Key Management Models, 3rd Edition

33

Risk–reward analysis

The big picture

The risk–reward analysis charts potential rewards of strategic options against the associated risk. The result is an assessment of the attractiveness of strategic options, serving as a basis for decisions to allocate resources. The risk–reward analysis works in the same way as a risk–return analysis for valuing financial products such as bonds and options (Figure 33.1).

Figure 33.1 Risk–reward analysis

When to use it

The risk–reward analysis can be performed at any level of detail. The CEO could do it ...