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suradeep-blog · 4 years

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Risk Management

Author: Suradee Petcharapirat

In the first blog, I introduced everyone to different types of risk that any company could encounter. So today, I’m going to suggest ways of handling risk. In this case, I’m going to propose 5 basics way for risk management; avoidance, retention, sharing, transferring, and loss prevention and reduction.

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Risk Avoidance

Avoidance is an act of avoiding something or someone. However, in the business term, risk avoidance is to avoid the situation by not being a part of the activities that might have a risk. To put up an example, if you see a car heading toward your direction from a distance, so you decided to walk out of its way so that you won’t get hit by the car, this is called risk avoidance.

Risk Retention

Retention is simply accepting the risk that they’re dealing with within the event. Usually, this risk is a cost to help offset larger risks down the road. For example, “when you choose to pay a higher deductible in exchange for a lower premium, you are retaining a larger portion of a risk. When companies set up a fund to offset the costs of high premiums to assume a portion of their employees’ health risk through self-insurance, they are retaining this risk.

Risk Sharing

Risk-sharing refers to a risk that deals with a group or a business with the same vulnerability to loss. In these cases "both" the profits, as well as potential losses, are shared between the parties.

Risk Transferring

Transferring is the most effective way of handling risk in that change it to another party who seems to be more reliable or suitable for the assignment. This is deemed to be the most common method.

Loss Prevention and Reduction

As we all know, a reduction is an act of making things smaller or decrease the amount of it. As for business terms, people in a company would often attempt to reduce/lessen every possibility of risk that can occur in a business.

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References

Basic Strategies for Handling Risk. (2019). Retrieved from https://www.youtube.com/watch?v=pxchB9ZhoQM

K., J. (n.d.). The 5 Methods of Handling Risks at Oregon Insurance. Retrieved from https://www.studyblue.com/notes/note/n/the-5-methods-of-handling-risks/deck/1451978.

Yu, J. (2018). 5 Basic Methods for Risk Management. Retrieved from https://www.investopedia.com/articles/investing-strategy/082816/methods-handling-risk-quick-guide.asp.

5 Ways To Manage Risk. (2014). Retrieved from http://www.dbpmanagement.com/15/5-ways-to-manage-risk.

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suradeep-blog · 4 years

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Business Risks

Author: Suradee Petcharapirat

“Some risks that are thought to be unknown, are not unknown. With some foresight and critical thought, some risks that at first glance may seem unforeseen, can, in fact, be foreseen. Armed with the right set of tools, procedures, knowledge, and insight, light can be shed on variables that lead to risk, allowing us to manage them.” – Daniel Wagner

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Risk is something we can’t avoid, we can try to dodge but still have to face it. Many people dream of opening up a business. No one would want to be an employee for the rest of their lives due to many factors, so people desire to be their own boss. However, there’s a fact that why most people don’t build their own brand and that is a risk. Business risk is something people don’t want to take in which prevents you from achieving your business goals. Before opening up a business, we have to look at all kinds of risk that we might face. Each type required different ways of solving. So let’s look through the common types of risks.

Physical Risk

Vandalism, fires or theft are the most common physical risk that a company can face. This required repair or replacement costs. In this case, to manage the risk to employees, it is important that the organizations installing safety features and taking out insurance. Also, practice fire drills to make sure that everyone in the company knows what to do when there’s a real emergency.

Strategic Risk

In your business, you will probably make a decision that directs you to your goals, however, there’s always a risk. This might be because the decision itself was wrong but could also be due to a lack of resources or changes in the business environment. This can lead to a number of things such as loss of profit or poor cash flow. In order to prevent the risks, you might identify the potential risks in advance or conduct regular competitor analysis.

Human Risk

In every company, the employees themselves can create a risk to the business in various ways. Their behavior in the workplace can create risk, while the behavior outside the workplace can also impact the company. For this type, the organizer must have a robust recruitment process and background checking to prevent fraud.

Financial Risk

Some of the financial risks may be internal and others may be made by external factors such as fluctuations in the financial markets. If the clients don’t pay then it can create financial risk, as does poor financial planning and projection. These uncertainties can lead to loss of income, which if serious enough, can mean the end of your business. If this is the case then the finance manager must have robust reporting and analytics to monitor the success.