Risk acceptance involves accepting the possibility of a risk, and choosing not to act to mitigate it. This method is generally applied where costs associated with preventing a risk may be higher than the potential loss that may arise, should the risk eventuate. Other risks to the business may be more frequent or pose greater losses, and therefore resources may be better spent managing the more detrimental risks. With supply chain disruptions, a business may find that possible disruptions may have a minimal impact on the business’ operations, and the high costs of switching to more local suppliers may not be worth it. The business may then choose to accept the risk, and the potential impacts that it may cause.
Risk reduction involves continuing certain processes and activities that may pose a risk, and working to reduce the possible losses that could result from such operations. Some operations will innately carry risks with them, but may be crucial to a business’ operations, and therefore the focus shifts to mitigating how badly the business will be impacted by a risk, should it eventuate. A business will still be at risk, but if mitigated effectively, the reward can counteract the losses experienced along the way. With supply chain disruptions, some products may have to be sourced from international locations due to a lack of available alternatives, or your business may have to shift to using other supplies that are less likely to be impacted.
Risk avoidance involves limiting or completely stopping certain operations that are likely to increase a business’s exposure to risk. In such cases, reducing services or stopping certain business activities altogether can prove to be more beneficial as the risks posed may be too great. During time periods where certain supply chains are experiencing heavy disruptions, it may be more beneficial to source locally instead of internationally, or to alter the kinds of products and services offered to minimize the risk that supply chain disruptions may have on your business’ ability to provide certain goods and services. Cutting out the need for international supplies could cut out the risk that these kinds of disruptions may pose.