We all have to take risks, and it’s essential to know potential mitigation strategies. Risk can be defined as the possibility of something bad happening. When I think about risk, I often think of a personal story.

When my mom was 17, she decided to immigrate from Austria to Canada. Her mom had passed away, her dad had remarried, and my mom yearned for a new beginning. Underage, she needed a judge’s permission to leave Austria. The judge asked if she had a job waiting for her in Canada and if she had any family there — the answer to both was no. What she did have was a desire for adventure and new beginnings. I’m sure the judge had misgivings, but he signed her paperwork and off she went. You might think it was the risky part of the story, but it gets riskier! A friend in Austria told her to get a job as fast as she could because she would need money once in Canada. With this advice in her ear, she walked off the boat and up to a man waiting on the pier with a sign reading, “Nanny wanted.” Even though she spoke very little English, he decided to hire her and she left the pier with a strange man who claimed he had a family — a risky course of action to say the least. And yet, it all worked out. He was a lovely man with a lovely family and it was the beginning of her new life.

Considering the definition of risk mentioned above, my mom’s adventure had a high level of risk. What about risk in our business, how do we define it, and what are potential mitigation strategies? Let’s look at a few — financial, operational, market, strategic, and reputational. While not a comprehensive list of potential risks, these provide a good baseline understanding and inform a framework that you can apply to other areas of risk.

Financial risk covers the overall financial health of the organization, changing market conditions, and/or economic fluctuations. There is no doubt when the pandemic hit, it was financial risk that had many organizations fearful of what was to come. While most organizations weren’t prepared for the pandemic, the ones that fared best had strong balance sheets, diversified revenue and solid financial protocols in place.

Operational risk arises from internal processes, systems, or external events that can disrupt business operations. A current example we hear about often is cyber risk. Robust operational processes, disaster recovery plans, and continuous improvement in all operational functions will mitigate these risks.

Changes in market conditions, competition, or consumer preferences fall under the umbrella of market risk. Back to the pandemic, global closures of everything from retail stores to restaurants to gyms had a sometimes-unrecoverable impact. While almost no one was prepared for the impact of the pandemic, those organizations that thought creatively — like restaurants offering take-out or retail stores building their online capacity — were able to minimize the impacts. Pandemic aside, staying updated on industry trends, conducting regular market research, and being open to adapting business strategies will help mitigate this risk.

Strategic risk involves uncertainties related to the company’s long-term goals. This could be as simple as a change in strategy or as complex as a merger or acquisition, and everything in between. Having a solid and living strategic plan and contingency plans for strategic shifts in the organization will help mitigate this risk.

Finally, reputational risk. This involves any damage to a company’s brand or image due to negative publicity, customer dissatisfaction, or ethical issues. According to Virtual Capitalist magazine, the company that took the biggest reputation hit in 2023 was Tesla. While they still score highly in products and services, vision and trajectory, they dipped significantly in character, trust, and citizenship. There is reputation risk for any company — prioritizing ethical practices, maintaining open communication, and actively managing the company’s reputation will go a long way in minimizing reputation risk.

Whether you are a small growing organization or a large corporate entity, every business must take the time and assign a resource(s) to manage risk.

One last comment about my mom’s adventure: I have often wondered if there was any way she could have mitigated her personal risk but I haven’t come up with anything. Perhaps there will be times when we need to throw caution to the wind and leap forward into the unknown.

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