What Are the Best Tips for Determining Joint Venture Risk?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 16 May 2020
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Joint ventures are opportunities for two or more partners to come together for the purpose of generating profits from a project that both agree to support with their resources. As with any type of business or investment deal, there is some degree of risk in undertaking this type of activity. For this reason, investors and partners will want to consider the degree of joint venture risk associated with the activity, and determine if the projected rewards are worth the potential liabilities. In order to do this, it is important to look closely at the objectives of the venture, how those objectives fit into the personal goals of the partners, and the level of expertise and resources that all the partners are contributing to the effort.

One of the first areas to consider when evaluating joint venture risk includes the purpose and objectives for the project. These need to be very clear and concise, with no room for differences of opinion on what they mean and what the project is to accomplish. Without clear goals and objectives, the potential for the project to flounder and for the partners to lose their investment is greatly increased.

Another crucial factor in determining joint venture risk is understanding how well the personal goals of the partners align with the project goals and objectives. For example, if a partner is looking for a venture with a relatively quick turnaround in profits, getting involved with something that is not anticipated to begin generating returns for a few years may not be the best fit. Unless the partner sees the goals of the venture as being in harmony with what he or she hopes to accomplish, seeking another investment opportunity would be best for everyone concerned.

Joint venture risk could also focus on the skill sets and expertise of those who will be involved in the project. This includes not only the resources and talents that the partners bring to the project, but also the experience and expertise of those who will handle the day to day activities of the venture. Unless the right people with the right combination of skills and experience are involved in the project, the chances for success are greatly diminished.

There are other issues that could also play a role in determining joint venture risk. Determining if the venture has a good chance of success in the current economy is worth considering. Competition with other entities in the same field is also a concern. The value of the goods or services produced to consumers is also likely to have a direct impact on joint venture risk. Even factors such as the geographical base of the venture will be worth consideration, especially if the venture calls for the launch of a plant facility and the need to have ready access to an ample supply of trainable workers.

When considering the risk associated with a venture, begin with the foundation premise for the effort and follow the sequence all the way through to the launch and beyond. Determine how well the overall project fits with your goals and objectives, and allow for the possibility of some phases of the venture taking longer than originally projected. This will often provide clues as to the potential for success as well as ideas of what could derail the project and increase the chances of losing your investment.

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