Quiz: How Much Risk Can You Tolerate?
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
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”?
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?
10% of the year’s budget
30% of the year’s budget
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.