In any type of business, there are risks which range from mild risks to those that are more severe. A business risk is anything that may cause your business to suffer financially or may hurt the reputation of your business. Possible risks for a business include economic risks, environmental risks, legal risks, operational risks, compliance risks, and strategic risks. Risk control strategies are essential for handling the risks if they occur and preventing them the best you can. This includes preventing or avoiding risks, learning more about your proposed risks, and handling the financial implications.
Four Types of Risk Control Strategies
There are four main types of risk control strategies, each of which will help you prevent risks or handle the potential risks your business might face.
Risk Dissection – The first risk control strategy is risk dissection, or analyzing risks for your business and learning more about them. When you know the probabilities of various risks for your type of business, you can work on preventing them. Dissecting risks include identifying risks open to your business — whether they are financial, environmental, strategic or otherwise — and analyzing the consequences. Risk dissection is one of the first steps of a successful risk management plan.
Risk Avoidance – The second risk control strategy is risk avoidance, which involves eliminating and reducing your probable risks. Again, once you know more about risks your business is exposed to, you can work on a risk management plan that helps you avoid some, most, or all of these risks. Cutting items from your business plan that aren’t necessary, but pose a probable risk, is one risk avoidance strategy.
Risk Loss Control – After taking steps to prevent and discourage certain business risks, it’s important to learn how to best control them. This might mean coming up with an alternate plan, such as choosing to develop a new process in your warehouse that reduces or avoids the risk probability but which your business can still benefit from. By being in control of the risks open to you, you have a better handle on them and can further avoid potential fall-out.
Risk Budgeting and Financing- One of the biggest risks a business might face is a financial risk, therefore budgeting and financing for your risks is the final and all-important risk control strategy. Building a financial reserve to have ample liquidity available for unexpected expenses is a critical risk control strategy. But building a reserve isn’t your only risk financing strategy. Business insurance is a big part of risk budgeting and financing because unexpected events and expenses can occur at any time which pose a huge risk to your financial situation. However, with the right kind of protection from business insurance, you’re covered in the event of something occurs that you hadn’t planned for. You may also want to transfer your risks to the insurance company instead of having to deal with them on your own.
These are the four primarily risk control strategies that will help protect your business from risks you might be exposed to. It is important to be prepared and ready for certain risks when deciding their benefits and if they’re worth it you or not.