The risks that we are most likely to take are those that have a big upside and a relatively small downside. Smart business leaders are always looking for a relatively safe bet. You compare worst case to best case scenarios, as well as several scenarios in between, and then try to determine the most likely outcomes .
I have found it valuable to try to recall similar situations I have experienced before and think, What was the result? Its important to consider all the possible outcomes, but in the end, no matter how optimistic you are about the situation, the deciding question must be Is the most likely result worth the risk of the worst case scenario?
Risk needs to be measured on the basis of impact and probability . Generally, we want to minimize the negative impacts and maximize the probability of a positive outcome.
We also look for risks where we have a significant influence over the outcome. So, for example, I dont buy lottery tickets because I cant influence the outcome. But I would bet on myself in a one-on-one competition, because I know I can actually influence the outcome.