With success comes risk and a lot of pressure. With new markets becoming competitive at faster rates, businesses are having to do a lot more to become buoyant in this new business year. There are strategies in place that businesses, no matter how big or small, should utilise to mitigate the risks that come with owning a business.

Consider a scenario in which a business leader fails to reflect on past mistakes or continually pursues new opportunities without considering how they will affect the company.

To effectively reduce risk within an organisation, we need to understand the different types of risk and how to tame them, stopping them in their tracks. This article will cover not only the types of risks but also how to surpass them and thrive throughout this business year.

What is Risk Mitigation?

Risk mitigation is the practice of reducing the impact of any potential negative impacts to the business and using the analysis to develop a plan to manage, eliminate or limit setbacks as much as possible to tame the risk beast.

After management creates and carries out the plan, it will be monitored closely to see if there has been any success with the plan and assess whether any changes in the future need to be made. As we evolve, so do the risks, and therefore, it’s a constant thing that needs to be nurtured and monitored.

Though it might feel tempting to take a page from another business’s risk management book, unfortunately, your security blanket needs to be specifically tailored to your business and all of its functions.

 Therefore, time and effort should be put into creating a successful and unique risk mitigation plan. This could be the difference between a successful business year or whether you crash and burn. Let us look closer and see what risks you need to tame.

What Risk’s Need Taming?

Compliance Risk

A company’s finances or reputation are at risk when it disobeys internal or external rules, regulations, or standards. Companies that violate compliance regulations risk losing business or being fined.

Legal Risk

This is a type of risk that can occur when a company breaks the government policies and rules set in place for your business type. Companies facing legal risks are exposed to a lot of negatives, like defamation of brand, backlash and, not to mention, expensive legal fees.

Strategic Risk

The outcome of a business’s poor, or nonexistent, business strategy.

Reputational Risk

A type of risk that might harm the company’s reputation or the public’s perception. Reputational risks can lead to a decline in shareholder confidence and profit losses.

Operational Risk

A business’ day-to-day activities can potentially drain its profits, whether you have too many staff for the money you’re making or are tirelessly chasing overdue invoices from customers. Both internal and external factors can contribute to operational risks.

Like the one above, many businesses arrange their matrices according to likelihood and consequences. Preventing risks begins with determining which ones you’ll encounter. Generally speaking, you can safeguard your company by using a few different kinds of risk mitigation techniques.

What Risk Mitigation Strategies Should You Consider?

The four most popular methods for mitigating risk are transference, acceptance, reduction, and avoidance.

Avoidance

You take action to stop the risk from happening when you use a risk avoidance strategy. To make sure you’re taking every precaution to reduce the risk, you might have to give up on other tactics or resources.

For instance, you might run the risk of not having enough experts to finish a task for a significant project. You could hire several specialists to minimise this risk if one becomes ill or is unavailable.

Naturally, adding more staff would increase the expense, so determining how much you can live with is a crucial first step in this plan.

Reduction

After completing your risk analysis, you would take action to lessen the chance of a risk materialising or its impact, should it materialise. This is known as the mitigation approach.

Let’s say you have a limited budget and there’s a chance you won’t have enough money to finish a specific project.

By proactively controlling the expenses within the budget, you can lessen the chance that risk will materialise. In order to finish the project within your budget in this case, you could decide to use less expensive raw materials or scale back the project’s scope.

Transference

Passing on the risk’s consequences to a third party is known as risk transfer. That may entail paying a credit insurance broker to cover specific risks for a lot of businesses.

Contracts involving contractors, outsourcing partners, or suppliers may also contain clauses pertaining to risk transference. For example, if a project is delayed while waiting on an outside contractor for a part or service, the contractor may be held liable for any lost profits the company suffers.

Additionally, a global compliance adviser can assist in addressing the difficulties involved in expanding operations across borders if a company employs foreign nationals or contractors.

Acceptance

The acceptance strategy, which entails accepting the risk as it is, is the last one. In some cases, taking a chance is better for the long term when the potential for reward exceeds the risk.

It’s also possible that there is little chance of the risk materialising or that the harm will be insignificant. Items falling into this “low” risk category may have a continuous risk-acceptance strategy for a business.

When accepting risk, it’s critical to keep a close eye on any changes in the risk’s impact or likelihood of happening. It might be a good idea to continue balancing the risk against your risk tolerance and determine if taking on more risk is still the wisest course of action.

Final Thoughts

Overall, it is crucial for businesses to understand and navigate through these risks in order to become successful and dominate the new business year. Dedicating a team to this could be key for larger businesses but for smaller organisations, you might need to consider options of acceptance and transference.