Risk Management - Bright Path Business Consultants
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Risk Management

Here is how we can help your business!

Risk Management

Our risk management approach entails the identification, evaluation, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.

As implied, risk can present itself in a number of ways. If you choose to remain outside during a thunderstorm when lightning is present, you could be struck by it. Although the chance of being hit by lightning is low, the result could be fatal. According to the National Weather Service, the chance of being hit by lightning in a given year is 1 in 1.9 million. However, the odds of being struck at some point during your lifetime (assuming an 80 year lifespan) are 1 in 12,000.

The Steps in Managing Risk


Here is a four-step process you can follow to manage your risk:

Assess the Risk


Assessing risk is determining which, if any, are present. Risks stem from hazards and a hazard is anything which can cause harm. Leaving an open paint container in a place where a toddler can access it is a hazard. Leaving a loaded gun in a place where a child can get it is another.

Categorizing Risk


The next step is to categorize the risk. A risk can be minor or severe. A risk can also be common or rare. The following exhibit illustrates these principals. Notice there are four quadrants numbered one through four. The vertical axis measures the probability that the risk will occur and the horizontal axis measures the severity of the risk.

Using our lightening strike mentioned earlier, the probability of it actually occurring is very low, but the severity of it is high. Therefore, this risk would fall into category three. There are many example of risk and each one can be categorized into one of these four quadrants. If a risk has a high likelihood of occurring and if the consequence of it occurring would be severe, it would be in category four. Risks which are both unlikely and minimally harmful would be in category one. The next step is to consider the possible methods for handling the risk and selecting the best option.

Consider Your Options


After determining the appropriate category for a risk, the next step is to select the proper method to address it. The following exhibit illustrates the four primary methods for dealing with risk. They can be remembered with the simple acronym: ATRR or AT Railroad. Can the risk be avoided? Can it be reduced? Can the risk be transferred? All remaining risks must be retained.

Here’s a brief description of each quadrant. Certain risks can be avoided. For example, if you never drive drunk or skydive or bungee jump, these risks pose no threat. Again, certain risks can be avoided. Next, can the risk be reduced? For example, if you eat right, get plenty of sleep, exercise, avoid unhealthy habits, etc., you may be able to reduce your chance of a premature demise. We also realize that smoking causes lung cancer. Therefore, if we quit smoking, we can reduce the chance of getting lung cancer. Quadrant three, transferring risk, involves strategies such as buying insurance or lowering our deductible. By paying a premium, we can transfer all or part of a risk to the insurance company. Finally, for those risks which cannot be avoided, reduced, or transferred, we have no option but to retain them. You should never spend a lot of money to manage a risk which has a minimal consequence. In fact, it may be best to ignore risks which fall into category one.



This is a basic framework for managing risks. As mentioned, risk management is not only for companies, but for individuals as well. In my next article, we’ll deal exclusively with the risks involved in investing. Did you know there are more than 18 different risks you can face when investing? Stay tuned for more.