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The 6 Fundamental Techniques of Risk Control
If you’re a business leader, then you already know the importance of risk control. It’s imperative that your business has a formal policy to limit the loss of assets and income.
Here are the 6 techniques associated with risk control.
Avoidance is the best means of loss control. This is because, as the name implies, you’re avoiding the risk completely. If your efforts at avoiding the loss have been successful, then there is a 0% probability that you’ll suffer a loss (from that particular risk factor, anyway). This is why avoidance is generally the first of the risk control techniques that’s considered. It’s a means of completely eliminating a threat.
2. Loss Prevention
Loss prevention is a technique that limits, rather than eliminates, loss. Instead of avoiding a risk completely, this technique accepts a risk but attempts to minimize the loss as a result of it. For example, storing inventory in a warehouse means that it is susceptible to theft. However, since there really is no way to avoid it, a loss prevention program is put in place to minimize the loss. This program can include patrolling security guards, video cameras, and secured storage facilities.
3. Loss Reduction
Loss reduction is a technique that not only accepts risk, but accepts the fact that loss might occur as a result of the risk. This technique will seek to minimize the loss in the event of some type of threat. For example, a company might need to store flammable material in a warehouse. Company management realizes that this is a necessary risk and decides to install state-of-the-art water sprinklers in the warehouse. If a fire occurs, the amount of loss will be minimized.
Separation is a risk control technique that involves dispersing key assets. This ensures that if something catastrophic occurs at one location, the impact to the business is limited to the assets only at that location. On the other hand, if all assets were at that location, then the business would face a much more serious challenge. An example of this is when a company utilizes a geographically diversified workforce.
Duplication is a risk control technique that essentially involves the creation of a backup plan. This is often necessary with technology. A failure with an information systems server shouldn’t bring the whole business to a halt. Instead, a backup or fail-over server should be readily available for access in the event that the primary server fails. Another example of duplication as a risk control technique is when a company makes use of a disaster recovery service.
Diversification is a risk control technique that allocates business resources to create multiple lines of business that offer a variety of products and/or services in different industries. With diversification, a significant revenue loss from one line of business will not cause irreparable harm to the company’s bottom line.
Risk control is a key component in any sound company strategy. It’s necessary to ensure long-term organization sustainability and profitability.