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In this challenging economic climate, professional services firms like yours are seeking every way to leverage a competitive advantage. One such method is risk avoidance. But what are risk avoidance strategies and how can they help you weather this financial storm?
When we use the term ‘risk avoidance strategies’ we’re talking about something that:
- Eliminates any obstacle that might derail an organisation
- Cause damage to its stakeholders or any assets it owns
Either way, risk avoidance is a tactic consciously deployed by an organisation – and must be done so carefully, systematically, and consistently over time.
Risk avoidance strategy in four steps
Your strategy will only work if you:
- Clearly establish the risks first
- Calculate the likelihood of each
- Quantify potential losses
- Take preventative steps
Examples of risk avoidance strategies that work
#1 Not investing in a project
On the surface, the project might appear appealing. Perhaps because it presents the opportunity to diversify into new markets. Conversely, the potential rewards might be extremely tempting.
After careful consideration – and having donned your risk avoidance hat – you decide the odds of making a loss are far too high.
#2 Trusting social proof
Investing in a brand-new technology platform, software programs – or any other asset for that matter – involves a degree of risk. That’s because you can’t use social proof as a metric to measure the likelihood of failure.
That’s why risk avoidance strategies often involve trusting products or services that have been tested, purchased, and approved by others from within their sector – meaning you can buy with confidence.
#3 Transference of risk
Sometimes not facing up to risk is a risk in itself. Imagine your business lacks the in-house expertise to mitigate a particular issue. For example, using an earlier example, you might need to adopt a new technology to scale and keep pace with rivals.
Invest in this new technology without the in-house expertise to use it effectively and you could make serious and financially punishing mistakes. Do nothing and you’ll fall behind.
So, what risk avoidance strategies are available? You could outsource to a specialist technology training provider with experience in the required system, killing two birds with one stone.
# Facing up to inevitable risk
But aren’t we talking about risk avoidance strategies? Yes, but assessing the degree of risk associated with a decision is part and parcel of the process. After all, almost every activity introduces a certain degree of jeopardy.
- Perhaps the risk is further down the line – for example planning to increase prices in two years
- Maybe the risk is minuscule – for example, changing to a different stationery provider
It’s all too easy to become risk-averse to such a degree that nothing is done at all. And this can have severe short- and long-term repercussions for businesses.
Is risk avoidance the same as risk reduction?
Risk avoidance strategies aim to remove the probability of risk entirely. Contrastingly, risk reduction strategies are about minimising the possibility of a problem occurring – perhaps by introducing certain filters, policies, or processes.
Although risk reduction won’t solve an issue it will help you and your team members sleep soundly, and safe in the knowledge that said problem has become manageable.
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