Risk Management Strategies in Business Activities

In everyday life, we will not be separated from the risk. The intensity of risks that must be faced will also increase when we conduct business activities. There are many potential risks that must be faced in business.

Although we will not be separated from the risk, but that does not mean that we must avoid these business activities and completely release the risks. Because, you can do risk management to minimize the possibility of these risks.

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How to calculate the amount of risk

If you already have a business, then you can easily do calculations or calculations about how much risk that might occur. Ways that you can use to calculate the amount of risk, namely:

  • Discover how often a risk occurs ( FREQUENCYof risk or probability- risk)
  • Determine the impact arising from the risk ( IMPACT)
  • Calculate the probability of loss prediction, using the formula:

FREQUENCY X IMPACT

For example, consider the following data:

You have the risk of merchandise theft. Then, you identify. The potential risk of item theft is 5 times in 1 month. For each theft of the item, your average loss is Rp. 200,000.

From this information, you can calculate the predicted magnitude of the loss faced from the risk of theft of the merchandise for one month. The calculation, namely:

= 5 x Rp. 200,000 = Rp. 1,000,000

That is, in one month, there is a risk of theft of merchandise losses that could potentially cause you to experience a loss of Rp 1,000,000.

Risk Management Strategy

From each type of risk that must be faced on your priority list, you can overcome it with a risk management strategy. At least, there are four choices of risk management strategies that can be done, namely: controlled, transferred to other parties, self-financed, and avoided.

1. controlled ( Risk Control )

This controlled risk means that you are making efforts so that the probability of the risk identified has been reduced. Controlling this risk is also intended to reduce the impact that might occur.

Some of the efforts that can be made to control this risk can include: creating and implementing good standard operating procedures (SOPs), seriously controlling the quality of products and processes, equipping production areas with a variety of work safety tools needed, and introducing a risk awareness culture to all employees.

2. transferred to another party ( Risk Transfer )

This risk management strategy by transferring to another party is carried out with conscious efforts by transferring the risks faced to other parties. To do this, it can be done by transferring the risk of store fire to the insurance company.

Other ways such as to move the risk associated with increasing the burden of employee fixed costs, this can be done with outsourcing contracts . In addition, to transfer the risk of high working capital to consumers, this can be overcome by asking for payment in advance, or by transferring the risk of high inventory costs to suppliers .

3. self-financed ( Risk Retention )

Self-financed or risk retention is a risk management strategy that is carried out with efforts to fund the impact that might result from risk. That is, the context of funding this risk can be done in two ways, namely by preparing a special reserve fund ( allowance ) to fund the risk, or without creating a reserve fund.

By creating a reserve fund, this can create new risks, namely disruption of business activities that have been previously planned. For example, there is a risk of fire from the shop we occupy.

If the risk management policy is financed without any reserve funds, then the funds that should have been used for business expansion will be used to finance the repair of the store. Therefore, any expansion can fail.

4. Avoided ( Risk Avoidance )

Risk management by avoiding, which is an action taken consciously to avoid the risks faced. For example, if during the next week there is a prediction of rain that will fall heavily, then if you have a restaurant business, you will be advised to avoid selling various kinds of cold drinks or various ice.

This is done because the possibility of sales of these cold or ice beverage products will decrease or will not sell. But, it should also be remembered, that as an entrepreneur, if you avoid risk too often, this can have an impact on the slow development of your business.

Why is that? because, there may be many opportunities or opportunities that are missed when you choose this risk avoidance business. Therefore, this risk management management must still be chosen as wisely as possible along with various considerations.

At the risk management stage, you can choose to use one of the risk management methods mentioned above. You can also combine from several methods available.

Practical Tips for Managing Risk for Beginners

For you novice entrepreneurs, you can use some practical tips and tricks to manage the risks that might occur. Here are some practical tips on managing risk for beginners in business.

  • Understand that the risks faced are not a barrier for you to get ahead. Risk must actually be taken as a form of consequence because you want something better or a certain success. The higher the desired outcome, the greater the risk that must be faced and managed.
  • Do not panic. The first step that needs to be done is to identify what risks have the potential to arise. start from the environment around you to identify risks. Risk identification can also be done by looking at relationships with suppliers, customers or competitors.
  • From the risks that have been identified, then you can determine how often those risks might arise.
  • Determine how much potential impact that might occur from the risks identified earlier.
  • Prepare mitigation risksteps , only for dominant or priority risks. This is done because many things must be done in business. If you focus too much on risks – risks that are not a priority, then your time will run out and make you doubtful or afraid in continuing your business.
  • To mitigate risk, make sure you are able to properly calculate the costs involved in managing risk. Also make sure the benefits derived from managing these risks can be greater than the costs incurred.

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