Risk-return analysis means that for any each new project / decision, but also for the organization as a whole, you embed the following principles:
- Identify what is the expected return. This can be the economic return but also intangible benefits / social return
- Identify and measure all the risks of deviating from the expected outcome. For example the risk of large financial losses.
- Combine 1. and 2. into metrics that capture the risk-adjusted opportunity as opposed to a pure anticipated revenue opportunity
- Embed 3 into the incentives of all internal agents