The 3 Types of Risks Associated with Business and How to Mitigate Them All


Because all of business life is fraught with uncertainty, you cannot avoid taking risks almost every single day. However, you should evaluate each risk and place it into one of the following categories:

First, there are the risks that you must take to stay in business. These involve hiring and assigning people to specific tasks, advertising and promotion, investment in new product development, committing expenditures to develop new sources of business, and so on. These are essential risks that go with the territory of running a modern business. They are unavoidable.

Second, there are the risks that you can afford to take. These are actions and decisions for which there is no guaranteed outcome but for which you can absorb their cost as a part of doing business if they are not successful. Bringing a new product or service to the market or running an advertisement in an untested medium is a risk that you can afford to take. If the actions fail, they will not threaten the survival of your enterprise.

The third type of risk is the risk that you cannot afford to take. The cost is too high. The consequences of failure may sink your business. Even though such risks offer extraordinary upside potential, their downside potential may be so severe that it is better to pass on them when they arise. Survival of the enterprise must be your overriding consideration.

A risk that you cannot afford to take would be an investment of so much money that its failure would cause your company to go bankrupt. In almost every risky situation, the potential benefits can be extremely attractive. But paying close attention to the potential downfalls will give you the security that you need to remain in operation. Be willing to say “No!”

Finally, there are the risks that you cannot afford not to take. There are many activities in the operation of your business that entail high degrees of uncertainty, but you must engage in them anyway. A risk that you cannot afford not to take may be entering into a strategic alliance with another company to counter a competitor who threatens the sales of your main products or services. There is no guarantee that this decision will be successful but often you cannot afford not to do it if you want to stay in business.

Security in business requires that you continually ask, “What could possibly go wrong?” Whatever your answer to that question, make provisions to secure against the worst possible outcome. This enables you to sleep well at night and to concentrate your energies on business success during the day.