At the bottom of the business cycle, companies seem to overemphasize the financial risk of investing at the expense of the competitive risk of not investing. The financial risk of investing is the failure to achieve satisfactory financial returns from an investment, while competitive risk is the failure to retain a satisfactory competitive position for lack of investment. A balance must be struck between the types of errors implicit in these 2 types of risk: the error of pursuing too many unprofitable investment opportunities as opposed to the error of passing up too many potentially profitable ones. Capital budgeting is an arrangement which companies have developed to help them deal with financial risk. To address competitive risk, managers have turned to strategic planning. An examination of the US' loss of leadership in the semiconductor industry lead to several recommendations, including: 1. Think long term. 2. Focus on competitive position. 3. Recognize the moving baseline. Investing to create and sustain a competitive advantage is the single best recipe for dealing with recessions and other challenges if the advantage can be achieved cost effectively.

Keywords:

• Strategic planning
• Risk assessment
• Recommendations
• Recessions
• Investment policy
• Competitive advantage
• De Beers Consolidated Mines

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