We live with risk, every day, in multiple ways. Many we know about, like, running with scissors, crossing the road without looking both ways, and eating too much sugar. We make choices to avoid potentially disastrous outcomes: holding the scissors in a safe manner while walking, using a traffic light to cross the street, and hopefully, quitting bad habits that can lead to poor health.
If you’re reading this blog, you’ve already led a life full of risk management, perhaps without knowing it. Maybe you’re ready to step it up a level so that in the end, you can feel more comfortable taking calculated risks that have tantalizing rewards tied to them.
Creating a Safety Net
Business leaders often have to think ahead to try and visualize all the outcomes in a given scenario. It’s when they don’t see a potential danger that things can spin out of control quickly. An unforeseen threat can lead to a loss in profits, personal injury, a tarnished brand or worse. Outside the business environment, we also look for potential hazards. That’s why we push kids to wear helmets while riding bikes and why most states made it a law to wear seatbelts in motor vehicles.
Investopedia.com has an article that lays out five well-known strategies for managing risk. They include:
- Avoidance – not participating in harmful activities
- Saying no to the hang-gliding adventure, or shady investment
- Retention – acknowledging the inevitability of certain risks and accepting the responsibility
- Assuming a deductible, or not insuring something at all because the cost to replace doesn’t warrant it
- Loss prevention & reduction – recognizing you can minimize, but not eliminate all risks
- Installing a camera doorbell, or putting a locking bar on your car’s steering wheel
California State University, Fullerton expounds on the management strategy of sharing or spreading risk in their write-up. To thin out a risk, like losing an important document, make sure to save it in multiple places so if a computer gets damaged or a filing cabinet gets soaked with water, the information has been spread, or shared, to another location. They also suggest looking at the likelihood and severity of risks as a way to determine how much effort, and money, is put toward potential management.
In the incentive market, business leaders might choose to use Motivation Excellence’s experienced team to lessen risks associated with planning and executing an incentive program for their channel partners or sales team. Hiring an expert in any field is a great way to mitigate potential risks in areas not familiar to your own team while maximizing return on investment.
Linking Risk and Reward
There are risks we simply want to avoid, and then there are ones that tempt us with the potential for greatness! Indeed, the beauty of a well-calculated risk is in the payoff if it succeeds. In fact, Skillcast.com writes that it’s important to recognize not all risks are negative. Sometimes taking a chance enables us to take advantage of an opportunity.
On top of a positive outcome, FloQast, a finance and accounting company, states employing risk management strategies can have other positive effects, like:
- Saving you money
- Improving quality of decision-making
- Increasing productivity
Consider the risk-reward ratio too. Is the potential reward worth the potential risk?
Taking the Smart Risk
There is more than one successful business owner who says the biggest risk you can take is to NOT take any risks at all. But of course, gambling blindly and going in with a well-thought-out strategy are wildly different. You could always get lucky with the former, but odds of success are higher over the long run with the latter. Keep these bullets in mind as you set out to manage risk in your life:
- Identify risks early
- Know what you can control
- Mitigate when possible
- Monitor and adjust as needed
And when you’re not playing with someone’s life savings or health and safety, perhaps risk-taking can be a double-edged sword of positive outcomes. If you succeed, you can lead others down the same path. If you fail, you can teach others from your mistakes. Here’s hoping all your risks pay off in the end!
