Successful entrepreneurship requires not only bright ideas, but great courage. Understanding your market, your assets, ins and outs of your goal will help you make smart decisions when it comes to risk-taking.
There are generally four types of risk management. They are quite different and cover a wide range of scenarios. They are not equally appropriate for every risk assessment, but it is important to determine which technique fits better as a part of initial risk management decisions. While the choice is sometimes obvious, it is better for the business to examine risk in the context of existing systems and processes.
• Risk Avoidance – It may be appropriate in case of high priority thread with high probability of occurrence and large negative impact. In fact it means withdrawing from a risk scenario.
• Risk Reduction – Early mitigation action keeps risk at acceptable level and reduces the impact of factors that drive severity of loss.
• Risk Transfer – Risk can be reduced or made more acceptable, if it is shared or even transferred completely to the third parties - Insurance companies, for example.
• Risk Retention – Risk existence is acknowledged, accepted and accounted in budget, no proactive action is taken. It is appropriate for low-priority threads or in case it is not cost-effective to address this type of risk.
By building these four types of risk management into a culture of everyday best practices, commercial enterprises send a message to third parties that they are safe to deal with. This includes customers as much as suppliers. When entities and individuals know that their interests are a priority, the company benefits from rhythmical business and loyalty.
