How to Manage Risks in Life and Business

Beginner

7 mins read November 12, 2021

Christy Raedeke says, “If there is no risk, there is no reward.” This is something we may have heard multiple times, even if it’s not in those exact words. We have been told that taking risks is the only way to succeed and attain financial success. This, of course, is the goal of everyone! Yet, taking risks could result in sufficient losses that could threaten our financial stability.

This is why several people feel more at ease with not taking risks. However, this doesn’t leave much room for growth, and at the end of the day, they wish they had done much differently. Still, this doesn’t have to be you! There are smarter ways to further our careers and business without putting our finances in danger. The way to achieve this is through intelligent management of risks in our businesses and life.

5 ways to manage risks in our life and business

The first thing to note is that we take more risks than we account for, even in executing our daily activities. Waking up every morning and going to our place of work or business is a risk. There are a lot of things that could go wrong in terms of domestic and even automobile accidents. Yet, this hasn’t stopped us from going about these activities. Even choosing to meet someone, interact with them and trust them is a risk but one we find much easier to take.

However, we are conditioned to take these risks without much thought because we have discovered a way around these risks so that we can easily survive and triumph. We can do the same when handling our finances and other integral areas of our life. When trying to manage risk, these are a few things you may consider

Identify a risk
In risk management, one of the most important things you can do is identify potential risk factors before proceeding with any decision. This is essential when starting a new career, moving into a new home, investing in a new business, or expanding. The reason why risks often catch us off guard is that we failed to acknowledge their existence in the first place. As such, we are unprepared to handle the potentials of this risk becoming a reality. Whenever you are venturing into something new, a good practice is to research to identify the potential risks of the decision, even if it is something as minute as a confrontation with a coworker.

You need to evaluate your actions to identify potential risks that may hurt your business, lifestyle, or career. The aim here is to ask yourself, “what if?” It is about working out the kinks to see what could go wrong because of an event that has occurred or is about to occur based on your decisions.

Risk assessment
After identifying potential risks, the next step is to assess the impact of the risk to take calculated decisions that would mitigate the effect of the risk. For instance, you may be considering buying more or selling the cryptocurrencies you hold. Assuming you wish to purchase more, you would have to consider the impact of the decision to buy. That is, the potentials of market forces reducing your profits, the ability of a particular cryptocurrency to stay afloat, the best time to sell and buy, and many more details. These are the few things traders consider when making a massive decision like this.

They assess the pros and cons of these phenomena in deciding if it is worth taking. Yes, the stocks may be rising now, but what happens if it begins to decline. They are questions that need to be put into perspective in making the best decision.
You can assess the level of risk of each action or event by identifying the likelihood of it occurring and the consequences if it occurs. That is the frequency and impact of the action.

Level of risk = likelihood X consequences

You could consider a rating system ranging from 1 to 5 for likelihood and Consequence.
Where 1 is minimal damage and less likely to occur and 5 is severely damaging and extremely likely to occur.

Risk Insurance
Risk insurance is set to prevent the risk’s impact and decide which risk is worth taking. Calculating the level of risk would help you decide whether to accept the risks weighing the pros and cons. You might decide to accept a level of risk knowing that the benefits outweigh the consequences. You may also decide to go through with an action when the risk level is low.
Another prompt for following through with risk is when you can confirm that the cost of treating the eventuality of damage is way lesser than the benefit of the risk. Now that you have been able to identify risk, the likelihood and consequence of the risk occurring, you may decide to go through with it.

When following through with a risk for either of these reasons, you need to insure yourself against the possible consequences of that action. As such, you need to work towards avoiding, reducing, and overcoming the consequences if it happens. If the risk can’t be avoided, then reduce its likelihood and consequence.
For instance, traders of cryptocurrencies and stocks tend to set a stop limit. The stop limit is the point at which a trader sells off a stock or cryptocurrency when the price declines. They may also set a sell order, an instruction to sell when they have reached the profit they wish to attain. They understand a price decline may occur and work towards protecting themselves.

Another option for handling risks is transferring the risk of contracting to other parties. For instance, you may decide to insure your car because of the risk of getting stolen by insuring your car under an insurance company. The insurance company bears the brunt of the risk of the car getting stolen or damaged. You may also decide to contract a highly risky business to another party that does the work while you get a commission. For instance, as an Events Manager, you may consider contracting the catering and decorations to others getting paid in a commission while they handle the risks.
In essence, insurance focuses on planning ahead to reduce the impact of a risk by taking steps to protect your interest. However, if the level of risks proves too high, the cost of treatment is too high, and there is no way to insure against it. It is advisable that you consider an alternative.

Track or Monitor the risk
Setting up an insurance plan is not the last process to protect your interest in case of the risk occurring. You need to ensure that your insurance scheme is still active and effective in controlling the risks. For instance, you may consult your insurance company to ensure that your insurance plan covers your risk. You may also follow up on the parties you contracted the risk out to ensure that they are handling it.

You need to ensure that you are on top of the game by staying in control. For instance, perhaps you are starting a business, and there is the risk of it failing. An intelligent initiative would be to consistently train the workers, ensure the product or service is of the right quality, monitor other factors that may drag down your business, and develop strategies to either avoid them or reduce the effect. You can be innovative and creative when developing strategies to ensure that plans are set in place to reduce the likelihood and mitigate its effect. You can work towards your business objectives being linked to minimizing the impact of the risk. You may also consider informing staff and co-workers about the risk to help offer tangible advice on mitigating risks while also taking steps to avoid it.

Stay informed
Information, they say, is power, and it is also key to effective risk management. You need to keep your ear on the ground for new information that can affect your decision or the likelihood and consequence of the risk. When you are informed and constantly seeking education about your trade (market forces), business (innovation), among other things, it lowers the chances of you making a decision that may endanger your interests. There will be minimal setbacks if you are informed and well educated on what you are doing and how to go about it. Such that if there is any challenge, you are equipped with the skills to fix it. Often, risks become a reality because you don’t have a lot of information and, as such, can't stay on top of the risks.

Essential tips to keep in mind while managing risks

Prioritize
When creating a risk management plan, you need to prioritize risks you need to attend to. This means you outline potential risks that may come as a consequence of an action and tackle them in order of severity and urgency. Tackling too many aspects of a risk might be confusing and make it difficult to contain all the risks. Understandably, you wish to settle all risk factors as soon as possible, but rushing things and not prioritizing can pose another risk.

Always do your own research.
It is vital that you conduct your own research and not just take things at face value. Perhaps you are approached with an investment opportunity; you need to perform your own research before undertaking that business venture. You need to understand that marketers would maximize the profit and dismiss the cons. However, rather than just jumping headfirst into purchasing stocks and cryptocurrencies because someone approached you with their potential, you should first conduct in-depth research.
You need to read books, stay informed, and doing this would help minimize risks that may occur as a result of investments.

Understand you can’t have the good without the bad
It is essential to understand that you can’t always win. Perhaps, realizing this would make it hurt less when things don't always go your way. However, you shouldn’t let this deter you from taking risks that could promote growth. Instead, you need to ensure that your risk management also takes into consideration that things may not always work out the way you want them to. You can rather plan ahead to deal with the eventuality that things may not always go as planned.

Let Logic guide you through not emotions.
You might have come across the term “weak hands.” Weak hands refer to traders who are quick to exit the market or sell off their stocks or cryptocurrencies at the slightest hint of a dip. These same people are quick to enter the market when they sense a bullish run. Although they may manage certain downhills and make some profits, in the long run, this is not sustainable.

Weak hands are guided by their emotions, not by logic. Where seasoned traders would first conduct a market analysis to determine the best time to enter and exit a market, weak hands are guided by emotions of fear and excitement. It is crucial that you let logic, not emotions, guide you in your dealings, especially when it comes to a risky investment.

It is hardly ever the best idea to start a business based on friendship or hire someone because of personal ties. Rather, make decisions based on what they really have to offer, and you would soon realize that with efficient people in the office, you would get the best result. Ensure that your decisions are driven by information and minimize irrational decision-making, which may put you at risk.

Consider seeking professional advice.
Risk management is most successful when you get help from qualified persons or groups. When making a decision that could prove risky, you should consult with people and possibly get some feedback to inform your decision better.
You may also consider consulting a professional or setting up a risk management team at work to help handle and mitigate potential risks. Risk management is not something you can achieve alone. You need to bring together different views from different areas of specialty to get the best risk management plan.

Final thoughts

When making a decision that could pose a risk, it is normal for you to think long and hard before arriving at the right choice. However, sometimes the pressure to make the right choice can have you overcomplicating things. In fact, overthinking can drive you to worry and anxiety and prevent you from taking a life-changing opportunity. Risk management is not about ignoring risks but taking them also. It is about reducing the severity of the risks and minimizing the possibility of them occurring.

Several people are so worried about missing their next big opportunity and find themselves actually missing out on it. It is essential that you stop letting worry prevent you from taking these opportunities. Rather slow down, perform the necessary research, assess the risk, and consider if it's worth taking. This way, you can attain the best results even for seemingly complex and impossible situations. Risk management is key to having a successful career, business, and attaining your financial goals.

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