10 Ways To Mitigate Risks While Managing A Business
10 Ways To Mitigate Risks While Managing A Business
Judy Robinson, Freelancer
Entrepreneurship has become a popular career choice among people, but every commercial opportunity comes with certain threats. With a great business idea come some unavoidable risks, and business owners and managers must learn to mitigate them.
It's estimated that most business ventures do not even survive a year since entrepreneurs do not create a risk management plan to counter factors that could tank a business. For this reason, this article will show you how to mitigate business risk and ensure sustainability. You can observe how COVID-19 disrupted operations worldwide and compelled business owners to alter entire business models to face this threat. Thus, dealing with these risks can make you a better entrepreneur.
Modern-day organizations incorporate DDDM (data-driven decision-making) to prevent their guesswork from leading to a business disaster. This data-based approach also allows entrepreneurs and managers to predict risk. Mitigating risk can permit you to reduce the impact of business setbacks and get out of these situations, hopefully unscathed. It's because external threats are beyond your power to prevent them. Business owners and managers must learn the art of reducing the financial problems arising from these risks. Here are some methods you may find helpful in your risk mitigation endeavors.
Educate yourself properly
What's the most important method to mitigate business risk? The answer involves professionals enhancing their education regarding corporate sustainability. Customers have become watchful and outspoken about how companies conduct business in an environment-friendly manner. Pursue online courses to understand the impact of sustainability measures on your business. You can enroll in and complete a corporate sustainability course online to embed modern-day practices into the core of your business strategies. A course in sustainability helps business owners and managers prevent and mitigate risks effectively. An organization can lessen business threats by educating itself about sustainable business practices.
Prioritize potential risks
Entrepreneurs and managers can mitigate risks more effectively by listing them as per the chances of them taking place. You can create three categories of these risks and then prioritize them as per the possibility of them occurring and impacting your business. The three categories can be named like this:
Likely to happen
May happen or not happen
Not likely to happen
In other words, the first category needs to be prevented and, if it happens, regulated. These possible-to-happen threats demand more resources than the other two categories. However, financial risks should be your priority, even if they fall in the third category. That's how you can control them before our ship sinks.
Determine your capabilities
Before mitigating risk, ask yourself this question: "How capable am I of dealing with these risks?" Stay away from overestimating your capability of handling business threats. Risk management includes a lot of options other than risk mitigation. You can always share the risk with someone else or transfer the responsibility to others. If you cannot mitigate the risk, delegate these duties now to a more capable entity. Prioritize the well-being of the company over your self-worth.
Control some variables
As explained before, external threats are beyond your control, but certain internal factors can vary based on how you want them to change. Find these controllable variables by assessing data from previous records. Remember that gathering information and learning from your mistakes are crucial for managing business risks. This experience shows you which variables you can control to prevent a threat or – if prevention becomes impossible – alleviate the economic losses due to it.
Leave risky customers
Statistics reveal that over 40% of companies are not paid on time. The failure to collect money from your customers may lead to a business collapse in the end. How do you manage this financial risk?
This risk involves customers failing to pay you what they owe you. Customer retention is a priority for modern-day customers. However, dealing with non-paying customers is probably not something newly-established businesses can handle without incurring unbearable financial losses. One solution involves just outright leaving these high-risk customers. Say farewell to the folks with poor credit. Only work with those who will pay you on time instead of becoming a constant risk.
Create contingency plans
Handling threats and mitigating risk can become possible when several contingency plans are available for these scenarios. Contingency plans allow your company to not just operate in any abnormal condition, but also permit the organization to thrive during a recession. For instance, several companies purchase insurance to reduce financial damages caused by natural disasters. Make your company's future secure by having different contingency plans ready against risks.
Appoint your team
Corporations can recruit outside experts to become a part of their risk management team. However, we suggest you choose current employees to help mitigate business threats. As mentioned before, you can serve as a team leader with your learning. Your workers better understand what sort of risk the company faces. Therefore, these people will focus on preventing and mitigating risks to the company far more effectively than outside hires. Just appoint this team of risk managers carefully.
Prepare to pivot
Besides having contingency plans, you must prepare alternatives to your original business strategy. Many experts suggest business owners conduct a SWOT analysis to identify their strengths and weaknesses. However, risk management becomes even more efficient when there's a plan B or even a place C ready in case something unpredictable happens.
Remember that risks are dangerous for a business' success mainly because of how unexpectedly they overwhelm your organization. Hence, a plan B can protect you from business collapse when your plan A fails due to sudden changes in how the market works.
Research market trends
Why should entrepreneurs conduct market research? Market research helps you mitigate risks when you understand what sort of products are suitable for manufacturing, i.e., what sells these days. Your company should refrain from selling products or services nobody's asking for. Studies indicate that 40% of startups make things customers don't want. Therefore, you should evaluate recent market trends, understand your audiences, and introduce marketable products for people.
Remove system silos
A company can mitigate risk when all departments collaborate to predict, prevent, and lessen their effects properly. However, the silo mentality prevents collaboration. Thus, as a business owner or manager, you should focus on removing these silos.
The term silo represents an event or a model in which different departments operate separately without sharing information with others. While discussing risk mitigation, you should remember risk silos in which risks are assessed by any department autonomously. You can treat these risks productively by unifying the information for better visibility. Removing system silos, therefore, helps you manage risks better.
Conclusion
Creating contingency plans can help business owners limit the impact of these risks. Learn to prioritize risks, control the variables you can manage, and remove business silos. Break ties with risky vendors and customers, always stay prepared to pivot, and research market trends. Educate yourself to become more familiar with risk management. Education allows business owners to predict, discover, and purge any threat to their business success.
