The acceptance of risk is an integral part of business, as is the principle that the higher the risk, the higher the rate of return needs to be. The willingness to take risks of both a personal and a financial nature is one of the defining characteristics of the entrepreneurial decision-maker.

Interestingly, a 1999 study commissioned by PricewaterhouseCoopers concluded that whereas in continental Europe strategies are generally oriented towards avoiding and hedging risk, Anglo-American companies view risk as an opportunity, consciously accepting the responsibility of risk management as necessary to achieving their goals.

Successful decision-makers understand this. They take steps to ensure that the risks resulting from their decisions are measured, the likely consequences are clearly understood and the danger signals are identified. Avoidable risks are pinpointed and eliminated, and others are reduced. Such decision-makers also take a holistic view of risk, going beyond the direct financial perspective and actively managing risk as it affects the whole organisation.

Accepting that risks exist provides a starting point for other necessary actions. Foremost among these is the need to create the right climate for risk management. People should understand why control systems are needed. This requires communication and leadership so that standards and expectations are set and clearly understood.

Discounted cash flow analysis is used to help value the potential of an organisation and in making other investment decisions. The discounted cash flow method assesses the projected stream of economic benefits (such as cash flow, net sale proceeds, value of intangible assets) and calculates the maximum investment that should be made. This is known as net present value analysis. It also enables comparison of an investment amount with a stream of economic benefits and provides an overall rate of return. This is known as internal rate of return analysis, enabling analysts to assess the rate of return provided by a particular investment. Many consider that discounted cash flow analysis is more useful than other valuation methods, such as price/earnings ratios. If an investment case is sound, then discounted cash flow will highlight this.