L6: Risk & Reward in Decision Making

Lesson Slides

Reproduced from Mrs Wilkinson's lesson slides, in the order taught.

Knowledge Retrieval

(Recap activity)

Starter Challenge

Write down a list of 5 decisions the C-suite executives of a business might need to make.

Starter Challenge — Answers

Takeover/merger
Where to access finance from
Whether to expand the business
What market to operate in
The vision of the business

4Lesson Overview

Risk & Reward in Decision Making

Unit 3.1 Marketing & Finance — 3.1.1: Intro to Business, Entrepreneurs & SMART Objs

Learning Objective: To explain the importance of risk/reward in business decision making.

Key Vocabulary: Risk, Reward, Trade-off, Risk averse

Success Criteria:

To distinguish between risks & rewards
To explain the importance of risk & rewards in decision making

Risk Vs Reward

Risk & Reward is the balance between the potential for a negative outcome (risk) and the potential for a positive outcome (reward).

Decision: To launch an innovative, new-to-market product.
High Risk: The market may not want the product, development costs are high, and the business could lose a lot of money if it fails.
High Reward: If successful, the business could dominate a new market, achieve rapid growth, and make huge profits (e.g. Apple with the first iPhone).

Decision: To enter a new international market.
High Risk: The business doesn't understand the local culture, faces new competitors, and could misjudge the market, leading to losses.
High Reward: The business could gain access to millions of new customers and significantly increase its sales and profits (e.g. Tesco's failed entry into the USA vs. its success in other markets).

Risk Vs Reward — Attitude to Risk

The willingness to accept the risk/reward trade-off is not the same for every business or entrepreneur — it depends on their attitude to risk.

Risk Averse: A small, family-run business whose main objective is survival and providing a stable income for the family will likely be risk-averse. They will prefer safer decisions with lower, but more predictable, rewards.

Risk Seeking: A venture capital-backed technology start-up using AI whose objective is rapid growth will likely be risk-seeking. They are willing to 'bet the farm' on a high-risk strategy in the hope of achieving a huge reward for their investors.

Knowledge Task

For each of the following business decisions, state what the potential risks would be versus the potential rewards: a takeover of another business (M&A); replacement of the CEO; taking out a £500k loan to purchase new machinery.

STAR Task: For the above business scenarios, come up with strategies that may mitigate some of the potential risks.

8Lesson Overview — Where Are We?

Risk & Reward in Decision Making

(Recap — see slide 4)

Application Task: Just Eat

Just Eat Takeaway is a Dutch-UK food delivery business known for high-risk, high-reward decisions. In 2021 the company made its biggest bold bet — acquiring US rival Grubhub for $7.3 billion in an aggressive global expansion play. The bet did not pay off: US growth slowed sharply, Grubhub lost value, and Just Eat Takeaway later sold Grubhub at a major loss in 2024.

Research one specific high-risk decision that Just Eat Takeaway has made in its history (e.g. the Grubhub acquisition, the 2020 merger between Just Eat and Takeaway.com, or the move into restaurant-direct delivery). Explain the potential reward that Just Eat Takeaway was hoping to achieve with this decision, and the potential risk it was taking. Is a high-risk, high-reward strategy essential for a business that wants to achieve rapid growth in a competitive market like food delivery?

10Lesson Review

Risk & Reward in Decision Making

(Final recap — see slide 4)

Companion Material — beyond the lesson

Real-World Case Studies

Ocado and Kroger — a high-reward bet that partly unravelled

In 2018, Ocado signed a deal to build up to 20 robotic warehouses for US grocer Kroger — a high-risk, high-reward international expansion. By December 2025, Kroger closed three of the live warehouses and cancelled a planned fourth, citing a change in strategy, though Ocado did receive a $350 million compensation payment. Ocado's share price had fallen more than 90% from its 2020 peak by mid-2026. This shows that even a reward-focused decision, backed by a major partner, can carry risk that only becomes clear years later.

Source: verified via search, September 2026 — Reuters and market coverage of Ocado-Kroger.

BrewDog's Equity for Punks — reward for early investors, risk crystallising later

BrewDog's "Equity for Punks" crowdfunding, launched in 2009, gave over 200,000 investors a stake in a fast-growing craft brewer — a rewarding bet during BrewDog's rapid growth years. However, in 2026 the company's UK operations entered administration, and some investors — including one who put in £12,000 — faced losing their entire investment. This illustrates that risk in a business decision doesn't disappear once a reward has been enjoyed for a period; it can still materialise later.

Source: verified via search, September 2026 — BBC coverage of BrewDog's 2026 administration and sale.

Exam-Style Practice

Define the term 'risk averse'. (2 marks)

Model answer

Risk averse describes a business or individual that prefers safer decisions offering lower, but more predictable, rewards, rather than gambling on a higher but less certain return.

Explain one factor that might make a business more likely to take a risk-seeking approach to a decision. (4 marks)

Model answer

A business backed by venture capital investors, whose objective is rapid growth rather than steady income, is more likely to take a risk-seeking approach — as they need high returns to satisfy their investors and are often willing to 'bet the farm' on a bold strategy, as Just Eat Takeaway did with its Grubhub acquisition.

Analyse the risks a business might face when pursuing a high-risk, high-reward growth strategy, using an example. (9 marks)

Model answer structure

Point: A high-risk, high-reward strategy can fail expensively if the anticipated reward doesn't materialise.

Application: Just Eat Takeaway's $7.3 billion acquisition of Grubhub was intended to secure rapid growth in the US market, but US growth slowed and the business was later sold at a significant loss.

Analysis: This shows that a bold, high-cost strategy can leave a business financially exposed if market conditions change, since the upfront cost is committed long before the expected reward is confirmed.

Second point (for full marks): Add a second example, such as Ocado's high-cost robotic warehouse strategy facing falling share value after a major partner scaled back, to show this risk isn't limited to a single company or sector.

Key Term Flashcards

Tap a card to flip it.

Risk

The potential for a negative outcome from a business decision.

Reward

The potential for a positive outcome from a business decision.

Trade-off

Sacrificing one thing (e.g. safety) to gain another (e.g. higher potential profit).

Risk averse

Preferring safer decisions with lower, more predictable rewards.

A*/A Stretch

Synoptic link

Connecting to finance: A business's attitude to risk connects to its sources of finance (3.1.4). A risk-seeking, venture-capital-backed business often uses equity finance, where investors share the risk in exchange for a stake in future rewards, whereas a risk-averse family business might avoid debt finance to limit its exposure to fixed repayments if a decision doesn't pay off.

Examiner's eye

Avoid treating "risk" and "reward" as always equal and opposite. A strong evaluative answer recognises that the SIZE of the risk and the SIZE of the reward aren't always proportional — Ocado took on years of capital-intensive risk for a reward (the Kroger partnership) that ultimately delivered less than originally hoped, which is a more nuanced point than "high risk = high reward" as a blanket rule.

Try This With AI

Before using this: AI tools can get facts or mark scheme details wrong, and quality varies by tool. Always check anything factual against your notes or ask your teacher.

Give me three different UK business decisions with varying levels of risk. Ask me to rank them from lowest to highest risk, explain my reasoning for each, and then challenge my weakest justification.