return on risk


The Planning Lab posted a fantastic piece that likens creative innovation to financial investment:

The  greater the creative ‘risk’, the greater the potential return.

Why are some companies willing to risk investing millions in unpredictable stock markets, yet would never dream of investing a fraction of that in advertising because they “can’t guarantee its ROI”?

Maybe we should include a ‘risk appetite’ section in our briefs.

Image from The Planning Lab

4 Responses to “return on risk”

  1. 1 phil April 8, 2009 at 16:41

    true… BUT risk ought to be mitigated and returns optimized… which means, there must be a point wherein both conditions (optimal returns with mitigated risks) are satisfied. otherwise, there is no point in ‘taking a risk’.

    it’s more like an inverted U or inverted V shaped relationship than a linear relationship, really.

    (and i think, this linear relationship between risk and return is one of the potential contributions to why we are in such a financial mess right now…: the belief that 1unit of risk ought to be equivalent to 1unit of returns…)


  2. 2 eskimon April 8, 2009 at 16:46

    I had a feeling you’d have strong views on this Phil… I think we should explore this as part of our ongoing “how advertising works” piece [but let’s wait til things are a bit quieter!]

    I know the Planning Lab’s parallel is quite contentious – but it does make you wonder why clients are happy to accept certain risks and not others, when the risks and returns are not vastly dissimilar.

    A great thought-provoker if nothing else!

  1. 1 innovation and the marketing concept « eskimon Trackback on May 22, 2009 at 12:51
  2. 2 rock the boat to stay afloat « eskimon Trackback on July 2, 2009 at 15:55

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