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Risk management strategies for business

What is risk management?

Risk management is a process businesses use to identify risks or harms that could affect their operations.

Developing risk management strategies helps businesses make better decisions and operate more securely and confidently. It’s essential for any business, regardless of their size or sector. 

Why managing risk is important

It’s important to manage risk to uphold business confidence and to protect profitability. Further, understanding and managing risk can help you to: 

Achieve business goals

Risk management helps you determine what risks you’ll need to address and what strategies you’ll use to mitigate them so they don’t prevent you from achieving your business goals.

Improve customer retention

When you manage risk around your customer relationships, you may be able to improve customer satisfaction and increase retention. 

Boost employee confidence

Implementing risk management strategies can help employees feel more confident in their roles, their workplace, and in the business itself. 

Types of risk

You can do a business risk assessment based on the different types of risk that a company may face, such as:


Hazard-based risks come from materials or actions that can potentially be harmful. Hazards may include:

  • bacteria, fungi, pests or viruses

  • bullying and harassment

  • discrimination

  • working at high elevation

  • carcinogenic, flammable, poisonous or toxic chemicals

  • extreme weather

  • faulty equipment

  • heavy workload

  • high noise levels

  • improper storage

  • poor workplace design 

  • incorrect equipment use.


Opportunity-based risks arise from choosing one opportunity over another, like entering a new market or investing in a new product. When you invest your time and resources into an opportunity, you risk missing a better one or not getting the results you were expecting. That’s why it's important to assess every new opportunity based on the risk and reward. 


Uncertainty-based risks are unpredictable, like changes in consumer demand, fluctuations in the stock market or natural disasters. Other examples include:

  • financial loss when a business that owes you money files for bankruptcy

  • legal action

  • loss of customers or suppliers

  • a decline in market share caused by new competitors or products.


Operational risks arise in the day-to-day running of your business. They may be the result of flawed systems and processes or disruptions that can lead to financial losses. Other examples include:

  • employee error

  • equipment failure

  • fraud or other workplace-related incidents

Risks businesses must manage by law

While risk management is largely for businesses to decide for themselves, there are some risks that businesses must manage by law. These include: 

Accidents and injury

Businesses must ensure the safety of customers and employees. They must do everything they can to prevent accidents or injury, and hold workers’ compensation insurance to protect employees in case they suffer a work-related accident or illness.

It’s also important to stay up to date with work health and safety (WHS) laws and regulations to maintain compliance.

Customer complaints

Businesses must comply with Australian Consumer Law, which:

  • explains the standards of business conduct

  • forbids unfair trading practices

  • offers consumer guidelines for products and services 

  • regulates certain business-to-consumer transactions

  • protects consumers by regulating the safety of products and product-based services.   

Businesses should establish risk management strategies to address customer complaints quickly and prevent customer dissatisfaction, which could lead to legal risk. 

Environmental damage

The legal requirement to manage environmental risk only applies to certain businesses. Learn which environmental laws apply to your business and review them to make sure you’re compliant.

Getting an environmental audit is a good strategy to identify potential risks. This helps you determine your business’ environmental impact and find opportunities for improvement. The next step is to set up an environmental management system (EMS).

An EMS helps you:

  • identify environmental risk factors like hazardous waste and pollution

  • set clear objectives and targets

  • provide procedures for emergencies and everyday operations

  • define responsibilities and outline a reporting structure

  • monitor and review the system’s effectiveness.

What are risk management strategies?

Risk management strategies are systems and processes a business can use to identify, assess and manage risk. Your strategy should cover risk prevention, control and reduction. 

4 risk management strategies for your business

1. Acceptance/retention

This strategy involves accepting risks associated with your business. For example, when you decide to invest money in the financial markets, you accept any loss that may come with it.

2. Aversion/avoidance

This strategy involves avoiding risky situations. For example, you might choose not to open a business in an area prone to natural disasters.

3. Reduction/limitation

This strategy involves reducing the likelihood of risk or severity of the associated losses. For example, you might instal sprinklers in your office to reduce the risk of fire damage.  

4. Transfer/sharing

This strategy involves transferring the responsibility for managing a particular risk to another party. For example, you might move your software to the cloud so that your cloud service provider takes responsibility for your data storage and security. 

Disclaimer: This is general advice not meant to replace professional guidance. When seeking out someone to help advise you on business decisions, find somebody qualified in your local area.

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