Risk plays a significant role in our daily lives. Whether personal risks, from crossing the road to playing the lottery, or business risks, like launching products and setting up a company in a new country, risk is simply unavoidable. Even though we have tools to estimate risk, these forecasts and predictive models can never be 100% accurate. Further, forecasts only identify risks: it is up to us to proactively manage, mitigate, and even control risk.
There are two main parameters that define risk. The first is impact: what is the predicted outcome if the risk comes to fruition? The second is likelihood: the estimated probability of the consequences occurring. Assigning high, moderate, and low labels for impact and likelihood (wherein high/high risks are the most critical, and low/low risks are less important) is a shrewd first step in risk evaluation.
Keep in mind that critical risks aren’t always a bad thing: if the outcome is positive, there will be good consequences for the company. The adage ‘with great risk comes often comes great reward’ bolsters this ideology. However, some business owners are risk-averse, finding safety and comfort in established routines. Regardless of your appetite for risk, it is important to define a risk management strategy.
In conjunction with these strategies, it can be beneficial to accelerate a risk, whether good or bad, in the interest of generating a favorable result. Accelerating a risk with negative consequences might mitigate the impact, whereas accelerating a risk with positive consequences will benefit the business sooner than expected.
The identification, evaluation, and management of risk are essential tools for business executives. With time, your business will find the right balance of risk-taking and risk-mitigation to achieve superior rewards.
Looking to discuss risks? PikoHANA can help manage the risks associated with back-office tasks. Our team of experts can mitigate the risks associated with compliance, legitimacy, and reliability of your taxes, annual filings, and other financial documents. Let us reduce your accounting risks so you can focus on your strategic risks.
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