Risks in business occur in a variety of forms. Some occur during the ordinary course of business while others are due to extraordinary circumstances that are not easily identified. The most common types of risk management techniques are discussed below.
Avoidance of Risk
It is the easiest way for a business to manage an identified risk. Avoidance takes place when a business refuses to engage in an activity known or believed to be risky. Though it is a simple method to manage potentials threats in a business, it also leads to loss of revenue potential. This technique helps the business avoid unforeseen threats ( Jorion, 2001).
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Risk Mitigation.
It involves lessening any negative consequences of specific, known risks and is often used in business when the risk cannot be avoided. Though a certain degree of risk remains, the strategy helps to reduce the total negative effects of unforeseen risk.
Transfer of Risk
In some cases, a business may choose to transfer a risk away from the organization. This takes place by paying a premium to insurance in exchange for protection against possible financial loss. This strategy enables a business to venture without fear of unforeseen financial losses as it is cautioned by the insurance.
Risk acceptance.
Risk can also be managed through acceptance. Businesses retain a certain level of risk brought by specific projects if the profit generated from them is greater than its potential risk and thus the unforeseen risk is deemed acceptable ( Jorion, 2001).
Quantitative Versus Qualitative Analysis
Contrast
The main purpose of the quantitative analysis is the quantification of data that allows generalizations of results from a sample to an entire population of interest. On the other hand, qualitative analysis is normally concerned with gaining an in-depth understanding of underlying reasons and provides insights into the setting of a problem.
Comparison
Both quantitative and qualitative analysis is applicable by decision-makers in business. Both also begins with a question or a problem to which a manager seeks answers and requires a plan of investigation. The other similarity is that both are result oriented and are designed to increase productivity, increase profit or reduce cost ( Manuj & Mentzer, 2008).
Qualitative analysis the only approach to use when there is need to acquire safety against risks and increase alertness of management and all personnel who are vulnerable to them and identify issues that are looked upon and have potential to become definite risk factors ( Manuj & Mentzer, 2008).
References
Jorion, P. (2001). Value at risk: the new benchmark for managing financial risk (Vol. 2). New York: McGraw-Hill.
Manuj, I., & Mentzer, J. T. (2008). Global supply chain risk management. Journal of business logistics , 29 (1), 133-155.
