What are the 5 methods of handling a risk?

If we could sidestep vulnerabilities in life, in general, most of us would likely jump on that opportunity. Taking chances would be less stressful, outcomes would seem guaranteed, and worries would diminish. But such a reality doesn’t exist — not in life nor business. In this post, we examine basic strategies companies use to manage the risks they face.

Understanding Risk Management

When it comes to risk management, there’s no secret sauce. It’s a straightforward approach based on facts and probability. Managing risk is merely assessing possible exposures to your business operation and finding ways to navigate it with as little harmful impact on your company as possible.

Keep in mind that managing risk doesn’t always mean turning around and running the other direction from it. Perhaps that was our ancestors’ strategy, but fleeing modern danger or harm is far more manageable than in ancient times. We might face a “slip-and-fall” claim with a robust general liability (GL) policy and a keen lawyer — not a saber-toothed tiger at the killing end of our spear. 

Best Risk Management Practices

Nevertheless, savvy leaders follow best practices in risk management just like in any other part of a business (i.e., marketing, sales, development, operations). There are four primary ways to handle risk in the professional world, no matter the industry, which include:

1. Avoid risk
2. Reduce or mitigate risk
3. Transfer risk
4. Accept risk

A widespread problem with this four-step approach is knowing which step is appropriate for which risk. Each industry is different. Consider that we serve many businesses in SaaS, Fintech, Micromobility, Cannabis, and Shared Economy. And yet, each company will assess risks differently (which we’ll review). 

For example, a Rideshare exec is going to view vehicle usage much differently than a SaaS leader would. A delivery driver will face multiple vehicular challenges on the route, whereas a program developer is more likely to encounter cybercriminals. The company leaders recognize this and understand that it makes no sense for both companies to deal with risk in the same way. Risk management must be ultra tailored. 

A pro tip is to start big and go small. In other words, identify your industry risks and then hone in on the micro-risks your particular business might face. 

How to Avoid Risk

As mentioned, gone are the days of hightailing away from all perceived danger. However, some situations call for an avoidance approach to risk management. If the activity has a high likelihood of occurring, and it will also cause significant financial harm, it’s better to avoid it entirely. 

Local and nationwide regulators make it easy to avoid risk in specific areas. When regulations and rules apply to your industry, one significant risk is breaking the law. Avoiding this risk has an easy answer: don’t break the law. By following the guidelines regulators establish, you avoid the risk of fines, penalties, and defense costs.

How to Reduce Risk 

Reducing risk means understanding the activities with a high likelihood of occurring but with a manageable financial impact. Some would argue that risks in these categories have a low impact — and yet, even a little financial impact hurts to some extent.

An excellent example of this revolves around the cybercriminals mentioned before. Industries like fintech and SaaS grow from a technological backbone. In other words, only a world filled with the aspect of “cyber” can host Fintech or SaaS companies. Therefore, the most significant danger to these companies is undoubtedly cybercriminals. 

As a result, many companies embrace a risk management plan to reduce their exposure to these vicious online outlaws, including:

• Establish identity management
• Support security awareness
• Correct security flaws

Keep in mind that none of these best cybersecurity practices can prevent a cybercriminal from harming a business. However, it mitigates this particular risk significantly.

How to Transfer Risk 

If a financially devastating activity could potentially occur, the best option is to share the risk. Handling it alone could result in significant setbacks, if not a shuttered business. Most of the time, risks in this category are highly unlikely to happen. However, the possibility is still there, and transferring the risk is the safest bet. 

In the cannabis industry, it’s not uncommon to have massive growing plants and distribution hubs. Expensive equipment, valuable products, and customized buildings make up parts of what a cannabis company protects. One weekend fire or violent storm could wipe out an entire building, costing loads of cash for restoration and lost production time.

Instead of keeping fingers crossed, a better approach is to invest in property insurance. This coverage reimburses for direct losses a company experiences. It’s an “indemnity” policy, meaning it doesn’t require legal action to trigger coverage. When the risk is massive, but unlikely to occur, transferring it is the way to go. 

How to Accept Risk

It’s not always that businesses can avoid, reduce, or transfer risk. Sometimes, you must buckle down and accept it. If accepting the risk is more profitable than any other option, then it’s the optimal strategy. After all, every industry has unavoidable risks that come with the territory. What’s more, although a risk is a jagged pill to swallow, some risk is necessary to do business in the modern world. 

Shared Economy, for example, presents a unique situation. Without vehicles — automobiles, e-scooters, bicycles, etc. — most on-demand services wouldn’t even exist. But the risk of using this equipment outweighs the reality of not using them at all, and therefore, not having a business whatsoever.

The goal of accepting risk is to monitor them continually and adjust your risk management plan as the level of vulnerability changes, as it always does. Risk isn’t the four-letter word many individuals assume it is. Sometimes, it’s an avenue to success — the key is how risk is managed.

Understanding the details of what coverage your fast-growing company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you. 

Want to know more about insurance for fast-growing companies? Talk to us! You can contact us at ​​ or create an account ​here​ to get started on a quote.

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Posted by: Lucid Content Team

With any new project comes new risks lying in wait. While your organization can’t entirely avoid risk, you can anticipate and mitigate risks through an established risk management procedure. Follow this risk management framework to streamline your team for success, making the team more agile and responsive when risks do arise.

It's simply that: an ongoing process of identifying, treating, and then managing risks. Taking the time to set up and implement a risk management process is like setting up a fire alarm––you hope it never goes off, but you’re willing to deal with the minor inconvenience upfront in exchange for protection down the road. 

Identifying and tracking risks that might arise in a project offers significant benefits, including:

• More efficient resource planning by making previously unforeseen costs visible
• Better tracking of project costs and more accurate estimates of return on investment
• Increased awareness of legal requirements
• Better prevention of physical injuries and illnesses
• Flexibility, rather than panic, when changes or challenges do arise

Risk Management Steps

Follow these risk management steps to improve your process of risk management.

1. Identify the risk

Anticipating possible pitfalls of a project doesn't have to feel like gloom and doom for your organization. Quite the opposite. Identifying risks is a positive experience that your whole team can take part in and learn from.

Leverage the collective knowledge and experience of your entire team. Ask everyone to identify risks they've either experienced before or may have additional insight about. This process fosters communication and encourages cross-functional learning.

Use a risk breakdown structure to list out potential risks in a project and organize them according to level of detail, with the most high-level risks at the top and more granular risks at the bottom. This visual risk management strategy will help you and your team anticipate where risks might emerge when creating tasks for a project.

Once you and your team have compiled possible issues, create a project risk log for clear, concise tracking and monitoring of risks throughout a project.

A project risk log, also referred to as a project risk register, is an integral part of any effective risk management process. As an ongoing database of each project’s potential risks, it not only helps you manage current risks but serves as a reference point on past projects as well. By outlining your risk register with the proper data points, you and your team can quickly and correctly identify and assess possible threats to any project.

2. Analyze the risk

Once your team identifies possible problems, it's time to dig a little deeper. How likely are these risks to occur? And if they do occur, what will the ramifications be?

During this step, your team will estimate the probability and fallout of each risk to decide where to focus first. Factors such as potential financial loss to the organization, time lost, and severity of impact all play a part in accurately analyzing each risk. By putting each risk under the microscope, you’ll also uncover any common issues across a project and further refine the risk management process for future projects.

Ready to improve your systems and reduce failures through FMEA risk analysis?

Now prioritization begins. Rank each risk by factoring in both its likelihood of happening and its potential effect on the project.

This step gives you a holistic view of the project at hand and pinpoints where the team's focus should lie. Most importantly, it’ll help you identify workable solutions for each risk. This way, the risk management workflow itself is not interrupted or delayed in significant ways during the treatment stage.

4. Treat the risk

Once the worst risks come to light, dispatch your treatment plan. While you can’t anticipate every risk, the previous steps of your risk management process should have you set up for success. Starting with the highest priority risk first, task your team with either solving or at least mitigating the risk so that it’s no longer a threat to the project.

Effectively treating and mitigating the risk also means using your team's resources efficiently without derailing the project in the meantime. As time goes on and you build a larger database of past projects and their risk logs, you can anticipate possible risks for a more proactive rather than reactive approach for more effective treatment.

5. Monitor the risk

Clear communication among your team and stakeholders is essential when it comes to ongoing monitoring of potential threats. And while it may feel like you're herding cats sometimes, with your risk management plan and its corresponding project risk register in place, keeping tabs on those moving targets becomes anything but risky business.

Try one of the templates above to start your risk management process.

Be better prepared and implement a complete risk management strategy.