4 Risk Management Strategies for Finance Leaders

From financial to safety to reputation to operations, there is risk inherent in every business. Risk management strategies can identify and assess risk and apply risk control solutions across an organization. 

In this article, we will explore risk management strategies, the key elements of risk control, and how they apply to business travel and expense management. 

What Is a Risk Management Strategy? 

Risk management strategies in business incorporate a plan for dealing with risk, both proactively and reactively. A strong risk management plan will provide detailed insight into potential risk, a plan to mitigate risk wherever possible, and a response plan to manage incidents as they occur. 

Meaning of Risk Control 

As part of risk management, companies conduct assessments to determine potential exposure. Risk control includes acting upon this information to reduce or eliminate threats. 

Key Elements of an Effective Risk Management Strategy 

The core concepts behind risk control include four main risk management strategies: 

1. Risk acceptance: Acknowledging potential harm from risk, but choosing not to act. 
2. Risk transference: Shifting risk management to a third party. 
3. Risk avoidance: Taking proactive steps to eliminate risk. 
4. Risk reduction: Implementing controls to decrease risk. 

Risk Acceptance 

Risk acceptance is a common risk management strategy when the cost of mitigating the risk outweighs the cost of the risk or the probability of an incident occurring is low. Companies accept the risk. An example would be accepting a certain level of currency exchange fluctuation when operating in multiple countries. 

Risk Transference 

Companies can also choose to transfer some risk to third parties. This might include strategies such as outsourcing services that are not core competencies. One common way companies transfer risk is to purchase insurance to cover unforeseen incidents. 

Risk Avoidance 

Risk avoidance includes strategies to eliminate risk. Companies might choose to discontinue working with suppliers that cannot consistently meet delivery deadlines or clients that have a history of making late payments. 

Risk Reduction 

Businesses can reduce the likelihood or impact of risk by implementing controls, monitoring systems, training, or other risk mitigation strategies. For example, companies can help reduce employee expense fraud by drafting clear expense policies and employing technology to help facilitate and manage compliance. 

Risk Management Examples for Travel Managers 

Although this risk management framework applies across all areas of business, it needs to be adapted for each functional area. Here are some examples of how such a risk management strategy might apply to people who manage business travel. 

Accepting Travel Risks 

Sometimes it makes sense for a business to simply accept certain travel risks without taking action to mitigate them. For example, if the cost to prevent a minor travel disruption would exceed the actual impact of that disruption, a travel manager may decide to accept the small chance that it occurs. However, the business needs to confirm it can handle the impact of the unlikely risk, if it does transpire. 

This approach may be best for lower probability risks or ones with minimal effect on operations. 

Transferring Travel Risks 

Rather than retain all the risk, travel managers can shift certain risks to external parties. For instance, you might purchase travel insurance policies to transfer potential financial risks associated with travel disruptions, delays, or emergencies. 

This does not eliminate the risk, but it does transfer the fiscal accountability to the insurer. Businesses take similar approaches with travel contractor agreements. 

Avoiding Travel Risks 

Sometimes the prudent choice is to avoid travel to high-risk destinations altogether rather than trying to mitigate the risk. While this approach eliminates the chance of the risk occurring, businesses could miss out on opportunities by avoiding travel risks entirely. Careful analysis helps travel managers determine when risk avoidance is the best strategy. 

One strategy is to build a risk-scoring system to evaluate destinations and provide information to help keep employees safe. 

Reducing Travel Risks 

Often the best approach is implementing measures to evaluate and reduce the likelihood or impact of travel risks. Businesses might provide travellers with in-depth security and health briefings focused on their destinations to help them avoid issues. Having customized emergency response plans per location can also minimize disruptions. These proactive steps to lower risks are preferable to accepting the risks as-is when possible. 

Integrating Technology for Risk Management 

Technology plays a pivotal role in enabling proactive and real-time risk management. AI, machine learning, data analytics, and smart expense management systems can help businesses to identify emerging issues and take swift action. 

Digital Capture 

Providing employees with a simple way to capture receipts at the time of purchase eliminates lost receipts and helps reduce fraud. A mobile expense app can take pictures of receipts and populate expense reports to help streamline processing and reduce human error. 

Data Analytics 

Powerful data analytics can give travel managers visibility into expense patterns. By establishing expected ranges for costs like hotels, meals, and transportation, anomalies stand out for further fraud investigation. Expenses management software with robust audit capabilities simplifies the oversight process. 

Automated Alerting 

Location-based alerting apps notify travellers of security threats, health risks, severe weather, and other situations that may disrupt operations. This visibility can help travellers and managers time to take precautions, like adjusting itineraries. GPS features can help companies to track employee locations and facilitate rapid response if emergencies do transpire. 

Travel Compliance 

You can also put in place cost controls to ensure compliance with travel and expense policies. A travel management platform that lets employees book their own travel at the best possible rates can also require adherence to spending policies. This reduces the risk of overspending or noncompliant spend. 

Enhance Efficiency, Safety, and Financial Stability 

Adopting effective risk management strategies contributes to delivering tangible solutions to common business problems. A well-structured risk management approach enhances the overall efficiency, safety, and financial stability of corporate travel programs. 

What is the risk management plan for your business? Take a free travel and expense assessment to see how your organization stacks up. You will get insight into the state of your travel and expense capability, how you fare against your peers, and areas where you can improve performance and reduce risk.