What Are Risk Mitigation Strategies?
As a business owner, you are surely aware of how your business runs and what goals you need to meet for your business to grow and thrive. But, have you considered how your risk mitigation plan and controls fit into your growth plan? Risk mitigation is critical to lowering your liabilities so that you can use your cash for what matters most -- growth.
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Strategies to Control Commercial Risk
Making a risk management strategy and incorporating it into a small or medium-sized business plan isn't as complicated or time-consuming as it sounds. It can also be an excellent exercise to better understand the operations of your business. Before you can create a risk mitigation strategy, you should know the four primary tools that business owners use to manage risk:
1) Avoid the Risk
The most cost-efficient and reliable risk management method is to avoid that risk in the first place. If there is a high risk that you don't need to participate in - Don't. We know that most of the time, especially in small business, this isn't always easy. If you can't avoid a risk entirely, you can take steps to limit that risk.
2) Control the Risk
A critical part of every risk mitigation plan is to control the risk. Unlike avoiding the risk entirely, this accepts that the risky operation in question is a core part of your business strategy.
Controlling the risk focuses on making specific risky operations safer or less prone to having an incident (you losing money). A good example of this is putting GPS telematics in your vehicle fleet, adding specific safety gear requirements for your employees, or even be installing an automatic sprinkler system in your building to limit the damage that a fire could cause.
Every business should work to control the risks they can't avoid as part of a long-term business strategy.
3) Accept the Risk
Some businesses have more risk than others. Even if you attempt to mitigate the risk to the best of your ability, it might still be a significant threat to your company. We often see these types of risks in industries such as construction, technology, and manufacturing; industries where the risk is often worth the reward.
Although the poorest form of mitigating risk, accepting the risk is often necessary if the operation is a critical component to your business strategy and profitability. In this case, it's essential to be aware of and have a plan to handle the fallout should an incident occur.
4) Transfer the Risk
Finally, you can always transfer the risk onto another business entity. Most of the time, this method takes the form of a transfer to an insurance company. For a yearly or monthly premium payment, the insurance company will take your place in a lawsuit or reimburse you for property damage to make your business whole again.
This transfer of risk is the core risk management strategy for most small to medium-sized businesses in the US. Unlike mega-corporations, it's much harder for a small company to accept a risk or even mitigate it enough so that a million-dollar loss wouldn't financially strain (or bankrupt) the organization.
Which Risk Mitigation Strategy Should You Choose?
Risk mitigation strategies aren't meant to function alone. You will almost certainly need to combine several or all of these strategies to design a risk profile that allows your business to succeed and remain profitable for years to come.
Contact us if you would like to discuss a risk mitigation strategy with a LandesBlosch risk advisor.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.