Speculate to accumulate, so the old saying goes. Businesses deal with risk every day, but some are better than others at doing so. Read on to discover the five main strategies of project management risk mitigation.
There is always a risk in pursuing any business strategy. Organizations with long term innovation programs are especially vulnerable to risk. The same is true for those operating in uncertain market conditions, like developing economies or even post-Brexit Britain.
In this article, we take a look at the five main strategies used by risk managers. They can help companies make strategic choices, positioning themselves for a stronger future.
The first step for risk managers is to work out what the acceptable level of risk is for the organization in question. For a longstanding family business, the acceptable level of risk will usually be very low. Whereas young, ambitious entrepreneurs are likely to take more risks. They do so in the hope of greater rewards further down the line.
Identifying risks is a difficult and ongoing part of business strategy. It’s a well trodden path and there is a variety of help at hand including virtual project management advice. At first, most people will consider only financial risks, but the full story is far more complex. Formal risk assessments are a common part of business management. They take into account a whole spectrum of risks which might range from loss of reputation and damage to the brand through to lower profit margins.
Once you’ve spotted the risks facing your organization, the next step is deciding what to do about it. This article goes on to discuss the five main strategic choices for risk mitigation. They are not mutually exclusive. Often the best option will be to create a hybrid strategy that works for your specific situation.
1. Accept the Risk
Sometimes the best thing to do is to accept a risk as inevitable. This is the case if the cost of addressing the risk is higher than the potential losses. There is always a trade-off in risk management.
The first step in any risk mitigation strategy begins long before any risks materialize. That step is to identify, research, and understand potential risks facing the organization.
You can classify risks according to how likely they are to happen against the probable impact. One of the best ways to do this is to employ multifunctional teams selected from inside the firm and encourage them to communicate openly.That way you’ll get a broad view of the organization and its environment.
Companies should allocate multifunctional teams to identify risks
That might sound straightforward, but have you ever stopped and asked yourself what is team collaboration? Why does it matter? Why does it have to be multifunctional? It’s about communication and engaging your team, it’s about transparency, and it helps give a diversified view of the situation.
Everyone has a different perspective on the organization. Identifying and understanding risks hinges on that diversity of viewpoints.
If you’re going to accept a risk as inevitable, then you must understand the potential impacts. That is the biggest challenge of this strategy.
Doing nothing may seem like an easy option, but make sure you do nothing with your eyes open.
Accepting risks can lead us to challenge ourselves and attempt new things
2. Risk Avoidance
When threatened, human beings have evolved to either stand and face the danger, or to run. It’s called the fight or flight response. To an extent, the same is true for commercial organizations.
Sometimes it’s best not to face a threat head-on. If you can’t control or eliminate it, it might be better to change your plans and avoid the danger. There’s no shame in running away if it means you get to do business another day.
Avoiding a risk doesn´t have to mean a complete change of plan. It could be as simple as putting extra checks in place to avoid any negative outcomes. That could be things like doing varied types of software testing. That’s especially important for organizations moving into new markets, with different regulations.
Identifying risks to avoid them means looking at both internal and external factors. When you look at the processes of your firm, do you notice a reliance on any particular activity, process, or software? It’s the commercial equivalent of putting all your eggs in one basket.
An example of this occurred recently as more of us are working from home and using video conferencing software like Skype for Business. Companies that rely on one or two pieces of software are susceptible to risk. There are lots of alternatives to Skype, you just have to go and find them. An over-reliance on anything will leave you vulnerable to risk.
We all take risks everyday, even crossing the road
3. Risk Control
The third strategy is risk control. This is similar to accepting the risk, but it goes a step further. The organization will make positive efforts to control the risk. The goal of this strategy is to identify and reduce negative impacts. If you identify a risk and work out how to control it, then it loses some of its potency. This has a great effect on staff morale and you’ll be able to keep your team positive.
Businesses deal with problems every day. They take calculated risks. That’s why they exist, and that’s how they make a profit. The more control they have, the more likely they are to be a success. In the face of significant risk, even the most laissez-faire manager might like to micromanage their team.
A good way to achieve that is with group task management tools. Every organization is different, and you’ll need to choose the right solution for your organization. Make sure to choose one that allows proper time management and monitoring for continuous improvement.
There are many ways to control risks. The most usual ways are through diversification or spreading the risk to lessen its impact.
Working online and saving documents to the cloud is another way of controlling risks. The same is true for secure file sharing facilities. Years ago organizations had to maintain cavernous archives in a central location. This practice left them open to the risk of loss through fire damage or flooding. Nowadays we can control that risk with technology.
4. Transfer the Risk
Companies can control risks to the extent that they are predictable. Things like extreme weather events might seem uncontrollable, but they are becoming predictable. That means companies can spread or transfer the risk. The most common way of doing this is through insurance policies.
Most risks are not dramatic, uncontrollable acts of God. They often originate from human error. A successful risk transfer strategy identifies accountable parties and holds them responsible. With the increase in working from home, this is becoming more difficult. It serves to highlight the challenges of remote workforce management.
Another common way to transfer risks is by using indemnity clauses in contracts. Such a clause means that both parties agree to share a risk. They do that by compensating the other party for any negative effects from the agreement.
5. Monitor Everything
The final strategy is the most important to get right. Successful companies monitor everything. They search for emerging trends, and this works as an early warning system.
There are plenty of ways to achieve this, and the most successful will use a variety of methods. New project management techniques and ways to improve ecommerce analytics will help business managers monitor risks in real time.
One of the biggest challenges of risk management is getting beyond the tunnel vision of customer focus. How many times have you heard the phrase “we put the customer at the center of our company”?
That sounds great, but it leaves companies vulnerable to unforeseen risks. It’s far better to monitor everything. Successful organizations are market-focused, as well as customer-focused. It means taking a step back to see a wider view of the entire sector.
That change of attitude from the laser focus on customers, to the broader whole market approach is vital. Digital transformation is one of the things that has helped this change. There is so much information available now, from macro analysis right down to specific details of companies and niches.
Embracing new technology is one of the most exciting areas of risk management. By adopting digital technologies, companies can gather data from the environment faster and more efficiently.
Digital transformation makes it far easier for companies to monitor their horizons. Now we can see what competitors are doing and the influences of wider market forces. All of which forms an effective early warning system for risk managers.
The Key to Risk Management
Risk management is a complex, but vital topic. It will help managers identify the correct strategic direction for their company. Risks come in all shapes and sizes. The first challenge is to spot them, and that’s why it should be a multifunctional process. The second phase is to evaluate and prioritize the risks facing the organization. Only then will these risk mitigation strategies be effective.
Risk is an inevitable part of life, not just business. Every time we cross the street we take a risk and to avoid it is not an option. We can’t eliminate or avoid every risk. Even if it were possible, we need to question whether it is advisable.
After all, businesses exist to take risks. That’s what being an entrepreneur entails. An element of risk is healthy. Otherwise, we’d all end up living inside plastic bubbles insulated from the real world, and the business opportunities that exist within it.
Avoiding all risks entirely would mean wrapping your organization in a protective bubble