Five Effective Risk Control Strategies
Dealing with risk is an inherent aspect of business management. The way you prepare for risk is the most important factor in determining the longevity of your enterprise. Businesses of all sizes have to contest with the possibility of unexpected events occurring. However, it is how you plan for and react to such scenarios that influence their effect on your business. These five methods of risk control provide you with the options needed to better control the fallout from unplanned events or scenarios.
Avoidance is the obvious precaution most businesses take when they’re aware of the risk of a perilous event. The key to avoiding risk is forward thinking and comprehensive planning. If you can identify risks in a timely manner, you can often avoid the situation altogether.
Plan ahead and conduct extensive research to ensure you have access to all the relevant information that could inform you of impending risk. When it comes to avoiding risk, knowledge really is power. By identifying risk early, you can alter your plans and pursue a course of action that steers well clear of unnecessary exposure to volatile situations.
Accepting risk requires a base of knowledge and information. If your research suggests the risk involved in a given scenario is relatively minuscule when compared to the possible benefits, then accepting the risk may be the best course of action. Accepting risk is only advisable when you’ve conducted sufficient research and have identified the relative potential of problems occurring.
Calculate the pros and cons of accepting risk in every individual scenario and make a decision based on objective data. Once you know the potential negative effects of a decision, don’t proceed unless your business can definitively handle the situation if it goes wrong.
To mitigate risk is to take steps to minimise the impact of a negative event occurring through careful planning. If you can’t avoid the risk altogether, or you can’t afford to accept it entirely, then mitigation is the next logical step. Precautions like insurance are common methods of risk mitigation. If the negative event does transpire, you have provisions in place to reduce the severity of the impact.
Other ways of mitigating risk include additional staff training and the formulation of contingency plans. Teach your staff to work more safely and efficiently so they are better prepared to handle the fallout of a negative situation. Fire safety drills are a common and often mandatory form of risk mitigation.
Risk transferal involves shifting the risk to an entity that is more resilient or better equipped to handle the situation. If you identify an impending risk, delegate the task of dealing with it to a department or staff member that is better qualified or more experienced.
You can reduce the chance of damage to your business by unforeseen losses by transferring financial risk among several separate entities . The key to effective risk transferral is knowing which entity would be the best equipped to deal with the situation. Diversify your revenue streams and ring fence your most lucrative departments in order to more effectively transfer risk.
Risk and opportunity often go hand-in-hand. One of the best methods of risk control is to look for ways to exploit the situation. Assess each example of risk for any opportunity of which you can take advantage. Every financially volatile situation brings with it the chance to make money. The best way to exploit risk is to find a way to leverage the situation to your own ends. Obviously, each scenario is different but if you assess each example with a critical eye, you may improve your financial performance.
Final thoughts on Risk Control
Risk control is a difficult task but it is immensely profitable if done correctly. The money a business could lose from uncontrolled risk could put the long-term health of the enterprise in jeopardy, so it makes sense to attempt to control it at every opportunity.