A strategic risk assessment will give you an actionable idea of what potential risks exist for your organization’s next project. NFA Consulting has written about some of the benefits of a risk assessment previously on our blog. Once risk is identified, however, it’s necessary to know how best to deal with it in order to minimize the impact on your project or organization.
We focus on 4 main methods of helping you manage your risks:
In this post, we’ll detail each of these methods so that you know how best to make use of a strategic risk assessment.
Avoiding risk
When a team is looking to avoid risk, they’ll often do so by attempting to remove or control the root cause or consequence of the risk. If this is a viable strategy given the nature of your project, it may be the most effective one for preventing losses. Additionally, it’s the least costly method, purely in terms of money spent on managing the risk.
Typically, though, avoiding risk outright will involve avoiding actions your team may have otherwise taken to complete the project. This may be viable if you can find alternative steps that involve less risk, but even in this case, you may be sacrificing greater results as a consequence.
Transferring risk
Risk is transferred when another party takes on your risk, typically when they’re paid to do so. In practice, this often comes in the form of taking out an insurance policy. This method of dealing with risk is likely to keep your team’s process as intact as possible while ensuring your losses remain within an expected range.
The other side of this method, however, is that a greater cost is attached to the source of the risks immediately. It’s important in this case to be sure that the anticipated losses of the risk would outweigh the cost of transferring the risk. Otherwise, you may have simply created an unnecessarily bigger expense.
If you’d like to read more about transferring risk, take a look at this Investopedia article.
Assuming risk
Another method of dealing with risk is to simply accept it and continue your current process as planned. Whether or not this method will work for your team entirely depends on the nature of the risk and the losses you’re prepared to incur.
It cannot be overstated that if this is the method you choose, it is essential to know what your maximum loss could be and how much of a loss your team can handle. By choosing this approach, you choose not to mitigate the risk. This choice should be considered as a last option once it’s been determined that all other methods wouldn’t be viable.
Finding and using opportunities
The discovery and understanding of risk within your organization’s processes may uncover opportunities to improve those processes. This isn’t just helpful for managing your risks more effectively in the future, but also for achieving improved results overall.
Finding improvement opportunities can help you introduce cost-saving measures to reduce or eliminate potential risks, either by tackling the risk sources directly or making other parts of your process more efficient to counteract possible losses.
Make a plan
It’s important to assess and plan for your risks as soon as possible. NFA Consulting helps government and private organizations perform strategic risk assessments and use the methods listed above to mitigate them as much as possible. Get in touch with us now and let our experienced team of experts help you reduce your costs and maximize your results.
