Module 7: Innovation Finance & Metrics
Risk Handling
Why should you use this method?
- To mitigate the risks by either working on the cause or on the effect.
- Get risks into the accepted area that you have predefined during risk evaluation.
How to handle risks?
Elimination: The avoidance of the risk. Find a way that this risk is not going to happen, for example, by changing the technology, or going to a different market in which you have more experience.
Reducing the impact: Can be done in two ways. You can reduce on the cause side and you can reduce on the effect side.
Example: Imagine you have a logistics company and there are open barrels with gasoline being stored in there. Now, next to those barrels someone is smoking, and the person throws the cigaret into that barrel which then explodes.
- Work on the cause side: Ask the question, why do we have open barrels with gasoline at our premises at all? You could close the barrels. You could work on the trigger, so smoking is not allowed anymore.
- Work on the event side: If the barrels explode or starts burning, what can you do to reduce the consequences? Have fire extinguishers on site? Construct a separate building where all those barrels are handled?
Transfer the risk: Usually done on the effects side by having an insurance for a certain event happening. This way, you are transferring your risk to an insurance company (normally at a cost).
Remaining risk: In the risk management process, there is always some risk at the end that you simply might have to live with.
How can you apply this method?
1. Download the template
2. Identify the risk to handle
State and explain the risk that you are trying to handle (Eg: market, technical, timing, price, cost, price or quality)
3. Avoid the risk
Identify a way to avoid the risk stated in point 1
4. Reduce the risk
Identify a way to reduce the risk stated in point 1
5. Transfer the risk
Identify a way to transfer the risk stated in point 1
6. Remaining risk
State the risk left after going through point 2 to 4
7. Repeat process
Repeat the process from step 1 to 5 for each of the critical risks identified