For many businesses, the last few months have been a real wakeup call. We’ve seen how risks can pop out of nowhere to crowd out operations entirely and put whole enterprises at risk. If it hadn’t been for massive and immediate support from the government during the pandemic, the world’s private sector would be in dire straits right now. It may still suffer tremendously in the third quarter.
Risk mitigation, therefore, is the flavor of the week. Leaders can’t stop talking about it. And they’re trying to find ways to cut their exposure to hazards and avoid economic shocks.
So what can you do to mitigate risks? In this post, we discuss several strategies.
Disperse Your Team Geographically
With local lockdowns in operation and the office slowly dying a death, companies are looking at how they manage their workforces. If pandemics are going to become a regular part of our collective future, then it doesn’t make much sense to keep everyone in the same place. If everyone gets sick at the same time because they’re in close physical proximity, that’s the end of the business.
Dispersal, therefore, may offer substantial risk mitigation benefits. People in one part of the world can fill in for those in another if the spread of disease is more intense in a particular location.
Keeping people at home could become a risk mitigation strategy too. Locking people in their houses helps businesses in a sense because it reduces the likelihood that their people will get sick. Again, this cuts the chances of losing access to vast swathes of their workforce because of disease.
Insure Against Tail Risks
Companies are very good at ensuring against the things that seem likely to happen – things like flooding or employee theft. What they’re not so good at is choosing insurance products that cover tail risks.
This term is a little technical. But all it means are risks that aren’t captured by regular probability distributions. They accept that the world is a complicated place and that there is a high probability of something low-risk exploding and causing immense damage. The coronavirus was an excellent example of this phenomenon in action. A simple disease managed to wipe trillions off the global economy’s value in just a few short months.
Getting cover against tail risks is challenging because they are hard to find and justify. But if you can spread your risk like that in your insurance policy, be sure to do it. You never know what’s coming around the corner.
Avoid Tech Disruption
If you thought disease was deadly to existing business models, you haven’t considered tech’s impact. Technological innovation is the most dangerous existential threat to your company. It’s real, and it will eventually get you if you don’t change your current system of priorities.
At any point in time, you have to think to yourself, “how can I best serve customers using current state-of-the-art tools?” If you come back with an answer that suggests you’re not doing the best by your customers, you need to change.