Is Risk Avoidance effective Risk Management?

    By Andrea Bell | Small Business

    Is Risk Avoidance effective Risk Management? image 0063   Eileen waits for train 1978   Hi Res.jpg cmyk0063_-_Eileen_waits_for_train_1978_-_Hi_Res.jpg_cmykWhen a risk presents itself, it’s easy to think, “Okay, I just won’t do that and therefore I won’t be at risk”. Risk avoidance, can be considered a risk management strategy, but is simply ignoring it really that effective? There are some benefits to be had by withdrawing from a risky environment, but you may also be doing yourself and your business a disservice.


    Adopting a risk avoidance strategy means you seek to eliminate risk by withdrawing or not becoming involved in a high-risk activity. This could be not taking up a construction project or not buying a property. The issue with this strategy is it is limiting your business. You could be reducing your potential earnings by not taking on new project or not expanding your client base.


    With an optimization strategy, you look at the risks of a situation, like a new contract, and look to find a balance between the negative risks and the benefits from the operation. So in the case of the contract – while it might be a risky project that involves a large investment or hard manual labor it may result in increased income or a new client. Look at what you could loose if you were to avoid the contract all together and find a way to balance what to perceive as the risk with the potential benefit.


    You could also choose to share the risk. This can be achieved by outsourcing work, finding a contractor who maybe specializes in an area of your project and is better equipped to take on the risk.

    Sharing your risk can also mean purchasing insurance. This shares the potential loss should an accident occur. Sharing the potential loss means taking on the potential risk is more manageable.

    There are other strategies you could adopt instead of the avoidance approach that could turn out to be very beneficial to your business operations. You can still maintain low-risk operations while working to expand your business.

    If you have risk management questions, don’t hesitate to ask an expert here.

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