7.2 Risk and Reward in Business Activity

• Risk can be quantified and assessed, unlike uncertainty.


  True
• Match the concept with its definition:

  Risk ↔️ Possibility of negative outcomes

  Reward ↔️ Potential benefits from risk
• What is the risk-reward balance in business?

  Relationship between losses and gains
• Unlike uncertainty, risk in business can be quantified and assessed for its likelihood and impact
• What is an example of uncertainty in business activity?

  Technological advancements
• The higher the level of risk, the greater the potential reward.

  True
• One strategy for balancing risk and reward is a high-risk, high-reward approach, such as investing in a disruptive technology.
• Order the strategies for managing business risk:

  1️⃣ Avoidance

  2️⃣ Mitigation

  3️⃣ Transfer

  4️⃣ Acceptance
• What role does innovation play in reward levels?

  Greater potential rewards
• Favorable market conditions increase the potential for higher rewards
• A business investing in risky technology may capture significant market share
• Higher risk is generally associated with higher potential return.


  True
• What type of investment has low risk and low potential return?

  Government bonds
• What is reward in business activity?

  Potential benefits or gains
• What is the risk-reward balance in business decisions?

  Relationship between potential losses and gains
• What type of risk arises from disruptions in day-to-day operations?

  Operational risk
• What are rewards in business activity?

  Positive outcomes from strategies
• What is the primary difference between risk and uncertainty in business?

  Risk can be quantified
• Investing in a new, disruptive technology is an example of a high-risk, high-reward strategy
• Risk arises from the uncertainty surrounding business decisions and market conditions.uncertainty
• Risk management requires strategic planning and mitigation strategies.


  True
• Match the type of reward with its example:

  Financial Reward ↔️ Increasing annual profits by 15%

  Brand Reputation ↔️ Winning a consumer choice award

  Market Share ↔️ Capturing 30% of a new customer segment

  Employee Satisfaction ↔️ Achieving a 90% satisfaction rate
• What is an example of a low-risk, low-reward strategy?

  Opening a franchise
• What is an example of risk mitigation in business?

  Cybersecurity measures
• Favorable market conditions increase the potential for higher rewards.
• What is the primary influence on the level of reward in business activity?

  Key factors
• Lower risk corresponds to lower potential return
• What is risk in business activity?

  Possibility of negative outcomes
• What is an example of a financial reward in business?

  Increasing annual profits
• Franchises have lower risk but provide limited potential rewards.


  True
• What type of risk involves threats to the business's long-term plans?

  Strategic risk
• Match the risk type with its definition:

  Financial Risk ↔️ Potential loss of money

  Operational Risk ↔️ Disruptions in day-to-day operations

  Strategic Risk ↔️ Threats to long-term plans

  Compliance Risk ↔️ Failure to adhere to laws
• Effective risk management is not crucial for achieving business goals.

  False
• What are the four types of business risk mentioned in the study material?

  Financial, operational, strategic, compliance
• Match the risk management strategy with its definition:

  Risk Avoidance ↔️ Eliminating risk by not engaging in the activity

  Risk Mitigation ↔️ Reducing the likelihood or impact of risk

  Risk Transfer ↔️ Shifting the risk to a third party

  Risk Acceptance ↔️ Accepting the risk and dealing with it
• Match the factor with its impact on reward:

  Risk Level ↔️ Higher risk leads to higher potential reward

  Innovation ↔️ Pioneering new products yields greater rewards

  Market Conditions ↔️ Favorable conditions increase potential rewards

  Competitive Advantage ↔️ Unique capabilities outperform competitors
• Businesses must consider their risk tolerance and desired return when making strategic decisions.


  True
• A well-managed risk-reward balance can lead to extraordinary success for businesses.


  True
• Businesses should avoid balancing risk and reward to achieve success.

  False
• Successful risk-reward management examples include Netflix's transition to streaming and Tesla's mass production of electric