Risk is something that all businesses will face in their long-term plans and day-to-day operations. What’s important is managing that risk so that it does not put the business in jeopardy. This process is referred to as ‘risk mitigation’. This involves reducing the potential impact of risks by planning and monitoring them in detail. It involves identifying, assessing and treating the risk using one or a combination of the following strategies:
Avoidance
One of the most common strategies for how to mitigate risk in business is avoidance. This involves putting measures in place to prevent the risks from happening in the first place. There are many different examples of this, such as hiring an excess number of people for a project in order to prevent delays, or simply planning project finances in detail in order to ensure the budget is not exceeded. Money may often be invested in avoidance at the expense of other areas of the business. What’s important is assessing where that investment is most necessary.
Reduction
Another key part of how to mitigate risk in business is reduction. Once you’ve identified the main risks in the company, you can take steps to reduce the impact of them by being proactive. For example, if the budget is very tight for a project then you may look at ways that you can reduce costs, such as choosing a cheaper supplier, or making certain processes more efficient. Unlike with avoidance strategies for mitigating risk, you’re not removing the threat completely, however you are minimising its impact to protect the business as much as possible.
Transference
In some cases, it may make the most sense for the business to transfer the risk to another third party who is more equipped to handle it. For example paying an insurance company to provide cover for certain investments. Often risk transference will be written into contracts with suppliers and contractors to cover any potential delays or setbacks without impacting the company. This demonstrates how the process for how to mitigate risk stretches beyond the internal company, and has a wider external role.
Acceptance
When discussing how to mitigate risk in business, acceptance might seem like an odd strategy. However, in some cases, a threat may be deemed sufficiently non-threatening to business operations, or the potential benefits may outweigh the associated risks. Alternatively, it may be that the possibility of the risk is extremely low or has a very minor impact. This may involve accepting adjustments to business expectations or accepting the chance of delays on the basis that it will not be hugely detrimental to the health of the company. A large part of mitigating risk involves using detailed analysis to make informed decisions on whether or not action needs to be taken.
What Happens If Risk Management Is Unsuccessful?
Considering the above strategies for how to mitigate risk in business is essential for creating contingency plans for the future, whilst giving your business the breathing space that it needs to grow. If effective risk assessment is not put in place, this could cause the business to face potential issues such as debt or poor growth.
If your company has taken a knockback, and you are concerned about the future, the most sensible approach is to consult the advice of a professional business rescue expert as soon as possible. They will be able to advise you on the best strategies for moving the company forward, whilst making a thorough analysis of how to balance the main risks at hand. Please don’t hesitate to get in touch with the team at Ballard Business Recovery to discuss any concerns that you might have.
