Monday 2nd December Mr Nicholls Year 10 Business Monday 2nd December Mr Nicholls

Objectives To consider what we mean by the term “calculated risk” and how it can apply to business.

To start with… Discuss…

Today… Calculated Risk – what do we think we mean by the term?

Let’s start from the beginning… A new business starts out with few, if any, customers and is likely to face competition from existing firms. To succeed it needs to plan its launch carefully and work out how to create a competitive advantage over its rivals. To gain this advantage, it needs to offer a product which customers prefer to a rival's product. Setting up a business involves risks and reward. Profit is the reward for risk-taking. Losses are the penalty of business failure. An owner may decide to close a business if losses are being made, or if the level of profit is not enough to make trading risks or hours worked worthwhile.

And so… So – a business will have limited resources, research will be costly and will seem like a poor use of time….but is needed – hence we need to consider the BUSINESS PLAN! A business plan is a report by a new or existing business that contains all of its research findings and explains why the firm hopes to succeed. As such, included within the business plan will be: Market Research A Competitor Analysis Having this information will help the business to minimise the risk of their venture, and will help them understand their market a little better…

So… So if we link it back to our original point about a “Calculated Risk”, we can see that whilst there is a risk of failure and the like, the entrepreneur has looked at their options and has determined that they can minimise these risks and potentially succeed – hence it’s calculated! Or – if we go for a formal definition… A chance of exposure to loss or injury that might be undertaken after its advantages and disadvantages have been carefully weighted and considered. Many business operators need to take a calculated risk to expand their business activities into a new competitive arena

For example…

Question… In which situations might a business have to take a calculated risk?

They have all gone into administration (in the year mentioned). Question What have these companies got in common? They have all gone into administration (in the year mentioned).

Risks…

Why do it?

And in summary…

Decision Tree A decision tree can be used to clarify and find an answer to a complex problem. The structure allows users to take a problem with multiple possible solutions and display it in a simple, easy- to-understand format that shows the relationship between different events or decisions.

Your turn… How might you use a decision tree to help you make a decision? See what you can put together in your book then we’ll share some of our ideas.

Text Books… In your text books please turn to page 68 – you need to answer the questions on page 69 after reading the case study. This is going to tie into the work on Friday so make sure you give it your all!

Homework… To be prepared for Friday please: Familiarise yourself with the following terms: Calculated Risk. Upside Risk Calculating Risks Drawing the Right Conclusions Learning From Your Mistakes HINT – Pages 70 and 71 in your text books might help!