Risk and the lemonade stand: how it matters in the simplest settings

Your neighbors are asking you for help.

Their young children, ages 7 and 9, want to set up a lemonade stand in front of the house. While it’s not a busy road, there is a periodic flow of traffic. Most are people who live in the neighborhood and observe the 25 mph speed limit.

The parents are interested in letting their kids run a stand because of the life lessons it will bring them. They also support the children’s desire to raise money that will be donated to feed homeless people in the general area. (The homeless are a few miles away, not close to the family home.)

The parents have developed a list of ‘pros and cons’ but are undecided. Since you help people at work understand this strange idea of ‘risk’ (although you prefer to talk about ‘what might happen’ and the likelihood of achieving objectives), they have asked for your advice on how to assess the situation, their options, and the best path forward for the family.

Pros

1. It would help the children understand what it is like to run even a small part of a business.
2. The children would develop skills in selling and communications.
3. It will encourage their desire to help others.
4. They will have to stay focused for hours, rather than being drawn away to play on their devices.

Cons

1. They might be discouraged if sales are poor.
2. There is a safety concern with adults they don’t know, and because they will be close to the street.
3. The parents will have to be there the entire time, even though they have other things to do.

How would you help? Make whatever assumptions you would like.

Hint: this is a ‘risk management’ challenge. What are the parents’ objectives and how would you go about assessing whether the likelihood of achieving them is acceptable and, if not, what actions to take?

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Norman D. Marks, CPA, CRMA

Norman has led large and small internal audit departments, been the Chief Risk Officer and Chief Compliance Officer, and managed IT security and governance functions.

He retired in early 2013. However,he still blogs, writes, trains, and speaks – and mentors individuals and organizations when he can.

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