Risk and uncertainty may arise due to lack of complete information about a particular opportunity. Yet, the entrepreneur will work with what information is available to decide whether or not to proceed with an opportunity. Discuss two (2) ways in which an entrepreneur will use information to understand risk and uncertainty and deciding whether or not to exploit a business opportunity
1) Gathering Market Research: One way in which an entrepreneur will use information to understand risk and uncertainty is by conducting market research. This involves gathering data and information about the target market, potential customers, competitors, industry trends, and any other relevant factors that could impact the success of the opportunity. By conducting thorough market research, the entrepreneur can gain insights into the demand for the product or service, identify potential competitors and their strategies, understand customer preferences and purchase behaviors, and assess the market potential and risks associated with the opportunity. This information helps the entrepreneur in evaluating the level of risk involved and making an informed decision about whether or not to exploit the business opportunity.
2) Evaluation of Financial Performance: Another way in which an entrepreneur can use information to understand risk and uncertainty is by evaluating the financial performance of the opportunity. This includes analyzing factors such as projected revenues, costs, profitability, cash flow, and return on investment. By evaluating the financial aspects, the entrepreneur can gauge the financial viability and potential risks associated with the opportunity. They can assess whether the opportunity has the potential to generate sufficient revenues to cover the costs and deliver a satisfactory return on investment. Additionally, the entrepreneur can use financial analysis techniques, such as sensitivity analysis or scenario planning, to assess the potential impact of various uncertain factors on the financial performance of the opportunity and make a more informed decision about its exploitation.
In both cases, the availability and accuracy of information play a crucial role in helping entrepreneurs understand and mitigate the risks and uncertainties associated with a business opportunity.