Risk Assessment

Systematic evaluation of downside scenarios through four questions: (1) What's the worst case? (2) How likely is it? (3) Can I survive it? (4) Is the upside worth the risk? The critical insight from Munger and Bevelin is that the order matters—start with survivability. An opportunity with unlimited upside is worthless if the downside is fatal. Risk assessment isn't about avoiding risk; it's about ensuring that when you take risks, you survive being wrong.

When to use it

Before any decision with significant downside potential; when evaluating opportunities that feel exciting but haven't been stress-tested; when the cost of failure is not just financial but reputational, relational, or existential; when designing business models or strategies with embedded risk.

How it can help

Before any major bet—investment, hire, launch, partnership—run the four questions explicitly. Most entrepreneurs instinctively evaluate upside but skip the survivability question. The discipline is asking 'if this goes completely wrong, am I still in the game?' If the answer is no, either reduce exposure, buy insurance (literal or metaphorical), or walk away regardless of upside. Survival is the prerequisite for all future opportunity.