Risk-taking is an inherent aspect of business, and the key to effectively managing it is to strike a balance between potential gains and losses. While taking risks that offer the chance for significant gains is acceptable, it is unacceptable to expose your company to harm without any upside. However, striking this balance can be challenging, but there are a few key steps you can follow to better calculate the trade-offs of the decisions you face:
- Brainstorm all potential risks: When developing a plan, the first step is to brainstorm all the risks that you might encounter. This includes both internal and external risks that could impede your success. Once you have a comprehensive list, you can begin filtering and prioritizing them.
- Determine the likelihood of each risk: Next, determine how likely each risk is to occur. Instead of focusing on specific scenarios, concentrate on categories and types of events.
- Assess the impact on your business: Once you’ve identified the likelihood of each risk, assess its potential impact on your business and project. Use a similar scale to the probability assessment to categorize the impact.
- Ignore low-impact risks: Ignore any low-impact risks, even if they have a high likelihood of occurring, since they can be dealt with if and when they occur.
- Plan for low-likelihood risks: For low-likelihood risks that could significantly impact your business or project, develop a plan of action, but don’t spend much money, time, or energy mitigating them upfront.
- Adjust your plans to minimise high-likelihood risks: Focus the majority of your time, energy, and resources on high-likelihood, high-impact risks. Create a plan that either reduces their likelihood or mitigates their impact, and have strategies for confronting them if they occur.
No business is without risk, and as you grow and scale, you’ll take on more risk than other businesses. However, by assessing all potential risks and categorising them appropriately, you can make informed decisions that minimise your exposure to harm and increase your chances of success.