There are four different types of risk management process actions to take when facing uncertainty:
- Avoidance
- Acceptance
- Reduction
- Transfer
Each has its benefits and drawbacks.
The best approach depends on the business situation and the risk. So, understanding these action types can help you make better decisions that work to your advantage.
Let us look at these action types and see how they work in real-world situations.
Manage Risks by Avoidance
Understanding when a risk can be avoided is crucial.
Many things in life can’t be avoided entirely – and that’s okay; you need to accept them as part of everyday life.
Some risks must be accepted and managed because they are disguised as threats.
Other times, it’s simply impractical or impossible to avoid risk. In these cases, transferring or reducing your risk is necessary for success. For example, you might move some of your retirement savings into lower-risk investments from a personal viewpoint. This could minimise losses from potential market downturns or mitigate those losses by increasing cash reserves and spreading out holdings across different types of assets.
Manage Risks by Acceptance
You cannot always avoid risks, no matter how good your intentions are.
Acceptance when risk is necessary to pursue, and you can’t reduce, transfer, or avoid it.
Have a contingency plan for what will happen if things go wrong so that you can keep calm and focused on moving forward no matter what happens. It could save time and effort later on down the line. For example, if you have an ambitious project scheduled for work, talk with your manager about making contingency plans if unforeseen events derail your schedule.
Manage Risk by Reduction
If you reduce your total risk, then your chance of success increases.
Take away some of these risks by focusing on strategies that minimise their effect or probability of occurring. Remember that even if you don’t know how to deal with a particular type of risk, it doesn’t mean you shouldn’t take action just because you can’t handle all types at once. Letting things slide will not make them go away. Avoidable risks should be avoided until they are known or can be effectively managed using some other action type.
Manage Risks by Transfer
Sometimes, you can’t control all aspects of your business, so risks must be transferred to third parties.
Your insurance policy will pay for your losses (up to a certain amount) should they happen. For example, suppose you own a small business and need insurance to cover potential damages or injuries. In that case, you’ll want to go with a reputable insurance company.
Insurance isn’t necessarily an option for every type of business. Still, it can be a great tool to help protect your bottom line from unexpected costs. The best way to manage risk is by avoiding it entirely.
Some say the devil is in the details, but taking precautions before disaster strikes is vital! Insurance companies will generally ask about your industry, operations and history when determining what coverage to offer you. Speciality insurance providers cater specifically to niche industries such as catering or construction companies; finding one may help protect against unforeseen disasters and theft or property damage.
