How Much Risk Can You Tolerate?

Quiz: How Much Risk Can You Tolerate?

Regina Kwon

Viewing projects as part of a portfolio helps justify potentially risky initiatives. The definition of what’s risky, however, varies from company to company. Take this informal

quiz—adapted from a version in the academic journal Financial Services Review—to get

a sense of your company’s risk tolerance.

1. At an industry conference, your company, AcmeCo, is leading a session on risky investments. The audience wonders …

what this ultraconservative company could say about risk

whether AcmeCo’s lengthy risk-assessment process is worth the effort

when AcmeCo will stop being the paragon of derring-do

2. AcmeCo needs a new sales package. Which is most appealing?

The traditional favorite, even though it costs the most

A new module from your current enterprise software vendor

A feature-rich, low-cost package from a market newcomer

3. After announcing cutbacks, AcmeCo’s CEO says the annual winter party

has been canceled

will take place in the conference room, not the Four Seasons

will take place as usual—it may be the last one for a long time

4. In its attitude toward risk, AcmeCo is most like

Salomon Smith Barney

IBM

Red Hat

5. With an extra $200,000 to invest, AcmeCo would likely

divide it according to the existing investment plan

invest half and use the rest to start new research

buy a stake in a fledgling company

6. AcmeCo will fund research for unusual product ideas

when pigs fly

if the numbers make sense

if the return is very high

7. For AcmeCo’s management team, which word is most interchangeable with the word “risk”?

Loss

Uncertainty

Opportunity

8. Which of these best- and worst-case scenarios would AcmeCo most prefer?

150% gain (best case) vs. 100% gain (worst case)

400% gain vs. 100% loss

600% gain vs. 200% loss

9. What is the current risk profile of AcmeCo’s technology projects?

60% in low-risk investments; 30% medium risk; 10% high risk

30% low risk; 40% medium risk; 30% high risk

10% low risk; 40% medium risk; 50% high risk

10. A new project could return up to 10,000%. But if it fails, the investment is lost. The chance of success is estimated at 20%. How much of its research budget might AcmeCo allocate?

None

10% of the year’s budget

30% of the year’s budget

Full story

Find out more in Calculating Return: The Perfect Balance for a Project Portfolio.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.