In finance, you may adopt a hedging strategy to protect your assets or investments. You may outsource work – and the risks that come with it - to a contractor. You don’t accept the risk of a lost suitcase or an accident abroad and the costs that this would bring – you pay a travel insurance company to bear the financial consequences for you. The risk still exists, only the responsibility for it shifts from your organisation to another.Īn example of this would be travel insurance. Risk transference is defined as: 'A risk transferred via a contract to an external party who will assume the risk on an organisation’s behalf.'Ĭhoosing to transfer a risk does not entirely eradicate it. Because of this, it is best to accept risks only when the risk has a low chance of occurring or will have minimal impact if it does occur. You will need to be sure that, if the risk does occur in the future, then you will be able to deal with it when the time comes. However, this approach does come with a gamble. After all, why spend £200,000 to prevent a £20,000 risk? Sometimes the cost of mitigating risks can exceed the cost of the risk itself, in which case it makes more sense to simply accept the risk. This approach will not reduce the impact of a risk or even prevent it from happening, but that’s not necessarily a bad thing. 'A risk is accepted with no action taken to mitigate it' is the definition of risk acceptance. Types of risk management strategy Risk acceptance Let’s take a closer look at what these four approaches involve and some examples of when you could use them. There are four main risk management strategies, or risk treatment options:Ĭhoosing the right one will mean the difference between managing each potential risk effectively or facing serious consequences that could damage your business. This is also sometimes referred to as risk treatment. The approach you decide to take is your risk management strategy. After identifying risks and assessing the likelihood of them happening, as well as the impact they could have, you will need to decide how to treat them. How to approach building a risk management strategyĪ risk management strategy is a key part of the risk management lifecycle. Read on for a more detailed definition where we break down the four common approaches to building a management strategy for risk and how to choose wh ich one is suitable for your needs. It provides a detailed outlook for stakeholders across t he business so they can make informed decisions. But what is a risk management strategy? And what risk management strategies can you use?Ī strategy for risk management is a dedicated plan which details how organisations are going deal with risk, both pre-emptively and as incidents occur. Having an appropriate risk management strategy is critical to dealing with the many types of risk that your organisation could face.
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