We’ve spent years getting better at measuring return. I’m not sure we’ve become nearly as good at measuring risk.
And that matters.
When a marketing investment goes badly, the obvious loss is money. But poor risk management can burn much more than capital.
- Capital gets burned when investment fails to produce sufficient incremental return.
- Credibility gets burned when a major miss leaves Marketing struggling to explain what happened — or why the risk was worth taking.
- Confidence gets burned when the CFO, CEO or Board becomes less willing to back the next marketing investment.
- And opportunity gets burned when potentially profitable growth goes unfunded because Marketing cannot quantify the risk well enough to justify the capital.
That last one may be the least visible — and potentially the most expensive.
Importantly, a bad outcome doesn’t necessarily mean the risk was badly managed. A well-considered investment can fail, and a poorly considered one can get lucky.
The better question is what we knew before we committed the capital.
- What was the range of possible outcomes?
- How likely were they?
- What was the downside?
- How much capital should we put at risk?
- And what was the risk of not investing?
Marketing has made enormous progress proving what happened after the money was spent.
Perhaps the next challenge is getting much better at deciding what risks are worth taking before we spend it.
We can think of risk by using fire as an analogy.
Uncontrolled, it can burn value.
Understood and managed, it can forge it.