Risk and Reward in Business

Every business involves an element of risk. Entrepreneurs accept risk in the hope of earning a reward. This lesson explores the concept of risk and reward, the reasons why businesses succeed or fail, and the role of uncertainty in business decisions.

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What Is Risk?

Risk is the possibility that a business venture will fail, resulting in financial loss or other negative outcomes. Starting a business is inherently risky because the entrepreneur cannot guarantee success.

Term	Definition
Risk	The chance that something will go wrong, leading to a loss
Reward	The positive outcome of taking a risk, usually financial profit or personal satisfaction
Uncertainty	A situation where the outcome cannot be predicted with confidence
Calculated risk	A risk that has been carefully assessed and weighed against potential rewards
Business failure	When a business ceases trading because it cannot sustain itself financially

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The Relationship Between Risk and Reward