Risk management planning is a crucial tool that businesses use to minimise the occurrence, or severity of, disruptions to business operations. It allows businesses to effectively identify risks, analyse the impacts they could have on business operations, and manage them before they detrimentally affect profitability, production or safety. Four main risk mitigation strategies are utilised:
profitability, production or safety. Four main risk mitigation strategies are utilised:
- Risk Acceptance
- Risk Avoidance
- Risk Transference
- Risk Reduction
When determining which of these strategies are best to apply to manage a certain risk, a professional will consider the nature of an operation, its purpose and the specific risk it poses.
Risk Acceptance
Risk acceptance is a technique commonly used where the costs associated with preventing a specific risk seem to outweigh the potential loss that could arise from it. This strategy is used where the risk is quite small in magnitude and is not a regular one faced by a business. By accepting some risks, it allows a business to dedicate more appropriate levels of resources to more frequent and dangerous risks. A common example is where a business that sells products from a store knows that items may be stolen occasionally, but where the items are of low value and do not detrimentally impact the business’ profits, it may be more effective to accept the risk instead of employing an expensive security team to minimise theft.
Risk Avoidance
Risk avoidance involves limiting or ceasing certain activities altogether as they may heighten the risk dramatically of an unwanted event. By completing stopping a process, procedure or service, it can completely eliminate the possibility of a business facing a specific risk, allowing a business to direct their focus towards handling risks where the processes cannot be eliminated. For example, choosing not to sell certain products or offer certain services that may inherently carry with them riskier liabilities, thereby increasing the chances of legal action being brought against a company, it may be a safer choice to completely cut out the risk. Instead, offering products and services that carry less risk with them may be more manageable for a business to handle, should an issue arise.
Risk Transference
Risk transference involving shifting the (mostly financial) impacts of a risk from one entity to another. Insurance is a common example of risk transference, whereby the insurance company will willingly deal with the loss, should an incident covered by insurance occur. This transference of risk onto a third party is commonly used where businesses will insure expensive goods sold or the facilities used, as the theft or destruction of both could drastically impact the business’ longevity. Instead, it will be the third party (the insurance company) incurring the monetary loss, protecting the profitability and longevity of the business.
Risk Reduction
Risk reduction involves focusing on reducing the possible losses that could be sustained from specific operations and activities that innately carry risks with them while continuing to employ them. The risk is not transferred to another entity, and the business has not ceased the operations involving the risk, but will instead attempt to mitigate the extent that the risk may have on the business, should it eventuate. This can be necessary to use where certain processes are essential to the business’ operations and cannot be avoided. For example, a jewellery store that sells expensive jewellery knows that it will be an inherently risky product to sell as it may attract thievery, but as it is considered an essential product to sell, the focus will be put towards mitigating the risk of thievery by installing cameras and employing a security team.
Our knowledgeable team at Resilient Services can help your business to use risk mitigation strategies to effectively reduce the overall risk your business may face daily. Taking action to reduce the risk your business may face before an incident occurs can help prevent your business’ reputation, profitability and longevity from being damaged beyond repair. If your business is in need of risk mitigation expertise, contact us today to see how we can help prepare your business for the uncertainties of the future.
