

Risk is the possibility of suffering harm or Risk is the possibility of suffering harm or loss; danger.loss; danger.

Risk could be a factor, thing, element, or Risk could be a factor, thing, element, or course involving uncertain danger; a course involving uncertain danger; a hazard.hazard.

Risk involves the expectation of loss. It is a Risk involves the expectation of loss. It is a function of the probability and the function of the probability and the consequences of harm. consequences of harm.

Risk is the possibility that returns from an Risk is the possibility that returns from an investment will be greater or less than investment will be greater or less than forecast.forecast.

A state of uncertainty where some possible A state of uncertainty where some possible outcomes have an undesired effect or outcomes have an undesired effect or significant loss. significant loss.


Risk vs. Uncertainty: Risk vs. Uncertainty: Some Definitions Some Definitions (Uncertainty)(Uncertainty) Uncertainty is the condition of being Uncertainty is the condition of being

uncertain; doubt. uncertain; doubt. The lack of certainty, a state of having The lack of certainty, a state of having

limited knowledge where it is impossible limited knowledge where it is impossible to exactly describe existing state or future to exactly describe existing state or future outcome, more than one possible outcome, more than one possible outcome.outcome.

The state of mind of an individual who is The state of mind of an individual who is unable to make any estimate of future unable to make any estimate of future events. events.

State of knowledge in which one or more State of knowledge in which one or more alternatives result in a set of possible alternatives result in a set of possible specific outcomes, but where the specific outcomes, but where the probabilities of the outcomes are neither probabilities of the outcomes are neither known nor meaningful. known nor meaningful.


Distinction between risk Distinction between risk and uncertaintyand uncertainty

Frank Knight (1921) established the Frank Knight (1921) established the important distinction between important distinction between riskrisk and and uncertainty uncertainty as follows:as follows:

"Uncertainty must be taken in a sense radically "Uncertainty must be taken in a sense radically distinct from the familiar notion of risk, from distinct from the familiar notion of risk, from which it has never been properly separated.... which it has never been properly separated.... The essential fact is that 'risk' means in some The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, cases a quantity susceptible of measurement, while at other times it is something distinctly while at other times it is something distinctly not of this character; and there are far-reaching not of this character; and there are far-reaching and crucial differences in the bearings of the and crucial differences in the bearings of the phenomena depending on which of the two is phenomena depending on which of the two is really present and operating.... It will appear really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from as we shall use the term, is so far different from an unmeasurable one that it is not in effect an an unmeasurable one that it is not in effect an uncertainty at all."uncertainty at all."

Risk – Decision MakingRisk – Decision MakingSome points:Some points: Only risk-takers are truly free. All decisions of consequence involve risk.Only risk-takers are truly free. All decisions of consequence involve risk. There is no such thing as permanent security.There is no such thing as permanent security. You are supposed to be afraid when you risk.You are supposed to be afraid when you risk. Risking normally involves a degree of separation anxiety, the anxiety Risking normally involves a degree of separation anxiety, the anxiety

you feel when you are removed from something that makes you feel you feel when you are removed from something that makes you feel secure.secure.

Tackling risk in decision-makingTackling risk in decision-making Decide whether the risk is necessary or desirable.Decide whether the risk is necessary or desirable. Risk for the right reasons and when you are calm and thoughtful. Don’t Risk for the right reasons and when you are calm and thoughtful. Don’t

take a risk when you are emotional.take a risk when you are emotional. Have a goal. Have clear purposes in mind.Have a goal. Have clear purposes in mind. Determine the possible loss as well as the gain – know exactly what the Determine the possible loss as well as the gain – know exactly what the

consequences of failure will be.consequences of failure will be. Make an accurate estimate about the probability of each case.Make an accurate estimate about the probability of each case. • • When possible, take one risk at a time.When possible, take one risk at a time.

WISER DECISION MAKINGWISER DECISION MAKINGHere are eleven (11) basic steps to make wiser decisions.Here are eleven (11) basic steps to make wiser decisions. Define, as specifically as you can, the decision that needs to be made.Define, as specifically as you can, the decision that needs to be made. Write down as many alternatives as you can think of. Let your imagination Write down as many alternatives as you can think of. Let your imagination

run free.run free. See where more information about possible alternatives can be found.See where more information about possible alternatives can be found. Check out your alternatives. Find out more about theCheck out your alternatives. Find out more about the specifics of each option.specifics of each option. Sort through all the alternatives. Evaluate them to see which one/s work Sort through all the alternatives. Evaluate them to see which one/s work

best for you.best for you. Visualize the outcome of each alternative.Visualize the outcome of each alternative. Do a reality check. Cross out those that are least likely to work.Do a reality check. Cross out those that are least likely to work. Which alternative “fits” best? Review the remaining ones and decide Which alternative “fits” best? Review the remaining ones and decide

which of them are most comfortable.which of them are most comfortable. Get started! Get moving once you have made your decision.Get started! Get moving once you have made your decision. Be sure to review your decision at specified points along the road. Be sure to review your decision at specified points along the road.

Remember that you can always change your mind.Remember that you can always change your mind.


Characteristics of risk Characteristics of risk and uncertaintyand uncertainty

RiskRisk– Measurable Measurable

uncertaintyuncertainty– QuantifiableQuantifiable– DeliberateDeliberate– Insurable (most of it)Insurable (most of it)– ObjectiveObjective– PrioriPriori or statistical or statistical

probability (objective probability (objective probability)probability)

UncertaintyUncertainty– Unmeasurable Unmeasurable

uncertaintyuncertainty– UnquantifiableUnquantifiable– Non deliberateNon deliberate– Non insurable Non insurable – SubjectiveSubjective– Non-symmetrical or Non-symmetrical or

non-homogenous non-homogenous probability probability (subjective (subjective probability)probability)


Entrepreneurial risksEntrepreneurial risks

Financial risksFinancial risks Business and Operational risksBusiness and Operational risks Product and Service liabilityProduct and Service liability Career risksCareer risks Family and Social risksFamily and Social risks Psychic and Health risksPsychic and Health risks Political and Governmental risksPolitical and Governmental risks Unpredictable and Uncontrollable risksUnpredictable and Uncontrollable risks


Typology of Typology of entrepreneurial risk entrepreneurial risk stylesstyles

Level of personal financial risk

Level of

pro

fit

moti

ve

High

High

Low

Low

Risk avoidingActivity seeking

Risk avoidingProfit seeking

Risk acceptingActivity seeking

Risk acceptingProfit seeking

Source: Monroy & Folger (1993)


Risk managementRisk management

Risk management is the process Risk management is the process of identifying risks in advance, of identifying risks in advance, assessing their likely occurrence, assessing their likely occurrence, and taking steps to reduce or and taking steps to reduce or eliminate them (mitigation)eliminate them (mitigation)


Risk Risk managementmanagement

Risk management involves identifying, Risk management involves identifying, analyzing, and taking steps to reduce or analyzing, and taking steps to reduce or eliminate the exposures to loss faced by eliminate the exposures to loss faced by an organization. The practice of risk an organization. The practice of risk management utilizes many tools and management utilizes many tools and techniques, including insurance, to techniques, including insurance, to manage a wide variety of risks. manage a wide variety of risks.

Every business encounters risks, some of Every business encounters risks, some of which are predictable and under which are predictable and under management's control, and others which management's control, and others which are unpredictable and uncontrollable. are unpredictable and uncontrollable.


Risk management in Risk management in small businesssmall business Risk management is particularly Risk management is particularly

vital for small businesses, since vital for small businesses, since some common types of losses—some common types of losses—such as theft, fire, flood, legal such as theft, fire, flood, legal liability, injury, or disability—can liability, injury, or disability—can destroy in a few minutes what destroy in a few minutes what may have taken an entrepreneur may have taken an entrepreneur years to build. Such losses and years to build. Such losses and liabilities can affect day-to-day liabilities can affect day-to-day operations, reduce profits, and operations, reduce profits, and cause financial hardship severe cause financial hardship severe enough to cripple or bankrupt a enough to cripple or bankrupt a small business. small business.


Entrepreneurs’ risk Entrepreneurs’ risk taking behaviortaking behavior Risk taking is a Risk taking is a skillskill need to be need to be

learnedlearned Do not fear to take Do not fear to take calculatedcalculated

or or moderatemoderate risks risks Do not take risks Do not take risks

unnecessarilyunnecessarily Perceive risk as Perceive risk as opportunityopportunity

rather than as rather than as threatthreat Perceive risk as Perceive risk as challengechallenge that that

triggers them to behave triggers them to behave entrepreneuriallyentrepreneurially

Enterprise Enterprise Resourcing SkillsResourcing Skills


Types of ResourcesTypes of Resources

ManpowerManpower MaterialMaterial Financial(Money)Financial(Money) Technological(Machine)Technological(Machine) Business Premise/PhysicalBusiness Premise/Physical InformationInformation ReputationReputation NetworksNetworks Organizational resources – structure, systems Organizational resources – structure, systems

and business modelsand business models


Strategic vs. Common Strategic vs. Common ResourcesResources Strategic resourcesStrategic resources refer refer

to resources which provide to resources which provide a sustained competitive a sustained competitive advantage to a firmadvantage to a firm

Common resourcesCommon resources are are necessary for carrying out necessary for carrying out the firm’s usual activities the firm’s usual activities but provide no specific but provide no specific advantageadvantage


Attributes of Strategic Attributes of Strategic ResourcesResources ValuableValuable RareRare Non-substitutableNon-substitutable Hard to copyHard to copy


Key Factors to Key Factors to ConsiderConsider Essentiality (critical or Essentiality (critical or

non-critical)non-critical) Availability of supplyAvailability of supply CostCost Strategic/competitive Strategic/competitive

advantageadvantage Statutory/Legal Statutory/Legal

requirementsrequirements Quality vs. quantityQuality vs. quantity


Resource ManagementResource Management

Objectives:Objectives:– To ensure any resources needed To ensure any resources needed

by the business is available at by the business is available at the time, quantity and the time, quantity and specification (optimality)specification (optimality)

eg. Just in Time (JIT)eg. Just in Time (JIT)– To avoid unnecessary waste or To avoid unnecessary waste or

purchase of resourcespurchase of resources

eg. Material Requirement eg. Material Requirement PlanningPlanning

– To ensure smooth operation of To ensure smooth operation of the businessthe business


Creativity and Creativity and Innovation in Resource Innovation in Resource ManagementManagement Creative and innovative Creative and innovative

in acquiring resourcesin acquiring resources– Cheap, reusable, multi-Cheap, reusable, multi-

purpose, recyclablepurpose, recyclable Creative and innovative Creative and innovative

in managing resourcesin managing resources– Efficient, reduce waste, Efficient, reduce waste,

generate revenuegenerate revenue

T4 risk taking & resourcing skills-2013

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