Is that so? Well, only if you live in a textbook. And RISKVIEWS has not actually checked whether there really are text books that are that far divorced from reality.
Actually, in the world that RISKVIEWS has inhabited for many years, there are may real possibilities, for example:
- Risk without reward
- Reward without risk
- Risk with too little Reward
- Risk with too much Reward
- Risk with just the right amount of reward
The reason why it is necessary to engage nearly everyone in the risk management process is that it is very difficult to distinguish among those and other possibilities.
Risk without reward describes many operational risks.
Reward without risk is the clear objective of every capitalist business. Modern authors call it a persistent competitive advantage, old school name was monopoly. Reward without risk is usually called rent by economists.
Risk with too little reward is what happens to those who come late to the party or who come without sufficient knowledge of how things work. Think of the poker saying “look around the table and if you cannot tell who is the chump, it is you.” If you really are the chump, then you are very lucky if your reward is positive.
Risk with too much reward happens to some first comers to a new opportunity. They are getting some monopoly effects. Perhaps they were able to be price setters rather than price takers, so they chose a price higher than what they eventually learned was needed to allow for their ignorance. Think of Apple in the businesses that they created themselves. Their margins were huge at first, and eventually came down to …
Risk with just the right amount of reward happens sometimes, but only when there is a high degree of flexibility in a market – especially no penalty for entry and exit. Sort of the opposite of the airline industry.
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