All businesses face risk. Along with their day-to-day operations, the company can set themselves apart from their competition based on their ability to manage and deal with risk. Risk mitigation strategies refer to the different methods of dealing with business risk.
Getting rid of risk altogether isn’t a feasible solution, but by measuring risk, you can decide how to deal with each kind of risk optimally.
There are five principal risk mitigation strategies. Of course, each one serves a different purpose for different businesses. It becomes a subjective matter to decide how to approach risk. However, with the use of risk management software and risk assessment matrices, you can be better prepared to assess, monitor and manage risk.
Let’s take a look at the main strategies:
1. Risk Acceptance: Risk acceptance comes down to “risking it.” It’s coming to terms that the risk exists and there is nothing you will do to mitigate or change it. Instead, it understands the probability of it happening and accepting the consequences that may occur. This is the best strategy when risk is small or unlikely to happen. It makes sense to adopt risk when the cost of mitigating or avoiding it will be higher than merely accepting it and leaving it to chance.
2. Risk Avoidance: If a risk from starting a project, launching a product, moving your business, etc. is too large to accept, it may be better to avoid it. In this case, risk avoidance means not performing that activity that causes the risk. Managing risk in this way is most like how people address personal risks. While some people are more risk-loving and others are more risk-averse, everyone has a tipping point at which things become just too risky and not worth attempting.
3. Risk Mitigation: When risks are evaluated, some risks are better not to avoid or accept. In this instance, risk mitigation is explored. Risk mitigation refers to the processes and methods of controlling risk. When you identify risk and its probability, you can allocate resources for management.
4. Risk Reduction: Businesses can assign a level at which risk is acceptable, which is called the residual risk level. Risk reduction is the most common strategy because there is usually a way to at least reduce risk. It involves taking countermeasures to decrease the impact of consequences. For example, one form of risk reduction is risk transfer, like that of buying insurance.
5. Risk Transfer: As mentioned, risk transfer involves moving the risk to another third party or entity. Risk transfers can be outsourced, moved to an insurance agency, or given to a new entity as is what happens when leasing property. Risk transfers don’t always result in lower costs. Instead, a risk transfer is the best option when it can be used to reduce future damage. So, insurance can cost money, but it may end up being more cost-effective than having the risk occur and being solely responsible for reparations.
To determine the right risk mitigation strategy to take, you must evaluate risks. This involves three steps:
All risks and rewards are measured differently based on your business goals. However, to adequately address risk mitigation strategies, you’ll want to consider the following:
Despite the importance of risk mitigation, consulting companies are seeing trends across businesses when it comes to risk assessment and management. For example:
One of the best ways to help recognise, define and monitor risk is to employ analytics tools within your organisation. For example, analytical automation tools like SolveXia helps organisations make business processes and data analytics more efficient. Being able to get deep insights, set up controls and procedures, and analyse processes with real-time dashboards means that you can alleviate the burden of the unknown, or risk.
For the aspects within your control, you can use such tools and make well-informed decisions to mitigate certain types of risks. For example, you can use data to predict how your bottom line will be affected if you initiate a price change. Or, you can rest assured knowing that all processes are tracked and have audit trails, so tools like SolveXia automatically reduces compliance risk.
Choosing how to manage risk can help your business perform better. You can do so with the help of digital resources, like SolveXia, or by employing specific teams to be responsible for risk. Depending on the type of risk, you will be able to evaluate which risk mitigation strategy is best to use. And, as a rule of thumb, risk mitigation is not intended to be static. You can try one approach, monitor its success and reevaluate with time.
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