What does a reserve bench do for a team in sport? It provides the coach with options, real options, depending on how the game plays out. If a player is injured, a reserve bench provides the coach with a range of players to choose from and that is why the bench is often frequented by great all-round performers, players who can carry out a range of roles.

Last week I wrote about options as a key method of managing your blind spots. Now I’m taking that thought one step further: Exploring your options opens up a world of potential benefit. Not only do options make you think, they also buy you increased certainty.

The field of “real options” is about valuing an option to defer a decision in part or in full. For example, you may be trying to decide between a minor expansion, a major expansion or no expansion of your factory. The field of real options asks you to consider the value of the option that an expanded facility provides, that is, the option of having the flexibility of increasing production if you need it.

I am not going to go into the detail of real options here as entire books have been written on the subject. However, I do wish to leave you with this quote from F. Peter Boer which I read in his book: The Real Options Solution:

“It seems we must live with risk; and if we must, it’s best to enjoy the ride.”

Boer’s observation reminds us that great minds have been grappling for decades with the challenge that risk poses to our decision making and that dealing with that risk is fundamental to our success.

https://www.bryanwhitefield.com.au/

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