Risk management is vital to any business, whether small or large. And having risk management processes in place can protect your business or staff if faced with an unfortunate occurrence. The four common strategies are Reduction, Avoidance, Transfer, and Retention. You can implement just one or all four strategies when developing your strategy. Whichever you use, it’s important to continually revisit your plan by assessing how well it is working and determining what changes, if any, should be considered.

Risk reduction

Risk reduction is about lowering risks and taking precautions to prevent or limit the impact and chances as much as possible. From a safety standpoint, reducing risks can be accomplished by doing things such as conducting regular quality control processes, employee safety training, staying in compliance with the applicable legislative laws, and having a system in place in case an incident does occur. You can take measures to minimize security threats by investing in security software programs. By installing a security system, you can help prevent loss due to theft.

Risk avoidance

This method allows you to avoid risky situations whenever possible, typically in cases that will significantly impact your company. An example of this is ultimately deciding to back out of a business proposition due to the unwanted attention your company could see from dealing with these people. You want to avoid taking the chances of doing business with an investor with a reputation for cheating the system. While you can’t avoid risk altogether, you can reduce your chances.

Risk transfer

Risk transfer allows another party to accept responsibility. Usually, somebody would refer to this in situations involving finances. For example, when you purchase insurance. The insurance company agrees to be financially responsible and cover costs if an unfortunate incident occurs. Another common practice to transfer risk is through contracts—an agreement between parties that will impose who is accountable for what, therefore limiting your liability.

Risk Acceptance

Just as it sounds, risk acceptance means you will take the risk and accept responsibility should a situation arise. Usually, this comes from understanding that the impact will be minimal to your business and that accepting responsibility far outweighs mitigating things further. Let’s say you send your product off to a customer, and the product arrives not working correctly. The customer wants to exchange it. Following this strategy, you accept the damaged product, exchange it for a new one, and take the loss.