Risks and vulnerabilities are inevitable when running a business. Any business is likely to face different risks such as operational risk, compliance risk, financial risk, reputational risk, and strategic risk among others. Recognizing and identifying the different risks and threats that can potentially affect a business is important to ensure business survival. Moreover, taking action to minimize business exposure to potential risks and eliminate or reduce the impact of these risks is crucial in preventing potential risks from turning into bigger disasters. In this article, we outline seven strategies that you can employ to mitigate risk to protect your business operations.
Risk acceptance
This involves understanding that a risk exists and coming to terms with the potential consequences if they are at an acceptable level. This strategy works best for low-impact risks where the negative impact is negligible or does not threaten business survival. For instance, you can choose to accept budget adjustments for identified expectations such as an increase in the price of some supplies. However, with this strategy, it is crucial to carefully monitor the risks for the probability of occurrence and changes to impact. If it shifts to the negative, it is better to switch strategies.
Risk reduction
This approach is all about minimizing the probability of the risk occurring or reducing the impact it might have when it occurs. For instance, when you have to complete a project with a tight budget, there is the risk that the project can’t be completed if the funds run out. In risk reduction, your team can reduce the risk of this happening by keeping the costs within the budget by reducing the scope of the project or going for cheaper suppliers and the like.
Transferring risk
As the name suggests, transferring risk is moving the risk to another entity, probably a third party. While the cost of the risk isn’t entirely eliminated, it is shared between the business and the third party, making it cost-effective. A good example is when hiring employees in a foreign country during global expansion. You can transfer compliance risk to an employer of record services provider by outsourcing the HR and payroll functions.
Risk avoidance
When the risk is too significant to accept or manage, the best strategy is to avoid it. This could mean avoiding doing the activity that is bound to bring that risk such as halting a business expansion plan or refusing to take on some projects. Alternatively, you can avoid risk by allocating more resources to ensure that all loopholes are covered. For instance, hiring multiple specialists for a project to avoid risking failure or delays in case one specialist isn’t available.
Monitoring risk
In this approach, teams keep a close eye on the project to identify any changes to the potential risks that might affect the expected consequences. In the case of a project, you can monitor the costs and schedule for risks that might appear in the process. This can be done by developing a routine for regular reporting or updates regarding the different aspects of a project’s completion. In case changes are identified, necessary actions can be taken to avoid a bigger impact on the project.
Prioritizing risk
When multiple risks happen at the same time, the approach here would be to handle them according to priority. What you have to do is do an assessment of the risks to identify how they rank in terms of impact severity. In such instances, it would make business sense to handle risks that carry the most substantial impact first. For instance, in case of an impending flood that might destroy the office, you might want to prioritize putting in measures to backup processes and data to avoid data loss.
Risk control and management
This involves continually evaluating your exposure to risk and making sure that adequate plans are put in place to ensure readiness at all times for current and potential future risks. This could mean assessing risks frequently and adjusting the risk mitigation plans accordingly in case any changes are identified. For instance, making changes to your data protection policies when new cybersecurity threats emerge or making changes to cost and time tracking methods when new challenges arise.
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Conclusion
Risks and threats are a part of running a business. However, you don’t have to wait and watch them crippling your business. Staying prepared is essential for ensuring that you protect operations and ensure continuity. So, ensure that you have a risk management plan in place. This includes different risk mitigation strategies to deal with different risks such as those listed above.
