Question

The board members of a large company disagreed about how to handle risk. The finance director said that too much was being made of the issue and that diversification in recent years had greatly improved the firms risk profile. The CEO added that there was nothing that could be done about uncertainty in any case, and that risk had no bearing on how the company was run.

The strategist disagreed and said that the boards attitude to risk had an impact on all of its activities in the strategic sense, and ignoring risk and uncertainty could have serious consequences.

Required:

1) What effect on strategic behaviour does risk aversion have compared with risk taking?

2) Are there any particular advantages or disadvantages associated with being risk-averse compared with risk-taking?

Planning Strategic