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Risk Avoidance vs. Risk Reduction: Differences to Consider

Business leaders know this four-letter word all too well — risk. Being in business is risky. You cannot guarantee sales. You cannot guarantee financial loss. Still, you can do things to avoid and reduce risk. 

As you look at your business operations through the lens of risk management, there are two areas to consider — risk avoidance and risk reduction. While avoiding risk altogether sounds like the safest option, it’s not always the best. Sometimes, it’s more beneficial to reduce your risks instead. To know what’s right for you in your business, let’s look at the differences between the two and how to decide what’s best for your organization. 

Risk Avoidance

Risk avoidance happens when you proactively remove your business’s exposure to certain risks. In doing so, you ideally avoid negative financial impact because you avoid the need to pick up the pieces after something goes wrong. 

A few examples of what risk avoidance looks like in action include:

  • Not performing work near certain areas where there’s a clear and known high risk for injury that could result in a workers’ compensation claim
  • Requiring clients to move out of their homes as you, a home contractor, perform renovations that could lead to injuries and a business liability claim
  • Not allowing certain emails through the system and to your employee’s computers to avoid a cyber liability incident.

While these areas might seem logical, they also have the potential to lead to negative business consequences. Not performing the job well, causing inconvenience for your clients, or stopping opportunities from reaching your team’s inbox could stunt your growth. 

Risk Reduction

Reducing risk rather than avoiding it can give your business more opportunities for growth while still being wise about how you perform your job duties. 

Examples of reducing risk in your workplace include:

  • Conducting employee training regularly
  • Requiring safety gear
  • Improving team unity by having checks and balances
  • Holding adequate business insurance

When analyzing your business’s goals and operations, you might determine that risk reduction efforts make more sense in the long run. 

Considering Risk Avoidance vs. Risk Reduction in Your Organization

As you try to determine where to cut back and where to make risk reductions, you’ll want to look at your current business operations. Analyzing which areas leave your organization, your employees, and your customers at the highest risk for injury, financial loss, or hardship will help you narrow down where you need to decide between risk avoidance and risk reduction. 

You’ll never be able to reduce all risks in business. As you’re looking for areas to add safety measures, here’s what to consider:

  1. What risks are too great to leave to chance and must be eliminated?
  2. What risks are mild and are best left to reduce rather than avoid?
  3. What risks do you need, by law, to avoid or reduce through insurance or training?

Mitigating risks doesn’t always happen by totally removing certain types of risks. Often it happens by taking proactive steps to reduce the chances that they will harm or cost you, your team, or your customers any money.

We Can Help With Your Business’s Risk Management

Knowing what’s risky is one step. Knowing how to manage risk is another. We’re happy to sit down and review your business operations to help you understand where risk avoidance matters more than risk reduction. We’ll work with you to identify these key areas and devise a solution to minimize any hardship for your organization. Contact us now to set up an appointment.