Meaning
Specific quantitative and qualitative benchmarks that a project or investment must meet to receive approval and funding. These limits act as a gatekeeper in the decision process, ensuring that every commitment of capital aligns with the overall risk appetite of the founder. Setting underwriting thresholds provides a clear standard against which all opportunities are measured.
Clear Selection
Defined benchmarks remove the subjectivity from the evaluation process and reduce the emotional energy required to make a choice. The practitioner compares data against preset marks to avoid debating each case from scratch. This method helps to maintain a consistent social baseline within the team by making the decision criteria transparent to everyone involved.
It also functions as a check against the impulse to lower standards during periods of slow growth.
By Risk Throttling
Adjusting these levels allows a founder to control the flow of new deals to match the current capacity of the organization. During times of high allostatic load, the thresholds can be raised to ensure that only the most certain opportunities are pursued. This ability to throttle the intake of new risks is an essential tool for preventing the concurrency limit of the person or the team from being exceeded.
The hours saved by rejecting subpar deals can then be reinvested into managing the existing portfolio.
The Baseline Integrity
Discipline in the application of the marks is required.
