Each day we face an incalculable range of threats-from car accidents and power failures to asteroid strikes. Fortunately, few of these will directly affect us-it is probability of occurrence that determines the amount of risk we face. More to the point, there are things we can to manage the risks to our business and way of life.  

In a formal sense, the field of risk management can trace its origins to a betting challenge issued to the famous French mathematician Blaise Pascal by a local nobleman. Known as the Enigma of Mere, Pascal eventually asked other renowned scientists and mathematicians such as Leibniz, Bernoulli, and Fermat for help to solve the puzzle. Their work led to the creation of probability theory and statistics which form the basis for the modern study of risk.

From a practical standpoint, there are four ways to deal with risk. Each has its own merits and disadvantages. The four are: Avoid Risk, Transfer Risk, Mitigate Risk, or Accept the Risk.

Avoidance of risk is the best choice in some situations but it limits opportunities for growth. Decisions such as limiting your number of employees or not trying a new product are examples of risk avoidance. While these decisions may seem productive at the time, it limits the capacity of your business.

Transferring risk with insurance allows some or all of

 the financial impact of a disruption to be underwritten by the insurance company. Actuaries study the likelihood that a risk will become reality and your how it will affect you business. They price your insurance policies accordingly. Recently, outsourcing has become another common way of transferring certain types of risk, especially those associated with the management and operations of computer technology. 

Risk mitigation can take many forms, from buying a generator and installing sump pumps to cross-training staff on key functions such as payroll or the operation of critical equipment. Even something as simple as having a lawyer read through a contract before signing it is a form of risk mitigation.

The last technique is risk acceptance. If risk transfer or mitigation are not viable options, then your choice is to do nothing (risk avoidance), or move ahead despite the danger. Moving ahead means you have chosen to deal with risk by accepting it and "taking a chance." To some degree everyone engages in risk acceptance as the simple act of walking crossing a busy street indicates. What type of risks you accept and how often you accept them are defined by your risk appetite.

Take charge of the risks facing your business and decide to actively manage them. Understand the pros and cons of each of these four approaches and choose the appropriate technique. And don't forget Valentine's Day! If you do, you may significantly increase the risk of your ability to be Ready to Resume!