Some businesses will fail no matter what. The business opens in the wrong location or right before a regional economic slowdown.
Some businesses, however, fail because of poor risk management. If you want to avoid their fate, keep reading for some essential risk management strategies.
Psychologically, avoidance is the top risk management strategy. Rather than assume risk, you don’t take actions that expose you to risk.
In practice, this strategy often proves impractical. For example, you assume risk when you take out a line of credit to finance expansion. As a strategy, use avoidance for actions that exceed your risk tolerance.
Let’s say that you see a need for a project or activity, but the size of it threatens to capsize your business financially. Instead of avoiding the risk, you can go with risk reduction.
Look for ways you can break the project or event into pieces that will still let you reap some benefits. Consider a smaller scale version of the project or activity. You can also seek professional guidance from the American Society of Safety Professionals.
Every business excels in certain core areas and performs only adequately in non-core functions. For example, a software development company excels in writing code. Yet, the same company may only do a so-so job at marketing.
You can adopt a transference strategy by outsourcing those lower performance, non-core functions to a third-party. The software company can hire a marketing firm.
In some cases, a risk becomes apparent that doesn’t fall under the domain of the people who find it. For example, a project team may discover that a key database is unsecured. While the project team is obligated to report the risk, they probably aren’t equipped to fix it.
In these kinds of situations, the team must escalate the risk to the appropriate level. For example, the might escalate it to the IT department or the CTO.
There are some risks that you cannot effectively manage with any other management strategy. For example, a full-time freelancer has few options but to accept the risk that a regular client will stop sending work her way.
While less palatable than other strategies, it is a common strategy for businesses. They accept the risk because it’s baked into the situation.
Parting Thoughts on Risk Management Strategies
Each of the risk management strategies mentioned above has a time and a place. None of them fit every situation.
A hard and fast avoidance strategy can cost you opportunity after opportunity. A unilateral acceptance strategy exposes you to endless and probably destructive risks.
You must gauge risk on a case by case basis and select the right management strategy.
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