Proper identification and analysis of risk factors is a risk management tool that one can use to further assess and strategize the key points to project success. With the right analytical tool at hand, nothing will go wrong… that is, as long as the ideal strategies will be performed. There are four basic steps to risk management and these are risk avoidance, risk reduction, risk retention and risk transfer.
Risk avoidance refers to not performing a task or activity that you think has a big possibility of carrying risk. An example would be not buying a business property in an area that is known to have a lot of gangsters and burglars. Pretty logical indeed, so selecting an appropriate spot for business is a must.
Risk reduction involves the method of reducing the severity of loss in a project. An example would be creating a backup copy of the project layout that can be used once the project output became unsuccessful.
Risk retention involves recognizing the risk of losing for the greater good. War is an example of risk retention wherein property and livelihood of people are at stake for national security.
Lastly, risk transfer is like reassigning another party to accept risk. An example would be call center outsourcing, wherein a third party company is hired to employ people on a certain project. Insurance is another common example for this method, wherein employees of a certain organization were given medical and/or lifetime insurance coverage in a form of a pension. However, it is also advisable to seek the help of an insurance professional to properly allocate budget for good risk management.