Dealing with RiskDec 27, 2021
The risk of making decisions gets often perceived as a bad thing. We hear stories of people who take risks and fail, but the risk can also be a good thing when we are willing to step outside of our comfort zones. To make the best decisions in life, you need to weigh different risks that come with them and understand what they mean for your future.
Managing risk in your life
Risk is a part of life, and it can happen to different aspects of our lives. However, it becomes even more prevalent when making decisions that you aren't sure of the outcome. Therefore, risk management is essential to move forward and not get stuck in place. There are different ways how you can approach risk and deal with it.
If you feel that doing something presents a risk that has a high chance of happening and at the same time will have an enormous impact on you, it might be better to turn tail and avoid doing something or making the decision that can yield the risky outcome.
For example, if you are a business owner and you are planning to make a decision that can expand the growth of your business, you have the option of creating a second branch for your business. However, the expansion means pouring out a considerable sum of money, and it can present a high risk of sustaining a financial loss. In addition, you never know if people will bite into your business and patronize you even with market study and research. Therefore, if you are not confident, the best way to avoid the business risks associated with the expansion is to avoid doing altogether. Don't expand and stick with having one branch for your business.
Avoiding the potential risk with a business expansion might sound like the best plausible action to take. However, look at the other side, and it can be something that is a positive risk that will bring great fortune to you. What if the second branch of your business becomes successful? Wouldn't it be a nice thing?
High-probability, high-impact risks can result in either high or low rewards for you. If the risk would put you in a disadvantageous position should things fail, then avoid taking the risk. However, if you can handle the loss that comes with the risk, and you can still make a move afterward, you can go for it and take a chance.
Risk reduction applies when the stakes have a high chance of happening but do not present a significant impact on you. Reduction works well as a way to manage risk in situations where the possibility of something terrible happening is high. For example, if you work as a truck driver, the chances of an accident happening are always there. Therefore, you can avoid potential risks by ensuring your vehicle is in good condition always, wearing seatbelts, following traffic rules, and driving at moderate speed. This way, you lower the chance of taking a significant loss. The same thing can happen in other fields. For example, if you are a doctor or a nurse working in a hospital, acquiring a disease is high due to all the sick patients and people that come into the facility every day. You can then reduce the risk of getting sick by boosting your immunity through exercise, eating a healthy diet, and taking the necessary standard precautions in a hospital.
Risk transfer works for mitigating risks that have a low chance of happening, but they can have an enormous impact on you once they do. This method applies when we are unable or unwilling to avoid risk, so we transfer them to a third party. This way of risk mitigation is best illustrated by using an insurance policy. For example, vehicle insurance is something you may want to get to help shoulder losses if an accident occurs. But, of course, a vehicular accident is something that will probably not happen to you regularly unless you are a reckless driver. However, we know how troublesome that can be if an accident occurs, especially financial losses. At the time of the accident, you might not currently have the cash to cover repairs. So we can have the option of paying for insurance and letting the insurance company handle all the financial fusses associated with vehicular accidents. The same thing happens with life insurance. If an unfortunate loss occurs to a family, such as if the family's primary provider dies or gets in a regrettable accident preventing him from working, life insurance can help mitigate the financial risk from such circumstances.
Sometimes, it's better to accept the risks of our decisions when they have only a minor impact on us. Risk-retention is best applied for risks that have a low chance of happening and at the same time only have a slight effect on our life. An excellent example of this is when it comes to technology risks associated with gadgets, such as hardware failure. Gadgets such as computers, cellphones, and other electronic devices all have a lifespan regarding their operation. However, problems will creep up over time, such as failing keyboards, faulty screens, software errors, etc. As long as the device is still working in a serviceable condition, one can continue working with an old machine if the repairs are minor and not costly. However, you face the risk of the device not working anymore one day, but you still choose to use it because you can replace it with a new one. The risk is there, but it can easily be remedied, so you decide to retain the risk. When you choose to do risk-retention, it means that you have the finances ready to shoulder the loss once they occur.
Integrate risk management into your life
When we talk about risk management, people might think that this only applies in businesses and professional settings. However, doing risk management and risk assessments are things that we can also use in our everyday lives. Identifying risks is essential before we make decisions. We have to consider the gains or losses we can incur from our choices and how big or small their effects will be in our lives. There's also the probability of how high or low is the chance of a particular outcome happening. There are several ways to mitigate risks in our lives, and it's a good idea to learn them so we can make more effective and better decisions in our lives.