The Risk-Reward framework
We are faced with countless decisions in life, from small things like deciding what to eat for lunch to bigger things like making a decision on what car or house to purchase. It’s no wonder some people become indecisive. Here are a few reasons why:
· Fear of making the wrong decision especially if it’s a big one and has significant consequences
· Overthinking, especially if we are perfectionists
· Lack of information especially if the challenge is complex
· Decision fatigue. We are simply just mentally exhausted from making too many decisions
· We are going through anxiety or depression and are unable to see the options clearly
One of my Leadership Pod members introduced the Risk-Reward framework to us. I did some deeper research and came across this simple, clear and powerful framework on LinkedIn introduced by @Pavan Jakka. It’s a structured approach that helps individuals analyse potential outcomes based on the balance between risk and reward, when making decisions.
Let’s illustrate this framework with the example of increasing sales for the company.
High Stakes quadrant (top right)
Decisions made here carry high risk but offer a significant return. This is also known as the adventure zone.
The company could pour in all their resources to create a very promising but untested product to sell to their clients.
High Growth quadrant (top left)
Decisions made here carry low risk but offer a significant return. This is also known as the opportunity zone.
The company could upsell and cross-sell to existing clients. Additionally, the company could knock on the doors of potential clients existing in other industry verticals to introduce the company’s existing products to them.
Safe Haven quadrant (bottom left)
Decisions made here carry low risk and offer a low return. This is also known as the comfort zone.
The company could continue to service its existing portfolio of clients, which gives it steady revenue but limited growth opportunities.
No-Win quadrant (bottom right)
Decisions made here carry high risk but offer a low return. This is also known as the hazard zone.
Frankly speaking, I have not come across many companies operating in this quadrant. However, I would imagine decisions made here would look something like this: the company investing in a declining industry with the hope of increasing revenue.
When we analyse our challenges through the lens of Risk and Reward, it will help us make informed decisions as we evaluate the potential upside or downside of our choices. ●