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Risk & Opportunity Scale

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The figure below is intended to illustrate how an array of prospective decision choices can be assessed (rated and scored) as to their relative risk and opportunity potential.  Scales are provided for sorting the choices based the prospects of risk and opportunity as measured in comparison to each other.   Each of these scales represents one of the two axes on the matrix shown below (opportunity on the vertical and risk on the horizontal).  The better choices plot in the region above the neutral (diagonal) line where opportunity scores are higher and the risk scores are lower.  The poorer choices plot in the region below the neutral (diagonal) line where the opportunity scores are lower and the risk scores are higher.  The rational decision maker is one who seeks opportunity and avoids risk.   The very best choices have characteristics that plot in the blue region and the very worst choices are found in the red region.  The yellow region is neutral in that a decision-maker is relatively indifferent to these decision choices.

In summary, given a set of decision choices under evaluation by any decision-maker, those that plot above the neutral line are give favorable consideration and the choices that plot below the neutral line are eliminated.  Those decision choices whose risk and opportunity characteristics plot on the diagonal, neutral line are held for future consideration but only if new ways are found to either improve the opportunity or reduce the risk.

The following features of the two constructed scales in the matrix below should be noted.  First, the constructed scales are relative to the set of choices under consideration.    A single decision choice would be difficult to rate just by itself in isolation.  The decision maker is advised to either evaluate decision choices in groups or to select some past decisions and use them as reference points.    Then, new decision choices are simply rated relative to previous, familiar decisions in terms for their potential for upward opportunity and downward risk.    

On each of the opportunity and risk evaluation scales below, there are no absolute physical examples associated with any of the 5 incremental scalar intervals.   A relative scale means that the set of choices may reflect an inherent, perceived difference only between the choices currently available.   For example, decision choice numbers 7 and 11 are rated at opposite sides of the opportunity scale.   What this means is that set of rewards associated with each are spread far apart in the mind of the decision maker.   Second, the scale is relative only to the person or organization that is making the decision.  What one person considers a high risk level may be completely different from another person, based on individual differences in perception, preference, and ability to deal with uncertainty..  One person may consider decision choice #4 "Face Lift to Enhance Personal Appearance" as very low risk and another person might considerate it to be high risk for entirely different and unique reasons.   These judgments are personal.   

What the matrix below suggest is that of the set of twelve decision choices under consideration, only choices #1,2,6,7, and 8 should be given strong consideration for selection, so long as they are not mutually exclusive.  A mutually exclusive choice means that if you pick one, it precludes you from picking another.  For example, if you are planning a vacation, you can't go to both a third world country or a local resort at the same time (decision choices 5 and 6).  Choices in the blue (#2 and 7) should be given the highest priority for implementation.  Choice in the light blue (#1 and 8) should be given second priority, followed by the green (#6).   Decision choices 9, 10, and 12 should be dropped from further consideration as they are deep in the undesirable region (high risk and low opportunity).  Finally, since choices 5 and 6 are mutually exclusive (vacations) and choice 5 is dominated by choice 6 (the same opportunity but less risk), it too should be dropped from current consideration. Decision Choices 3, 4, and 11 could be retained for future consideration in case the decision-maker can find new information or innovative thinking improves them.

The next time you have a decision to make, see if you can find other related or completely different decision choices to you have been considering.   Then, evaluate them as a set to find those that are worthy of continued consideration and which ones to drop. Depending on the color of the matrix their risk and opportunity characteristics plot, you are given insight as to how value they are to you.

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Website last updated on 10/19/08
Copyright 2005 Charles W. Sooter.  All rights reserved.