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Environmental influences

3.7 Risk appetite of stakeholders

It is important to consider the risk appetite of stakeholders when
considering the most appropriate tool for decision making under
risk/uncertainty.

Shareholders Employees and managers
 Commonly risk seeking. Prepared Should act in the best interests of
to take a risk, hold a portfolio of shareholders but:
investments to spread risk–  May be risk averse if an
maximax suitable. unsuccessful outcome would
 However, shareholders in a impact their remuneration or job
company in financial distress may security – maximin preferred.
be more risk averse or neutral –  May be risk seeking if a bonus or
maximin or EVs suitable. reward is offered for a high
outcome – maximax preferred.

Venture capitalists Banks
 Rational investors seeking  Conservative approach to risk
maximum return for minimum aiming to secure funds/returns –
risk. maximin (or perhaps EVs)
 Hold a portfolio of investments, suitable.
monitoring progress, agreeing an
exit strategy and placing
employees on the management
team – maximin suitable.

Illustrations and further practice

Now read Illustrations 9 and 10 from Chapter 2 of the Study Text

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