Fundamentals of Risk Management

Expand
depending on risk
appetite and capacity
Exist
in mature/declining
markets
Explore
entrepreneurial
opportunities

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Risk response
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FIgURE 
15.3
Opportunity risks and risk appetite
Potential
reward
Level of risk
Exploit the
opportunity
Expand
if resources
allow
Exit if risk
appetite
exceeded
Exist in mature
market
Explore the
opportunity
appetite. An organization may find that it has a viable business opportunity but does 
not have the resources to exploit it on its own. In these circumstances, the organiza-
tion has three main choices. It may exit the opportunity because it does not have the 
risk appetite or risk capacity to pursue that opportunity. It may sell the opportunity 
on to an organization that does have the appetite, capacity and resources to exploit 
the opportunity or it may seek to share that opportunity.
Exiting the opportunity may be the appropriate option, because the organization 
does not have the risk appetite, capacity or resources to pursue the opportunity and 
has not been able or willing to find a partner to buy or share it. However, most
organizations with a viable opportunity will wish to gain from the identification of 
that opportunity. Selling the opportunity may provide a profitable exit, but sharing 
it with, for example, a joint-venture partner may be a better long-term option.
Entering into a joint-venture partnership will reduce the level of risk faced by the 
organization, but will result in sharing of the benefits. This decision will depend on 
business strategy, risk appetite, risk capacity and the availability of suitable business 
partners. As well as a joint-venture partnership, exploiting business opportunities 
may be possible by sharing the risk, using means such as outsourcing to share the 
risk with others in the supply chain.
It should be noted that Figure 15.3 represents a flow chart from start-up (Explore 
opportunities) to growth (Expand), then to a mature organization (Exploit) before 
moving into decline (Exist). It is, therefore, similar to Figure 2.2. However, it has the 

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