Dealing with an issue that has caught your company off-guard is always difficult. Sometimes these unforeseen problems are small, such as increased overhead costs. Other times, the risk involved may be a bit more serious. Certain risks pose threats to the livelihood of your organization and the fallout can be absolutely catastrophic. Thankfully, there are steps you can take to mitigate risks for your organization.
What is Risk Management?
First, let’s dive into what risk management actually is. The term “risk management” involves identifying risks, analyzing them, and responding in a way that makes it easier to manage risks. Much of the time, risk management takes the form of being proactive rather than reactive to issues. Good business risk strategies will do two things simultaneously: reduce the chance of a risk occurring and reduce the fallout once it does.
Risk management is also critical for successful business planning. Without it, you won’t be able to deal with challenges when they arise. It will also help you reduce uncertainty throughout your company because, no matter what, you have a plan in place. This improved organization can help improve your reputation as an employer and brand too.
How Does Insurance Risk Management Consulting Work?
If you are considering making an inquiry about risk and strategic management consulting services, you need to know exactly what risk management entails. For some businesses, the process is more involved than others. Typically, the management process is broken down into the following four steps.
Determining Existing Risk
Before you move forward with any risk mitigation, you need to determine what risks exist for your business. This typically involves a little bit of brainstorming amongst your staff. Everyone can put their heads together and identify all of the potential risks that impact their various departments. Of course, you won’t be able to address every single risk in your business. So, organize them from most to least serious to help you prioritize the items that will have the most benefit for your company.
Assessment
Once you have identified potential risks in your business, take the time to fully understand each one. You want to make sure the most urgent risks are taken care of immediately. Fully assess the risk and pinpoint a solution. Do this by asking yourself how the risk came to fruition and how it affects your organization.
Response
Next, you will want to develop an appropriate response. Figure out the steps you need to take to prevent the risk from occurring. In the event that you are not able to avoid the risk entirely, what will you do when something happens? Have a plan for what you’ll do if it recurs.
Preventative Plan
After you have identified the risks and have come up with an appropriate response, you then need to come up with a plan for prevention. Mitigating risks requires breaking contingency plans up into tasks and having them ready to go. This way, if a risk occurs, the plan can be put into action quickly.
Strategies for Effective Risk Management
Creating a plan for approaching risk management will require you to take one of a few different strategies. Choosing the right strategy for your business and the risk at hand can make a huge difference. Effective business risk mitigation strategies will help you avoid any potential consequences the risk may have. There are four main approaches you might take to managing risk.
Risk Acceptance
Risk acceptance does not involve mitigating the risk at all. You simply accept the risk exists without trying to reduce the impact or prevent it from happening. Much of the time, companies accept risks because paying to mitigate them is more expensive than the risk itself. This strategy for risk management is a bit of a gamble though. No matter what, you will need to have a plan in place if the risk occurs.
Risk Transference
Another strategy for risk management is transference. When you transfer a risk you hand the responsibility for mitigation off to a third party. While this doesn’t get rid of the risk entirely, it does lift some of the weight off your shoulders. Many companies have risk management through insurance to help guard them in the event risk is encountered.
Risk Avoidance
Avoiding the risk can be an effective risk management strategy as well. To do this, you need to outline any action that would lead to an increased likelihood the risk will occur. Then, you simply avoid taking any of the actions that may lead to it. Generally, risk avoidance should only be used for risks that would have a major impact on your business. You don’t want to avoid every single risk. Sometimes it may lead to other opportunities for growth. This is why you want to thoroughly analyze each risk before taking action.
Risk Reduction
The fourth, and possibly most effective strategy, is risk reduction. This strategy takes a bit more planning to map out what you will do to make each risk more manageable. In certain industries, compliance policies change on a regular basis. To reduce the risk of not being in compliance, you can automate a lot of your processes.
Importance for Businesses
As you can see, having a strong risk mitigation strategy can make or break a business. Since the COVID-19 pandemic, companies need to adjust the way they do business and plan for risks. A large number of organizations had to shift the direction of their companies entirely. Having an effective risk management strategy will may you more active, rather than passive or reactive. Here are three specific reasons risk management is important for businesses.
Compliance
Establishing a good risk management strategy for your business will make it easier to adhere to compliance guidelines. Every business, no matter what industry it is in, has certain compliance regulations that impact its organization. If you are found to not be meeting compliance you can be fined, causing a significant financial loss for your company.
To reduce the risk of not being in compliance, you would use one of the risk strategies above. Some companies use transference and allow a third party to manage industry compliance issues. Others have stringent plans in place to ensure all of the employees working there meet compliance regulations.
Reduces Expenses & Losses
In today’s economy, it is important to reduce costs anywhere you can. You will also see a reduction in expenses and losses when you have a proper risk management solution. As mentioned above, it will help you avoid fees for not complying with local, state, and federal regulations.
You will be able to implement risk management strategies to help you reduce other expenses as well. Oftentimes, business losses or risks can be costly. Having a plan in place will greatly reduce the chances of you running into any unexpected costs.
Better Alignment of Business Strategies and Risk Policies
At the end of the day, having a risk management strategy will help you better align your business goals and policies. The risks you are planning for should closely collaborate with the business objectives as a whole. Your company culture and goals should help define risks for your company and help you plan to control them.
You can do this by tapping into internal and external data sources to help predict when the business is at high risk. Based on the industry and current trends, you can prep for unseen threats. Another way you can tie risk mitigation into your other business strategies is by connecting it with every part of the company: from the front-end to the back of the house.
How the Risk Management Consulting Team at Odell Studner Can Help
Implementing strong risk management will help you be prepared for whatever changes come your way next. The world is changing every day. Having a strong risk management team and consultants on your side can help facilitate future growth. The team at Odell Studner can provide you with risk and strategic management consulting services.
We strive to help businesses mitigate various different risks, such as financial risk management. After discussing your business’s needs, we can pinpoint the best risk management solutions for your organization and move forward with a plan. Learn more about our brokerage firm and how we can help you.