KNOW ABOUT

BUSINESS

Entrepreneurship Education
in Schools and Technical Vocational Training Institutions
and Higher Education

MODULE 2
Why Entrepreneurship?

Authors:

George Manu
Robert Nelson
John Thiongo
Klaus Haftendorn

Editors:

Peter Tomlinson and Klaus Haftendorn

International Labour Office, Geneva

International Training Centre of the ILO, Turin
Copyright © International Training Centre of the ILO 2008

This publication enjoys copyright under Protocol 2 of the Universal Copyright Convention. Applications for
authorization to reproduce, translate or adapt part or all of its contents should be addressed to the
International Training Centre of the ILO. The Centre welcomes such applications. Nevertheless, short
excerpts may be reproduced without authorization, on condition that the source is indicated.

Know About Business

ISBN 92-9049-396-8

First published 1996

Second edition 2000
Third edition 2002
Fourth edition 2004
Revised edition 2005
Revised edition 2007
Revised edition 2008

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2

Why Entrepreneurship?

Module objectives:
Ä To enable learners to recognize that being entrepreneurial
in business and non-business situations is beneficial at
individual, family, community and society levels.

Module coverage:
Page
1. Entrepreneurship Defined.......................................... 4
2. Reasons for Entrepreneurship in Business.................. 11
3. Entrepreneurial Motivation ...................................... 15
4. Setting Entrepreneurial Goals .................................. 24
5. Risk-Taking........................................................... 31

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Know About Business Module 2: Why Entrepreneurship?

I TOPIC 1: Entrepreneurship Defined

II SUGGESTED TIME:
• 2 hours/sessions

III OBJECTIVE:
• To provide learners with an appreciation and understanding of the elements
and concept of entrepreneurship.

IV RATIONALE:
• By understanding the concept of entrepreneurship, learners will be able to
appreciate that any situation they may find themselves in offers
opportunities and has potential for being beneficial and making life better
for others.

V ACTIVITIES:
1. Show TRANSPARENCY 1 to provide learners with a clear and concise
definition of an entrepreneur. Explain to learners that they can be
entrepreneurial in both business and non-business situations.

2. Have learners read HANDOUT 1 and discuss the entrepreneurial function in

business.

3. Show TRANSPARENCY 2 and discuss how entrepreneurs improve the

business and economic environment through their actions.

4. Have class review and discuss HANDOUT 2 that relates to promoting the
economic environment. Summarize the discussion by emphasizing that:

Entrepreneurship is an organizational and management approach that

enables persons to respond to change and solve problems in whatever
situation (either business or non-business) they may find themselves.

There are five elements of entrepreneurship: observing the environment,

identifying opportunities, gathering the necessary resources, implementing
the activity and receiving rewards for engaging in the activity.

5. Entrepreneurship involves the use of economic resources (money and

equipment) as well as individual human resources (energy, skills,
knowledge, time). Have learners read and discuss HANDOUT 3. Show
TRANSPARENCY 3 as a summary.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 1

TRANSPARENCY 1

Defining an Entrepreneur

An entrepreneur:
1. Observes the environment,
2. Identifies opportunities in the business
or non-business environment
3. Gathers the necessary resources
4. Implements the activity and
5. Receives financial or social rewards.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 1

HANDOUT 1

Entrepreneurial Function in Business

a) Entrepreneurs are the prime movers in the business or social sectors.
Without entrepreneurs, there would be no business or social development.
They are the ones who identify gaps in the market and then turn these
gaps into business opportunities.

b) It is the entrepreneur who obtains finances for the business. After

identifying a business opportunity, the entrepreneur mobilizes the
necessary resources to implement the opportunity and becomes the
financier of the enterprise. The entrepreneur does not of course have to
finance the business from personal savings alone. The necessary finances
and other resources could be borrowed. It is, therefore, a function of the
entrepreneur to provide financing for the business.

c) Another function of the entrepreneur is to manage the business. This is

also a function that he/she can delegate to other people. Even where other
people are employed to manage the business, the ultimate responsibility
for management remains with the entrepreneur. Management functions
involve a wide range of activities such as organizing, coordinating, leading,
recruiting, rewarding and evaluating employees. The entrepreneur
manages production, marketing, personnel and all other aspects of the
business.

d) The entrepreneur also has the function of bearing the uncertainties and
risks of the business. Entrepreneurs try to avoid risk situations whenever
possible. Entrepreneurs take only calculated risks; before taking a risk,
they know the costs and the benefits of the risk situation.

e) Through the entrepreneurial function, many jobs are created in the

economy. In addition, wealth is made available to the individual, the
community and society through the actions of entrepreneurs.
Entrepreneurs encourage competition, which is critical in sustaining a
free market system and promotes economic growth, social progress and
the spread of prosperity among a country’s population. Entrepreneurship is
an effective mechanism for ensuring innovation and creativity as well as
achieving economic development at the grassroots level.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 1

TRANSPARENCY 2

Entrepreneurial Roles in Business

Improve the Business Environment

A. by:
ƒ Creating jobs
ƒ Promoting free enterprise
ƒ Promoting healthy competition
ƒ Generating wealth
ƒ Spreading prosperity
ƒ Ensuring innovation and creativity
ƒ Encouraging grassroots development
ƒ Improving social and community conditions
ƒ Promoting Growth

B. through:
1. Observing and identifying opportunities in the
business or non-business environment
2. Gathering the necessary resources
3. Implementing the activity and receiving the
financial or social rewards.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 1

HANDOUT 2

Importance of Entrepreneurship

1. EMPLOYMENT CREATION: Entrepreneurs create employment for

themselves and other people. They are employers and assist in solving the
unemployment problem.

2. LOCAL RESOURCES: When entrepreneurs utilize local resources, the value

of these resources increases.

3. DECENTRALIZATION AND DIVERSIFICATION OF BUSINESS: Entrepreneurs

are able to identify business opportunities, and locate these businesses in
suitable areas, including rural areas.

4. PROMOTION OF TECHNOLOGY: By being creative, entrepreneurs are able

to contribute to the utilization and development of appropriate technology.

5. CAPITAL FORMATION: Entrepreneurship increases capital formation and

investment in new and expanding businesses.

6. PROMOTION OF AN ENTREPRENEURIAL CULTURE: By projecting successful

images, entrepreneurs become role models for other people.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 1

HANDOUT 3

Entrepreneurial Resources
Entrepreneurs use the following economic and human resources to help implement
their ideas.

ECONOMIC RESOURCES
Money. Entrepreneurs need money to implement their business ideas. Personal
savings and borrowing money from friends, family and lending institutions are the
primary sources for financing a business

Equipment. Equipment may be as simple as a small knife or a paper clip. It may be a

cell phone, a microwave oven, or a computer. The value of any equipment depends on
the efficiency with which it is used. Even the best equipment cannot think or act on its
own.

HUMAN RESOURCES
Energy. Good health is essential to maintaining a high energy level. Adequate
nutrition, rest and exercise are basic necessities. Personal attitudes also have a strong
influence on an entrepreneur’s energy supply. Highly entrepreneurial people
accomplish a great deal by having positive attitudes and specific goals to motivate
them.

Skills. Skills are developed when a person learns how to do a task competently.
There are several types of skills: practical everyday skills such as writing legibly or
doing household chores; vocational skills that enables you to do a particular job; and
recreational skills like dancing, painting, or sports. You can enhance your life by
developing your skills.

Knowledge. A real zest for life and an active curiosity will stimulate one’s learning.
Reading, observing and listening are ways of staying in the mainstream of life.
Entrepreneurs must take responsibility for acquiring knowledge by developing
communication skills such as reading, writing, speaking and listening.

Time. Time is a unique resource. Everyone has the same amount (24 hours a day
and 168 hours each week). A large portion of time is taken up by daily activities like
eating, sleeping, school, work and hygiene. The remaining time should be spent on
recreational activities and special interests that provide satisfaction.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 1

TRANSPARENCY 3

Resources Entrepreneurs Need

to Implement Ideas

ƒ MONEY

ƒ EQUIPMENT

ƒ ENERGY

ƒ SKILLS

ƒ KNOWLEDGE

ƒ TIME

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Know About Business Module 2: Why Entrepreneurship?

I TOPIC 2: Reasons for Entrepreneurship in

Business

II SUGGESTED TIME:
• 2 hours/sessions

III OBJECTIVE:
• To enable learners to understand the guiding features of entrepreneurship
that enable businesses to succeed.

IV RATIONALE:
• By understanding that entrepreneurship in business follows certain guiding
principles, learners will be able to utilize such principles when ready to
initiate a business.

V ACTIVITY:
1. Have learners read WORKSHEET 1. Show TRANSPARENCY 1 and have
learners discuss the Economic Principles and Entrepreneurial Competencies
presented in WORKSHEET 1.

2. Show TRANSPARENCY 2 and discuss the rewards and efforts of being an

entrepreneur.

3. Summarize Topic 2 by emphasizing that an entrepreneur:

• is the prime mover in business through identifying gaps in the market

• is the mobiliser of resources

• organizes and manages the enterprise

• bears all the uncertainties and risks of the business

• receives rewards for his/her efforts

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 2

WORKSHEET 1

Principles of Entrepreneurship

It has been said “if a man/woman builds a better mousetrap, the world will beat a
path to his/her door”. In a market economy there is an opportunity for profit,
recognition and service for those with the imagination, energy and drive to do a job
better, or provide a better service than others. The essence of the free enterprise
system is competition. It is competition that makes those doing a good job try harder.

Competition provides a better standard of living for consumers by offering choices.

Consumers “shop” to get the best value and quality goods and services. When a
purchase is made, the money paid is “votes” in favor of the product or the service
chosen. Those products or stores or services which do not receive sufficient support
(sales) in the way of “dollar-votes” from customers will fail.

Entrepreneurs who want to be successful provide a little extra service or a little better
product than their competition. Many businesses fail each year, but many succeed.
Those that succeed perform services or offer merchandise in such a way to satisfy
their customers.

As the population expands, there develops a need for more businesses. Every year
several million babies are born and these “babies are big business”. When these
babies grow they become the children, the learners, the workers, the managers and
the customers of tomorrow.

An entrepreneur does not have to be the best manager, or have the biggest store, to
compete successfully. If entrepreneurs see a need for a new store in a growing
community and begin operating before others, they can get a head start on their
competition.

Anyone with imagination and a little courage to take a chance on his/her own ability
and ambition can generally be successful in business provided the individual has
progressed to the point of being a good business risk. One must have the basic
education, skills, knowledge and maturity to reduce the chances of failure. Any
business is a risk. The chances of failure can be greatly reduced by education,
experience and the exercise of good judgment.

There is an element of chance in all businesses. Some entrepreneurs are lucky, but
you must not depend on luck alone!

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 2

TRANSPARENCY 1

Features of Entrepreneurship

ECONOMIC PRINCIPLES
ƒ OPEN MARKET ECONOMY
ƒ PRIVATE ENTERPRISE
ƒ ADDING VALUE (CREATING WEALTH)
ƒ NEEDED PRODUCTS/SERVICE
ƒ NEW MARKETS

ENTREPRENEURIAL COMPETENCIES
ƒ TAKEING INITIATIVES
ƒ BEING HIGHLY COMPETITIVE
ƒ EXPLOITING CHANGE
ƒ DEALING WITH UNCERTAINTIES
ƒ SEEKING OPPORTUNITIES

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 2

TRANSPARENCY 2

Entrepreneurial Rewards and Efforts

REWARDS FOR BEING AN ENTREPRENEUR:

ƒ Self-actualization/personal fulfilment
ƒ Feeling of freedom and independence
ƒ Providing jobs and benefits (investors,
suppliers, bankers, subcontractors, work
force, customers)
ƒ Economic goods (product/service, incomes for
workers, profits for shareholders/partners)

PERSONAL EFFORTS TO BE AN ENTREPRENEUR

ƒ Working long hours
ƒ High Energy
ƒ Sacrificing other important aspects of life
ƒ Limited social life
ƒ Less time with family and friends
ƒ Large financial investment

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Know About Business Module 2: Why Entrepreneurship?

I TOPIC 3: Entrepreneurial Motivation

II SUGGESTED TIME:
• 1 hour/session

III OBJECTIVE
• Understand the various motivational factors that entrepreneurs possess and
utilize in their daily activities.

IV RATIONALE
• Learners need to understand the relationship between entrepreneurial
motivation and positive mental attitudes toward work. Entrepreneurial
motivation is essential to success and is a trait which all learners can
develop.

V ACTIVITIES
1. Have learners complete the Quiz in WORKSHEET 1. Discuss the following
answers to the Entrepreneur’s Quiz with the learners.

EXPLANATION OF ANSWERS TO ENTREPRENEUR’S QUIZ

1. Faced with a problem, the entrepreneur is most likely to: b) get help
from a stranger who is known to be an expert.

Entrepreneurs do tend to be independent, self-reliant individuals. They

may try to work through a problem alone. They do have a high need to
achieve. But successful entrepreneurs are not so committed to the purely
individual achievement of goals that they will not seek aid. The task of
starting a business is a difficult one which usually requires the help of
others. Successful entrepreneurs will seek out those who can be most
helpful whether they are friends or strangers. The need to achieve will
likely be greater than the social need to work with friends. The best choice
is (b).

2. The entrepreneur is most like the distance runner who runs

mainly: c) to try to better his or her previous time over the distance.

Entrepreneurs often have a tremendous amount of energy and drive, with

a capacity to work for long hours. Good general physical health is
necessary in order to withstand the stress of running their own businesses.
One of the risks they must evaluate is that their work will likely put
physical, social and emotional strains on them. Few entrepreneurs are in
business for the good of their health although many seem to thrive on the
work-related stress. Entrepreneurs tend to compete against standards of
achievement they set for themselves rather than standards set for them

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Know About Business Module 2: Why Entrepreneurship?

by others. Entrepreneurs are most like the runner who races to beat the
clock. To achieve a new “personal best” time will likely be more rewarding
than beating others. The best choice is (c).

3. Entrepreneurs are motivated by the need to: a) achieve a goal of

greater personal importance.

Those who are motivated by a need to gain attention, get recognition and
control others are motivated by power. They are more active in political
life or large organizations where they concentrate on controlling the
channels of communication both up to the top and down to the bottom so
that they are more in charge. By contrast, entrepreneurs are motivated
more by their need for personal achievement than personal power. Power
and recognition may be the result of success but they are not the
motivating goals. The best answer is (a).

4. Entrepreneurs believe the success or failure of a new business

venture depends primarily on: c) their own strengths and abilities.

Successful entrepreneurs are likely have a high level of self-confidence.

They tend to believe strongly in themselves and their own abilities to
achieve the goals they set. They also believe that what happens to them in
their lives is determined mainly by what they themselves do. They are not
reluctant to place themselves in situations where they are personally
responsible for the success or failure of an operation. They will take the
initiative to solve a problem and provide leadership where none existed
before. The best choice is (c).

5. If given the chance to earn a substantial reward, which of the

following would entrepreneurs be most likely to do: b) work on a
problem with a one in three chance of solving it in the time given.

The entrepreneur is thought of as a risk taker. There are many risks

involved in entrepreneurial activity. But psychological testing of
entrepreneurs has indicated that they are no more motivated to do
something by risk than anyone else. They are not daredevils or reckless
gamblers. Successful entrepreneurs are very good at assessing the
amount of risk involved in a venture and will choose to accept that risk if
they feel their personal chances for success are relatively high.

The entrepreneur would most likely choose (b), to work on the problem
even though rolling dice is obviously less work. Entrepreneurs avoid
situations where the results depend mainly on chance or the efforts of
others. The opportunity for personal achievement is more important than
the size of the reward offered.

6. The entrepreneur is most likely to choose a task: a) which involves a

moderate level of risk but is still challenging.

Entrepreneurs tend to be positive, optimistic types who focus their

attention on their chances of success rather than the chances of failure.

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Know About Business Module 2: Why Entrepreneurship?

Individuals who fear failure tend to select tasks which are either very easy
or where the risk is very high. The entrepreneur avoids both extremes and
selects those tasks which are challenging but where the opportunities for
success are reasonably good. The best choice is (a).

7. Profits are important to entrepreneurs because: (either a or b)

a) profits provide the money which allows them to develop other ideas and
take advantage of other opportunities;

b) profits are an objective measure of how successful they have been.

It is a popular misconception that entrepreneurs are, at heart, greedy,

acquisitive individuals who enter business for the purpose of accumulating
great wealth. Entrepreneurs are driven to build a business rather than
simply to get in and out in a hurry with someone else’s money. They will
enjoy the benefits a higher income brings but will usually spend only a
portion of their profit on personal consumption.

Entrepreneurs who share a high need to achieve tend to be interested in

excellence for its own sake rather than rewards of money, prestige or
power. Studies show, in fact, that they will not work harder when money is
offered as a reward. Entrepreneurs view profits as a means to an end, not
as an end worth striving for in itself. For entrepreneurs, profits are a way
of keeping score, a measure of how well they are achieving their self-
established goals. They are used as a tool to evaluate how well the
business is doing in general and identify particular strengths and
weaknesses in the business. Profits are also seen by the entrepreneur as a
source of capital which increases the freedom and the ability to expand a
business or embark on new ventures. Both (a) and (b) are better choices
than (c).

8. Which of the following do entrepreneurs value most highly: c) the

opportunity to create and to do new things.

Many entrepreneurs are motivated by the desire to be their own boss.

They also know that being your own boss usually means you have little
time for anything else, particularly when starting up a new business.
Having control and discretion over one’s time is a value more highly prized
by college professors, for example, than entrepreneurs.

Competent decision-making with respect to producing a good or service of

the desired quality for as little as possible is a key ingredient in the
successful operation of any business. This is the main concern of business
managers and administrators. Entrepreneurs often run into difficulties as
their businesses grow because they are not interested enough in
managing. They are more interested by the opportunity to create and do
new things than they are by the option of continuing to run a successful,
well established firm. The best choice for this question is (c).

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Know About Business Module 2: Why Entrepreneurship?

2. After discussing the answers to the Entrepreneur’s Quiz, have learners read
and discuss HANDOUT 1. Highlight the importance of developing positive
attitudes and habits and their relationship to an entrepreneur’s self
motivation.

3. Have learners read Handout 2 and discuss why motivation is the driving
force of entrepreneurs

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 3

WORKSHEET1

A Personal Assessment

1. When faced with a problem, the entrepreneur is most likely to:

a) go to a close friend for help;
b) get help from a stranger who is known to be an expert;
c) try to work through the problem alone.
2. The entrepreneur is most like the distance runner who runs mainly to:
a) work off energy and to keep in good physical condition;
b) gain the satisfaction of beating other competitors in the race;
c) try to better his previous time over the distance.
3. Entrepreneurs are motivated most by the need to:
a) achieve a goal of greater personal importance;
b) gain public attention and recognition;
c) control wealth and other people.
4. Entrepreneurs believe the success or failure of a new business venture
depends primarily on:
a) luck or fate;
b) the support and approval of others;
c) their own strengths and abilities.
5. If given the chance to earn a substantial reward, which of the following
would entrepreneurs be most likely to do:
a) roll dice with a one in three chance of winning;
b) work on a problem with a one in three chance of solving it in the time given;
c) do neither (a) nor (b) because the chances of success are so small.
6. The entrepreneur is most likely to choose a task:
a) which involves a moderate level of risk but is still challenging;
b) where the risks are high but the financial rewards are also very great;
c) which is relatively easy and the risks low.
7. Profits are important to entrepreneurs because:
a) profits provide the money which allows them to develop other ideas and take
advantage of other opportunities;
b) profits are an objective measure of how successful they have been;
c) the main reason they accepted the risks of starting a new business was to
accumulate personal wealth (make a big profit).

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Know About Business Module 2: Why Entrepreneurship?

8. Which of the following do entrepreneurs value most highly:

a) the importance placed on competence and efficiency;
b) the freedom to control how they may use their time;
c) the opportunity to create and to do new things.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 3

HANDOUT 1

Motivation and Attitudes

Highly motivated entrepreneurs control their environment. A positive mental attitude
helps motivate them to focus on desired activities and events and the results they
hope to achieve. Motivation comes from having a positive mental attitude.
Entrepreneurs learn and try to get benefits from every experience they have.
Motivation and having a positive mental attitude takes a long time to develop.
Consider the following factors that help entrepreneurs to develop a positive mental
attitude:

• Focus on opportunities to learn from each experience.

• Being involved in positive activities.
• Choose work objectives that are achievable and have an impact.
• Make friends with other entrepreneurs.
• Acquire the thinking, mannerisms, and characteristics of successful
entrepreneurs.
• Have successful entrepreneurs serve as role models and mentors.
• Avoid negative thoughts and ideas.
• Take advantage of opportunities to improve your situation, whether it be
your personal life, work life or life in the community.
• The environment affects your performance. If your environment is not
appropriate to your needs, change the environment or move to another
environment which is more positive and conducive to achieving desirable
goals.
• Believe in yourself. Success comes to those who use their talents and
abilities to the fullest extent.
• Be action oriented and results oriented. Focus on specific problems; once
you have reached a decision, take action to solve the problem.
• Having a positive mental attitude is essential for achieving success. How
entrepreneurs act is a reflection of how they view themselves and their
environment.
Entrepreneurial Habits
Some entrepreneurs have acquired the habit of starting work in the early morning
hours. Starting work earlier than usual might be one way of becoming motivated. This
may require a great amount of effort and motivation. However, if an entrepreneur is
able to follow this practice for two months, the activity will probably become a habit.

To use this early morning time productively, it might be helpful to determine (the
night before) how this time will be used. This will lead to another good habit of
planning the next day’s important activities before going to sleep each night. Good
habits provide motivation to entrepreneurs.

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Know About Business Module 2: Why Entrepreneurship?

By practicing an activity on a daily basis for a period of one month. After the month is
over, the person will probably be motivated to continue the activity on a regular basis.
Then the activity becomes a good habit and will provide motivation for that person to
increase performance.

You should review your current habits in relation to your future goals. New habits may
have to be substituted for old habits to help provide the motivation to ensure future
success.

A small proportion of people are willing to take risks to change their lives for the
better. These people are entrepreneurial because they take advantage of
opportunities to own and operate businesses. True entrepreneurs are constantly
changing and growing. Having positive attitudes and a healthy self-image is essential
for all entrepreneurs.

Mental Motivation
Entrepreneurs have a positive outlook on life. They have developed a way of viewing
all experiences in a healthy manner. Entrepreneurs find satisfaction in work and are
proud of their accomplishments. You need to exhibit positive mental attitudes toward
your work because it is this motivation which will help determine your success.

Set aside a certain time each day for reflective thinking. Allow your mind to be
engaged in thoughtful activities about your business. Don’t limit your thoughts to just
day-to-day problems and activities. Be motivated to expand your thought patterns
and think “big.” People who see the “Big Picture” are the ones who are entrepreneurial
and are potential business and community leaders.

Mentally, be highly organized and be able to focus on a variety of problems. You

should be able to shift your attention from one problem area to another with a
minimum of effort.

The right mental attitude toward work is extremely important to motivation.

Successful entrepreneurs are highly motivated, enjoy their work and are totally
involved and dedicated to what they are doing. It is their motivation and positive
mental attitude which turns their job into exciting, interesting and rewarding work.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 3

HANDOUT 2

Entrepreneurs Must Be Highly Motivated

Entrepreneurs are essential for economic development. They provide the motivation
for activating and stimulating economic activity. The most developed economies are
the ones that have the most entrepreneurs. A positive economic and legal
environment will encourage and motivate people to become entrepreneurs and own
and operate their businesses.

Entrepreneurs provide the energy, creativity and motivation to initiate new

businesses. Entrepreneurs seek business opportunities that will bring success by
satisfying unmet customer needs. Entrepreneurs identify the needs of customers and
find ways to fill those needs.

Highly motivated entrepreneurs are optimistic and future oriented. They believe that
success is possible and are willing to take risks to implement a business. They are
flexible and willing to change quickly as they receive new information. Entrepreneurs
are persistent and determined to succeed.

Motivation gives entrepreneurs advantages over their competitors. They are

continually motivated to find unique ways to sell their products and services.

Entrepreneurs are motivated to operate their business legally and within government
regulations.

Entrepreneurs use practical business procedures and they are able to accurately
monitor the financial condition of their businesses. They constantly monitor sales,
cash flow and revenue of their businesses.

Entrepreneurs are the most important people in a market economy because they
create all wealth, jobs, and business opportunities. They bring economic prosperity to
a nation.

Potential entrepreneurs need to ask themselves the following questions:

• What three business opportunities can I identify today?

• How can I offer new products or services that people want, need and are
willing to pay for?
• Where are the best business opportunities?
• How can I bring together people, money and other factors to create new
products and services that people want?
• How can I use creativity, rather than money, to find new, better, cheaper
ways to sell products or services or to reduce costs of operation?
• How can I avoid or minimize my risks to start a business?

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Know About Business Module 2: Why Entrepreneurship?

I TOPIC 4: Setting Entrepreneurial Goals

II SUGGESTED TIME:
• 3 hours/session

III OBJECTIVE:
• Learners will develop their goal-setting skills by becoming familiar with
specific guidelines for setting goals.

IV RATIONALE
• For many entrepreneurs, the word “success” brings to mind images of
happiness related to achievements of some kind. Although this may be a
pleasant fantasy, it is not especially helpful or practical for an entrepreneur
who is seeking success. An entrepreneur who exercises inner control is
more likely to achieve success. Setting goals can be an effective strategy
for potential entrepreneurs to develop inner control. Guidelines for
identifying and pursuing goals can make the task of goal setting useful.
Setting goals can seem to be a difficult task to people who do not know how
to approach it, or do not see the value of setting goals. Others may have
tried to set goals, but their goals did not help them. However, guidelines for
setting goals can be a valuable resource. Entrepreneurs who have specific
reasons for setting goals and know the techniques for setting appropriate
goals can use their goals as tools for achievement.

V ACTIVITIES:
1. Show and discuss TRANSPARENCY 1. Discuss reasons for each guideline.
Ask learners to give examples and illustrations for each of the guidelines.
Learners should be encouraged to take notes regarding these guidelines.

2. Divide the class into groups of three or four learners. Distribute the case
study in WORKSHEET 1 to all learners. Have each group draw up a list of
goals for the case study. Have a representative from each group present
its list of goals to the entire class. Ask class members to point out any
goals that are not written according to the guidelines and suggest
revisions.

3. Have learners read HANDOUT 1. (a) Ask learners to share problems and
insights they encountered in setting their personal goals, (b) Suggest that
learners should have goals for all areas of their lives. There is a tendency
to set goals only for the work or business portions of their lives. Goals
should also be written for areas such as family life, recreation, and leisure
and (c) Discuss the reasons for setting priorities.

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High priority, or “A” goals, can act as tools for determining what course of
action to take. Any courses of action which are not likely to allow for
accomplishing these goals should be reconsidered seriously.

“B” goals are those which would be highly desirable to accomplish, but
which you do not consider essential. If any of these goals conflict with your
“A” goals, you should probably reevaluate both your “A” goals and the
conflicting “B” goals. Second, if you have a number of possible approaches
to either your “A” goals or your “B” goals, you can choose the course of
action which is likely to help you work toward both.

“C” goals are those which would be desirable to achieve, but are not high
priority. Curiously, “C” goals have a way of interfering with “A” and “B”
goals. Often we tend to pursue less important goals instead of our high
priority goals because they may be easier to achieve in the short run. “C”
goals should not be allowed to interfere with action to achieve “A” and “B”
goals.

Remind learners that goals should be flexible. As conditions change,

sometimes goals need to be changed as well. Goals should provide a guide
for action, not a plan to be stuck to no matter what.

4. Have the class discuss the following statements:

a. “Not achieving a goal is not as bad as having no goals at all.”

b. “Achieving goals may bring temporary satisfaction, but it also pushes
us to choose new goals.”

5. Have learners identify one goal they want to achieve during the next
month. Have learners discuss the specific steps they would have to take to
achieve their goals.

6. Have learners elaborate WORKSHEET 2.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 4

TRANSPARENCY 1

Guidelines for Setting Goals

a. Your goals should be your own. They should be

set for things you really want to achieve.

b. Goals should be specific. They should be clear,

concrete and written.

c. Goals should be measurable and can be

quantified. You need to be able to know when
you have reached a goal.

d. Review goals periodically to measure the extent

your goals have been achieved.

e. Goals should be set for a definite time period.

Setting deadlines can be an aid in attaining
goals.

Goals should include both short-range and long-

range goals.

NOTE: You can practice setting personal goals using

the above guidelines while you are still in school. If
you become an entrepreneur in the future, these
guidelines will become extremely important in
establishing your entrepreneurial goals.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 4

WORKSHEET 1

CASE STUDY

Jeanette has always loved doing things with her hands. She has studied in a variety of
crafts, but has not pursued any one craft. She enjoys learning new techniques, but
after she has perfected a technique she tends to lose the sense of challenge. Because
she has little money to spend on her crafts, she feels limited. In order to pursue a
craft further, she realizes that she will need to invest money in special equipment.
She also realizes that she will need to limit herself to one craft. Jeanette has had an
interest in wood-working for a long time. She has developed considerable skill with
hand tools, and has some experience in using power tools. She gets great enjoyment
out of designing various kinds of furniture, and would very much like to try to make
some of the unique furniture pieces she has designed.

Jeanette would like to begin acquiring enough basic hand tools and power tools to set
up a small woodworking shop. She feels fairly certain that the craft of woodworking is
broad enough to give her a continuous challenge. She is interested at present in
pursuing woodworking only as a hobby for now, but she might eventually like to go
into business for herself.

Using the guidelines discussed in class, draw up a list of goals for Jeanette. Be
realistic, and remember to include both long- and short-term goals.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 4

HANDOUT 1

Setting Entrepreneurial Goals

a. Your entrepreneurial goals should be your own.
You should set goals for things you really want to achieve. You are more likely to
accomplish goals you set for yourself than if you try to achieve goals others want
you to accomplish. You must “have your heart” in your goals. Sometimes you may
want to accept the goals of another person, however, you should make a
conscious effort to think and talk through the advantages and disadvantages of
such goals. You will be more successful in attaining goals, whether they are your
own or others, if you have a personal commitment to the goals. One common
example of a person accepting the goals of other people occurs between parents
and children. For example, Greg’s parents always wanted him to be an attorney.
From the time he was a small child, Greg had accepted that he would become an
attorney without questioning it. He made excellent grades in college, and was
accepted into law school. After a few months of law school, Greg began to realize
that he was not interested in law. He knew he could succeed in law, but his heart
wasn’t in it. He realized that it would be a big disappointment to his parents if he
didn’t finish, but he also thought it was important to do what he wanted to do
himself. As a result, he began thinking about his own goals for the first time.
b. Goals should be specific.
They should be clear, concrete, and written. Writing down your goals will help you
to clarify in your own mind what you really want. There is something about getting
it down on paper that forces you to understand what you want. This process of
putting your goals into words may help you realize how vague your thinking really
is. Writing your goals on paper will help you to clarify them for yourself and also
helps you to develop a sense of personal commitment to your goals.
Most people carry around a number of vague would-be goals in their heads. “I’ve
got to get organized.” “I’ve got to get into shape.” “I’ve got to prepare for the
future.” “I’ve got to stop wasting time on . . .” One reason these goals rarely are
translated into action is that they are too general. They need to be put into terms
which will enable you to decide how you will go about achieving the goal. For
example, take the goal “to get into shape.” Depending on the person, this could
mean taking an exercise class, going swimming, setting up a program of jogging,
etc. The point is that you must know what being in shape means for you before
you can take action.
c. Goals should be measurable.
You need to be able to know when you have reached a goal. The easiest goals to
measure are probably financial — they can be stated in dollars and cents. Other
goals may be more difficult to measure, but describing the exact conditions which
will exist when a goal is reached is helpful. There are at least two reasons why
setting measurable goals is important. First, it helps you know exactly where to
aim. Having a goal which is not measurable is something like aiming for a target
when you are not sure where it is. Second, having measurable goals provides you
with opportunities to succeed. You will know exactly how well you have
succeeded. Many people tend to think they should always go just a little bit further
to consider themselves successful. This may be okay for those super-human

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people who never get discouraged, but for normal folks it can be enough to
prevent them from even bothering to set goals at all. Studies have shown that one
of the most effective ways to develop a habit is by rewarding it. The feeling of
satisfaction which results from accomplishing a goal is a type of reward. If you set
goals you cannot measure, you may be discouraging yourself from the goal-
setting habit by denying yourself the opportunity to succeed.
d. Goals should be set for a definite time period.
Setting deadlines for completing your goals is important. Many people say that
they work best under pressure. They tend to leave things to the last minute,
although they realize that they could probably be more thorough if they would
start early and plan their time. When we are working toward our own goals, we
probably have no outside person putting pressure on us. Setting deadlines for
ourselves can provide a form of pressure to help us get our goals accomplished.
Perhaps the number one obstacle to achieving goals is procrastination. The old
saying is that tomorrow never comes. Setting definite time periods for
accomplishing goals helps prevent procrastination. Just as important, this process
helps us become aware of procrastination.
e. Goals should be set both short-range and long-range goals.
There are really two kinds of short-range goals. One type of short-range goal is a
step toward a long-range goal. Some people call these sub-goals, since they are
smaller parts of larger goals. Another type of short-range goal is independent of a
larger long-range goal. Both kinds of short-range goals are necessary. The first
kind helps you work toward a long-term goal which is important to you. The
second kind can help you develop confidence in your ability to accomplish more
difficult or complicated goals.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 4

WORKSHEET 2

Setting personal goals

1. Prepare a list of four important goals you want to achieve in all areas of your
personal life over the next two years. Write down at least three goals for each
area you have identified.
2. Use the sheet “Guidelines for Setting Goals” to evaluate the goals you have
written. Rewrite any goals which need to be improved.
3. Your goals should be assigned a priority letter such as A, B, or C. “A” goals should
be of the highest priority, “C” goals being the lowest. “B” should be assigned when
a goal does not quite reach “A”, but you feel it is more important than a “C” goal.
4. After a short period of time, reassign all “B” goals to either “A” or “C”. This will
help you to determine which goals are most important to you, and which goals are
not really important to your life plan.
5. Write your reflections on this activity. Include three paragraphs about how your
goals relate to starting the business that interests you.

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Know About Business Module 2: Why Entrepreneurship?

I TOPIC 5: Risk-Taking

II SUGGESTED TIME:
• 5 hours/sessions

III OBJECTIVE:
• To enable learners to demonstrate the skills needed to assess and evaluate
a risk.

IV RATIONALE:
• Although risk-taking is a style of behaviour, calculated risk-taking is a skill
that can be improved. Entrepreneurs should evaluate their needs before
deciding to take a risk. Questions to ask before engaging in any decision
requiring risk include:
i) Is the goal worth the risk involved?
ii) What are the biggest obstacles to achieving the goal?
• This questioning procedure is essential to the risk-taking process. The
above questions are only a few of the many questions to be asked before
entering into a risk situation. Taking risks before answering these questions
may lead to failure.
• In business and in life, there is clearly no way to avoid risk-taking.
Entrepreneurs become more self-assured and have a more positive outlook
towards risk-taking because they accept risks as challenges which require
their best efforts to achieve goals.

V ACTIVITIES:
1. Have the learners read HANDOUT 1 as background for the topic on risk-
taking. Ask learners the following questions:

a. What is the difference between taking a risk and gambling?

b. How can developing your risk-taking skills help you to become better
at handling life situations?
c. What risks are involved when you avoid making a decision?
d. What are the rewards of taking a risk?

For discussion in class, have the learners think of one situation in their life
involving some sort of risk. Have the learners write 3 paragraphs
describing that risk situation. Then ask the learners to respond orally or in
writing to the following questions regarding their risk situation.
• What people and other resources could have helped to minimize the risk
to achieve this goal?
• What fears did you have in taking this risk?

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• Did you try your best to achieve the goal?

• What was achieved by taking this risk?
• What preparation did you make before taking the risk?
• How did you know when you had accomplished your goal?
• What were the biggest obstacles to achieving your goal?
• What have you learned about your risk-taking attitudes?
• What do you like about your risk-taking attitude?
• What would you like to change about your risk-taking attitude?
• What do you consider the most important factors when taking a risk?
• Was the goal worth the risk involved?
• How could the risk have been minimized?
• What information was needed before taking the risk?
The ring tossing game

Part one of the game

The ring toss game can be used to highlight various factors of risk-taking. Do
not tell the learners what the purpose of the game is.

Procedure: Use 2 baskets (of the same size) and 10 coins, 10 stones, or
10 pieces of paper crushed up.
• Place the targets (pegs or baskets) 10 feet apart outside the classroom.
• Mark off one-foot intervals with chalk (have 12 intervals). Each interval
will have a number (1 to 12).
• Have two learners at a time go out of the classroom and make five
throws each.
• Have two learners serve as recorders and mark the distance from the
basket and the number of times the coin, stone or paper went into the
basket.
• Each learner should have five chances. They can change the distance for
each throw.
• To obtain a score, the recorder adds the distance from the basket for
each successful throw. The distances of each successful throw are added
to obtain a total score.
• The recorder might write on the board the total scores of learners from
the highest to the lowest.
Discussion Questions:
1. How did those who had the highest score decide on how far to stand from
the basket? How many times did they change their distance for the five
throws?

2. What problems did those who scored the lowest encounter? What changes
did they make in the way they played the game?

3. What approach to risk-taking did the learners with the middle group of
scores use?

4. If the game were to be played again, what changes would the learners
make to improve their scores?

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5. If the game were to be played again in teams, how should the teams be
selected?

Part II of the Game:

• Divide the class into groups of five or six.
• Explain that after a waiting period of three minutes, each learner in each
group will have three throws and then each group’s score will be totalled.
Watch carefully what they do in this three-minute period (do not tell them
what to do). Some may practise, others may just sit there and talk. Be sure
to question them about this behaviour later during the discussion.
• Give everyone three chances to throw and then total each group’s score.
Discussion Questions:
1. What extra resources were used in this part of the activity? (Such as the
range of previous scores, each person’s previous score, and the opinions of
the group.)

2. How was this second game different from the first? (The players had more
resources and the players may have been subjected to group pressure. As
a result, there was probably some conflict between personal and group
objectives.)

3. Which game would be more realistic in a business situation? (This

discussion should lead to a consideration of the pressures on a
entrepreneur when setting goals. There will be pressure from customers,
subordinates, awareness of previous standards, estimation of the cost of
failure and a sense of pride if successful.)

4. Was the total of the group’s scores in Part II higher than the total of the
individual scores in Part I? How would you account for the difference?
(Team work, more input on technique, discussion among team members,
the range of scores for Part I, group pressure.)

3. Show TRANSPARENCY 1 and review the questions to be asked before

taking a risk. This questioning procedure is essential to the risk-taking
process. The questions listed are merely examples of the many questions
you must ask before entering into a risk situation. Taking a risk before
answering these questions may lead to failure.

4. Have the learners read HANDOUT 2. Use TRANSPARENCY 2 to discuss each

factor to be considered when involved in a risk-taking situation.

Show TRANSPARENCY 3 as a way of concluding this topic.

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Know About Business Module 2: Why Entrepreneurship?

MODULE 2: Topic 5

HANDOUT 1

Calculated Risk-Taking
Most entrepreneurs take calculated and moderate risks. Entrepreneurs avoid low-risk
situations because there is lack of challenge, but they also avoid high-risk situations
because they want to succeed. They set high goals and enjoy the excitement of a
challenge, but they do not gamble. Hence, low-risk situations and high-risk situations
are avoided because these risks do no satisfy the entrepreneur. In short, the
entrepreneur likes a difficult but achievable challenge.

Defining a Risk Situation

A risk situation occurs when a choice is required between two or more alternatives
whose potential outcomes are not known and must be subjectively evaluated. A risk
situation involves potential success and potential loss. The greater the possible loss or
gain, the greater the risk involved.

Risk-takers make decisions in conditions of uncertainty, and they balance potential

success against potential loss. Choosing a risky alternative depends on:

a. how attractive the alternative is,

b. the extent to which the risk taker is prepared to accept the potential loss,
c. the relative probabilities of success and failure, and
d. the degree to which one’s own efforts increase the likelihood of success and
decrease the likelihood of failure.

For example, you have a secure job, earning a good salary, with promotion probably
every two years. You may have the opportunity to buy a firm whose future is
uncertain, but the owner’s earnings are 50% more than you are currently earning as
an employee. The firm may continue to be very successful, or it may fail in one or two
years. Your choice is between staying in a secure position with moderate, predictable
financial and career rewards, or taking a risk and possibly achieving very high
financial and career rewards.

Most people would not think of taking such a risk, regardless of the probabilities of
success. They would prefer to stay in a secure position. Others are impatient,
dissatisfied with their present position, and looking for the “magic pot of gold” to
make them rich. These people tend to be influenced by the size of the potential
reward offered. They pay little regard to the probability of success, and do not give
much thought to the degree of effort required on their part. Attracted by hopes of
high returns with little effort, they become gamblers.

Assessing Risk Situations

The entrepreneur’s assessment of the situation is very different from that of both the
above types of people, although the entrepreneur shares certain characteristics with
them. The essential difference is that entrepreneurs will systematically and thoroughly

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assess the likelihood of the firm’s success and the extent to which their efforts could
influence this likelihood. They study the market situation, explore profitability in
alternative lines of business, products, machinery and processes, finances, and make
comparisons before making their final decision. They like to influence the outcome
through their own efforts and then having a sense of accomplishment. Planning may
be considered an indicator of the calculated risk taking behaviour of entrepreneurs.
Planning safeguards against possible difficulties that can be anticipated. If
entrepreneurs are able to influence whether or not the firm is successful, they would
be very likely to purchase the firm as proposed in the above example.

Entrepreneurs are willing to accept personal responsibility for the consequences of

their decisions, regardless of whether these consequences are favourable or
unfavourable. Other people may find it difficult to accept personal responsibility for
decisions which may lead to failure, and they often attribute events in their lives to
luck or to forces beyond their control, such as competition or government
interference. These people reject risk situations because they believe that they cannot
influence the outcome.

Most entrepreneurial traits are interrelated. Risk-taking behaviour is related to:

• creativity and innovation, and it is an essential part of turning ideas into

reality.

• self-confidence: the more confidence you have in your own abilities, the more
able you will be in affecting the outcome of your decisions and the greater
your willingness will be to take risks.

Another factor is the entrepreneurial excitement regarding uncertainty, and the drive
and enthusiasm to ensure that the consequences are successful.

Types of Risk-Takers
The type of risk-taker you are depends to some degree on the extent to which you are
influenced by other people, your past experiences, your present situation and your
expectations for the future. Within a business, there is a need to have risk-takers of
various types.

At the worker level, you need people who are low risk-takers so that they can do the
routine things and bring organizational stability.

At the middle management level, there is more room for risk-taking. A middle
manager should have some freedom to be innovative and make minor modifications in
procedures and functions. These persons may be considered risk-takers, but their
impact on the total organization should be minimal. Entrepreneurs at the top of
organizational structures have the capacity to formulate and implement creative
ideas. To be successful in business, entrepreneurs must take risks to turn their ideas
into reality.

Entrepreneurs are goal-oriented and confident enough of accepting risks to make their
ideas work. However, they are also practical enough to realize their limitations and
will restrict their activities to “what is possible”.

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Highly creative and innovative entrepreneurs are moderately high risk-takers, willing
to accept change, try various alternatives and develop innovations for products and
services in new areas of business. These highly innovative entrepreneurs are usually
business leaders. They have ideas and are able to find the right combinations of
people and other resources to implement their ideas.

Authority and Responsibility

Entrepreneurs are leaders in the sense that they direct the activities of others to
achieve organizational goals. Team building and achieving organizational goals are
their responsibility. As the leader of an organization composed of people, they must
be willing to delegate authority and responsibility for certain activities to their staff.

Delegating authority and responsibility to others involves certain risks. It may have
positive or negative effects, and entrepreneurs will have to live with the results. To
obtain maximum benefits, employees must have a certain degree of power and
freedom to carry out their duties and responsibilities. Entrepreneurs need help from
other people; however they probably don’t have time to monitor their work closely.

Risk-taking is especially important in delegating authority and responsibility to staff

and allowing others to share power. This is a characteristic of growth-oriented
entrepreneurs. The more responsibility that can be delegated successfully, the more
time entrepreneurs will have to deal with those activities which have the greatest
impact on the organization’s future success.

Implementing Changes
In any activity, entrepreneurs must first determine whether or not a risk is involved.
In a risk situation, the entrepreneur’s power, position or authority may be challenged.
When something is wrong in the business, entrepreneurs should be able to appraise
the situation realistically and try to solve the problem. Entrepreneurs must be able to
take the necessary corrective action. When a risk situation is apparent, the decision
whether to risk or not becomes very important. When entrepreneurs decide to risk,
they should follow a definite plan for initiating action. Alternative plans may also be
devised in case the first plan does not succeed. These alternatives allow for flexibility
in case the conditions of the risk change.

Once a plan of action is devised, it must be activated. It is only when the plan is
initiated that entrepreneurs can really know and understand the risks that are
involved. At first, little feedback may be received regarding the decision. This lack of
feedback may create doubts. It is during the early stages after the decision has been
implemented that entrepreneurs must be fully committed to their decision until the
problem has been solved. Once they are convinced that a certain course of action will
solve the problem, specific actions will help to determine the outcome. Promoting the
decision and gaining the support of others will help to make the decision succeed.

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Summary
The risk-taking ability of entrepreneurs is enhanced by:

• their willingness to use their abilities to the fullest extent to move the odds in
their favour;

• their capacity to assess the risk situation realistically and their ability to alter
the odds;

• looking at the risk situation in terms of established goals, and

• comprehensive planning and proper implementation.

The act of risk-taking is an essential part of being an entrepreneur. Entrepreneurs

usually set high goals for themselves, and then use all their abilities and talents to
achieve these goals. The higher the goals, the greater the risks involved. Innovation
in business, which results in higher quality goods and services, is the result of action
by entrepreneurs, who are willing to accept great challenges and take calculated risks.

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MODULE 2: Topic 5

TRANSPARENCY 1

Questions to Ask Before Taking a Risk

ƒ Is the goal worth the risk involved?

ƒ How can the risk be minimized?
ƒ What information is needed before taking the
risk?
ƒ What people and other resources can help to
minimize the risk?
ƒ What fears do I have in taking this risk?
ƒ Am I willing to try my best to achieve the
goal?
ƒ What will be achieved by taking the risk?
ƒ What preparation will I need to make before
taking the risk?
ƒ How will I know (in quantitative terms) when I
have accomplished my goal?
ƒ What are the biggest obstacles to achieving
my goal?

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MODULE 2: Topic 5

HANDOUT 2

Procedures for Analysing a Risk Situation

Although risk-taking is a style of behaviour, calculated risk-taking is a skill that can be
improved. Here are suggested procedures for analysing a risk situation.

1. Assess the risk

The first step is to establish whether or not a risk is involved. Is there a potential
loss involved in choosing one particular alternative? For example, you may be
faced with the need for increased production to meet increased demand. Your
choices are to:

• stay with the current level of demand;

• purchase more equipment to meet the demand;

• lease more equipment to meet the demand; or

• subcontract production to smaller manufacturers.

If the business has a good cash flow, strong cash reserves or good credit
facilities, and if demand is certain to grow in the foreseeable future, there is little
risk involved in deciding on any of the alternatives, although the first alternative
would cause the opportunity for profit growth to be ignored. However, continued
demand may not be assured. For example, a product or service may become
obsolete because of competitive innovations; more companies may enter the
field; or the market may be nearing saturation. Furthermore, the business may
not be able to afford investing the amount required without a guaranteed return
on it. In this situation, there is clearly a risk involved in deciding whether to
expand production. However, there are clearly different degrees of risk and
corresponding degrees of potential return (success) for the different alternatives.
How can you assess the alternatives?

2. Determine goals and objectives

The next step would be to consider the company’s policies and objectives. A
company objective might be to achieve slow growth, or steady growth, or no
growth, or growth in other product areas.

Is the risk involved consistent with objectives? If it is, the decision-making

process continues, and a detailed assessment of the alternatives is undertaken.

3. Clarify the alternatives

Given that some degree of risk-taking (i.e. a decision to expand production) is
consistent with the company’s objectives, the next step is to survey the various
alternatives. These alternatives should be specified in sufficient detail so that the
costs involved can be assessed objectively. Most costs will be financial costs, but

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personal, social and physical costs should be included when appropriate. For
example, will an alternative require excessive personal effort? Will failure lead to
a loss in social prestige? The financial and other costs for each of the viable
alternatives should be specified.

4. Gather information and weigh the alternatives

The next stage is one of intensive information-gathering so that a realistic
assessment of the odds can be made for each alternative. Market estimates
should be made for demand under various predicted conditions. The likelihood of
competitive reactions should be assessed and the effects of these reactions
calculated. Various consequences should be followed through to their logical
conclusions:

• If demand nears saturation point, can product modification stimulate increased

demand in new markets?

• Are new markets available if competitive activity decreases current market

share?

• Can the machinery be easily modified to handle other products?

• Are suppliers and subcontractors likely to increase their charges if demand

grows?

The likely return to the company for each alternative should be assessed on the
basis of market information, forecasts of future demand, assessments of
competitive reactions, and various other predictions including the behaviour of
those involved in the situation, such as finance companies or equipment
manufacturers.

5. Minimize risks
This crucial step involves a realistic assessment of the extent to which the
entrepreneur can affect the odds. It involves:

• a clear awareness of the entrepreneur’s abilities and the company’s capacities;

• some creativity in determining how the odds may be changed (increased in

the entrepreneur’s favour);

• the ability to plan strategy and tactics to effect the change; and

• the drive, energy and enthusiasm to implement the strategy.

6. Plan and implement the best alternative

Once an alternative is selected, a plan is then drawn up for its implementation.
This would include a timetable, a clear definition of the goal, a set of contingency
plans for possible outcomes and a feedback process so that necessary changes
can be implemented quickly.

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MODULE 2: Topic 5

TRANSPARENCY 2

Procedures for Analysing

a Risk Situation

1. Assess the Risk

2. Determine Goals and Objectives

3. Clarify Alternatives

4. Gather Information/Weigh Alternatives

5. Minimize Risks

6. Plan and Implement the Best Alternative

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MODULE 2: Topic 5

TRANSPARENCY 3

Be a Calculated Risk-Taker

In business, as in life, there is clearly no way of

avoiding risk-taking.

When you take risks, you discover your own abilities

and you will become better able to control your own
future. You will become more self-assured.

You will have a more positive outlook towards risk-

taking because you will have faith in your own
abilities.

You will accept risks as challenges that require your

best efforts to achieve goals.

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