Identifying, assessing, and prioritizing risk, and monitoring or controlling the impact of risk is the basis on which risk management is formed. For any business or party overseeing financial responsibilities, risk management provides foresight on what to expect on returns and consequences in accordance with certain action. Here are a few of the most effective risk management strategies to maintain.
1. Risk identification strategies
Risk identification is the acknowledgement of problems and events which can cause potential issues. One should examine internal problems, possible conflict externally with competitors, and the consequences. Risks can vary in impact with some evidently being significantly more damaging. This is to be remembered when prioritizing risk handling.
2. Risk analysis strategies
Assuming you’ve adequately identified the risks, you can then thoroughly analyze the effects different risks can have on consumer behaviour. There will also be effects on your company as well as other endeavors. It can be challenging to account for every change relevant to your business. Risk analysis is not a type of risk management strategy meant to be taken lightly and should be thoroughly explored.
3. Risk evaluation strategies
Assign a rank to each risk, with regards to its likelihood and its potential outcomes. Evaluation strategies will identify how a given risk threatens a product or brand. The magnitude of a risk’s potential to negatively impact a business can be evaluated and prioritized with a defined treatment plan should a worst case scenario occur.
4. Risk treatment strategies
Risk treatments will vary according to severity. Evidently, risks with the highest severity should be treated and resolved first. Investing into an infrastructure that reduces the probability of negative risk is a smart move should also include clear strategies on how to increase the probability of a positive opportunity. Preventative and contingencies will play a tremendous role in any risk management strategies.
5. Risk monitoring strategies
There are some risks that can be somewhat resolved but which are still going to remain present. Those having to manage unavoidable risk must invest in monitoring risks and how to defuse the consequences should a risk become reality. Track variables and possible threat. Do what’s possible to treat issues, related and unrelated, to ensure a bigger risk doesn’t present itself or there’s a ripple effect should a risk become something more.
6. Risk avoidance strategies
Ideally, the best thing to do in risk management is to learn avoidance. This way, there’s no further management required. That said, risk is oftentimes unavoidable. If it’s possible to forfeit activity carrying risk, do it. If you must take a risk to generate a potential return or to procure an opportunity, you may deem it worth it to pursue. It’s ultimately up to the person behind these risk management strategies to deem what is avoidable and unavoidable.
7. Risk reduction strategies
Risk reduction is about implementing small changes to reduce the weight of a risk. Unfortunately, this oftentimes can also reduce the reward. This is a balance that can be difficult to achieve. Process manipulation, erecting new financial or management infrastructures, and planning are excellent risk reduction methods. Remember, when building strategies, you could be saving yourself a severe loss should a risk manifest into something catastrophic.
8. Risk sharing strategies
If there’s an opportunity to redistribute the burden of loss over multiple parties, this may help protect your company and yourself from a loss you can’t come back from. Risk sharing is becoming more popular, although it does oftentimes include redistributing the advantages of gains. Internally, you may look to company members or setting up an insurance policy to assist with this. Externally, you may find a business partner, third party, or outsourced entity to form a relationship with.
9. Risk retention strategies
Risk retention assumes there will be a loss or gain entirely. For small risks where you can accommodate the worst-case scenario, it doesn’t hurt to plan out as if your risk will become truth. For some, losses from risks can be easily absorbed and made up.
10. Control and containment measures
For all the avoidance, reduction, sharing, and analysis one can invest into steering clear from negative results on risk, if one does business long enough, eventually they will have to bank on something with a sizeable risk and/or have a risk-becomes-reality scenario drop into their laps. Control and containment measures should be clearly outlined. Businesses processes with built-in instruction on what to do and the stakeholders expected to take action is a strong risk management strategy which shouldn’t be overlooked. For sizeable risks, always have clear documents outlining every element of expectation in response.
11. Re-assessment of risk
Schedule regular re-assessment of risks periodically. Ongoing processes will have to change as a company grows, stabilizes, or shrinks. Business operations and mitigation measures will have to change depending on activity. Areas of your company that are generating high-risk ventures should be evaluated to see how necessary they are to your operations. Studies have shown the greatest financial benefits of risk management are derived not from any sort of formula used but rather they’re from the frequency of risk management assessments and how assessments are performed.
