Can you evaluate 'Affordable Loss' effectively?
Adjustment is really a part and parcel of our lives. But how much adjustment can you really afford?
There exists a concept of affordable loss, which means ‘the extent of loss that one can put at risk and can adjust/ afford in order to achieve the overall objective, goal or any other opportunity’. This loss that we can afford could be in terms of money, time, energy, or any other resource. Unknowingly, we must have been already using this principle in our decision making and negotiations, yet a lot of this requires practical thinking and evaluation.
Affordable loss is useful in:
Planning for your future
Controlling crisis situations
Handling unexpected happenings
Check Examples of Affordable Loss Evaluation-
A) You are in the middle of your product’s production, and suddenly raw material prices increased. You are now forced to decrease your profits to keep your product competitive in the market. To what extent you can afford and then run your company?
B) You are asked to work extra in the company, because of some work crisis. So, you are definitely spending your personal time, which you could spend on fulfilling other wishes. What kind of loss are you experiencing there and to what extent?
C) You are about to develop a new project and plan to invest time and money in it. How much money and time can you invest and afford even if the new project fails?
The estimation and optimization of Affordable Loss:
Many times, Affordable Loss is estimated based on more than one factor.
For ex: when you try to control or keep budgets optimum, time and human resources get hampered and vice versa. This kind of situation makes the principle complicate more than what we expect.
In order to optimize it better:
A) First, evaluate the overall condition based on each parameter considering alone
B) Understand the inter-dependability of these parameters
C) Prioritize those parameters for which ‘Affordable loss’ is critical
D) Keeping them intact, evaluate other parameters, and draw a conclusion
This becomes critical when you are actually handling a crisis. In such cases, envisage the final outcome and look at the feasibility; otherwise, re-adjust everything and raise the required flags to bring the situation under control.
In addition, the ‘affordable loss’ principle is helpful when you are working in a team or dealing with other parties (for ex: consumers). When no two people in the world think the same, differences are common - be it minor or major. Win-win situations are possible only when all the parties adjust their own positions slightly and come up with a conclusion. In such cases, ‘affordable loss’ becomes very handy.
Whatever position you are in, try to understand the losses you bear in order to come to a meaningful outcome. Understand whether these losses are affordable or not. This lets you compromise to the levels you can and negotiate accordingly.
You can apply this principle anywhere from major things like investments to minor things like asking for leaves in your offices.
Try it, if you haven’t, and tell us your experiences in the comments or story.