It's tempting sometimes to wish that everything in business would go well without ever having to take a chance or a calculated risk. Unfortunately, we live in the real world and it just doesn't work that way. However, if we didn’t take risks, we’d never move into new sectors, take on new clients or take chances on new suppliers. Business without risk would be incredibly boring.
If risk makes you nervous, you can plan around it to manage your exposure. You probably already have a list of the main risks to your business success or, if not, it won’t take long to pull one together. Once you have your list, these four strategies can help you limit the impact of those risks should the worst happen.
How to Manage Business Risk
1. Mitigate the risk
Mitigation involves putting contingency plans in place so that if the risky situation does materialize, you can implement your Plan B. Take the example of an outside promotional event for your company, like a festival. The risk: it might rain, and that would affect attendance and the potential profit from the event. Possible ways to mitigate the risk: rent a large tent to provide shelter from the rain, or provide a stock of "emergency" umbrellas to give out free.
2. Avoid the risk
In drastic circumstances, if the risk consequences are too high, you could avoid them completely by cancelling or stopping the high-risk business initiative. For example, if a new product launch could cripple your company financially, you could pull the launch until the company's finances stabilize.
3. Transfer the risk
In this case, you pass the risk on to someone else. This applies mainly to financial risks and situations where you can write it into contracts. Insuring yourself against the risk of fire is an obvious example—the insurer carries the financial risk if a fire destroys your warehouse.
4. Accept the risk
Of course, you can always do nothing. You should, though, make a conscious, informed choice to accept the risk. Don't opt for it by default because you haven’t examined the other options carefully enough. This strategy works best for small risks where the impact isn’t that big, or for risks that are unlikely to happen—such as the likelihood of your head office being hit by a meteor. Just make sure that you and your business colleagues are content to sit back and take no action.
Whatever business risks you face, you can use these four options independently or in combination to minimize the adverse affect on your company. Remember, it’s best to be prepared for the worst, even if it never happens.
Elizabeth Harrin is director of The Otobos Group, a project communications consultancy. She has a decade of experience in leading IT and process improvement projects in financial services and healthcare. She also is experienced in managing business change. Elizabeth is the author of three books and blogs at www.GirlsGuideToPM.com for which she won the Computer Weekly IT Professional Blogger of the Year award in 2011.