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.
Coming Up
2. What is the Goal of Risk Mitigation?
3. What are the Benefits of Risk Mitigation?
6. What are Risk Mitigation Best Practices?
7. How to Determine Risk Mitigation Plans
8. Trends with Risk Mitigation
9. What are Risk Mitigation Tools?
10. The Use of Analytics Tools
What is Risk Mitigation?
Risk mitigation is a process to approach inherent and inevitable risk in business. The goal of risk mitigation is to minimise the impact of the effect of risks that do occur.
To mitigate risks, the first step is to be able to identify and then assess their potential likelihood and impact. Risk mitigation strategies will consider risks such as: physical damage, economic downturns, environmental damange, accidents, loss of suppliers, cyberattacks, and any other form of risk.
What is the Goal of Risk Mitigation?
The intention behind risk mitigation is to reduce the risk by minimising the impact of the risk if it does occur. It can also come down to reducing the probability that the risk will take place in the first place.
The intent is to also put strategies in place to monitor risk. It’s an aspect of business strategy that is critically important to any type of business. In some cases, risk can be avoided, accepted or transferred. But, when businesses have the ability to minimise the outcome or chance of risk, they’ll take the mitigation approach.
What are the Benefits of Risk Mitigation?
By incorporating risk mitigation strategies within your business, you stand to gain the following:
1. Less Loss
Of course, the goal of mitigation is to lower the outcome of a potential risk from negatively impacting your business. As such, the main benefit is lessening the impact or detrimental effects. Risk mitigation can empower your business to bounce back faster from an incident.
2. More Preparation
Since risk mitigation entails identification and assessment before putting any strategies in place, it naturally means that you’re going to be more prepared should a risk take place. This alleviates stress on all parties involved and helps the organisation still reach its goals and fulfill its projects.
3. Added Adaptability
A major (but often behind-the-scenes) benefit from risk mitigation is the fact that it makes your team and business more adaptable. Team members are able to be forward-thinking and ready for anything that can happen. Ultimately, it allows for the ability to pivot and solve problems creatively.
Risk Mitigation Strategies
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.
Risk Evaluation
To determine the right risk mitigation strategy to take, you must evaluate risks. This involves three steps:
- Identification: First and foremost, you must identify and define the types of risks that your business faces. There are both internal and external risks. When identifying risks, consider if they are preventable, such as operational risks, or not avoidable like natural disasters. At this stage, it’s best to also figure out who would be affected if the risk took place and how so. During the identification phase, you can also make note of who would be responsible for handling the risk if it takes place.
- Impact assessment: Once you have identified risk, you can estimate their impact. This involves defining the probability that a risk will occur and its respective result or consequence.
- Develop strategies: Finally, you can determine the necessary strategy for those risks that are likely to happen with medium or high probability. While you may still want to monitor low risks, they are less of a priority when it comes to taking the next step and making a plan. Alternatively, it may be a risk that is better to avoid entirely, transfer (i.e. insurance), or accept (if the impact is low enough to manage).
What are Risk Mitigation Best Practices?
Regardless of how you choose to approach risk and risk mitigation strategies, there are some best practices that are recommended. They are as follows:
1. Include Everyone
Involve stakeholders along the way. Stakeholders can be employees, managers, clients, unions, shareholders, and the like. Along with having everyone feel involved, this is a great best practice because different people are handling the day-to-day across departments, so they have extra insight into what risks could be a potential threat.
2. Promote a Risk Culture
Risk culture is the beliefs and attitudes that a group of people feel about risks. By promoting a risk culture that isn’t afraid of risks, you can set the tone for compliance, attention, and action to be taken.
3. Communicate Clearly
Risk management relies heavily on constant and clear communication. A key to being able to mitigate risk is to clearly be able to define it and plan for it, as well as ensure that all responsible parties know what they are accountable for doing.
4. Monitor Continuously
Risks are constantly evolving and changing. Be sure to document risk management policies and processes. Additionally, make it a common practice to identify, assess, and manage risks as everything is always in flux when it comes to businesses and their respective environments.
How to Determine Risk Mitigation Plans
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:
- Understand the user and their needs: Know your customers and their needs. When assessing risks, consider their needs as they are the backbone of your business.
- Seek out experts and use them: Risk doesn’t have to be managed alone. There are both software systems and experts in the field that are there to serve as resources.
- Recognise risk that occurs: The worst thing you can do as a business leader is denying that risk exists because that’s not realistic or helpful to anyone. When you can recognise, define and address risk, you can better prepare your team and managers to know how to deal with the different types of risk.
- Encourage risk-taking: Sometimes, risk-taking is the best strategy. If your business can handle it, encourage risk-taking. To make this seem less daunting, have back-up plans and communicate them so that everyone is on the same page.
- Recognise opportunities: It’s possible that taking a risk can open the door to new opportunities. If you shape the conversation around risk like this, it can support a problem-solving mentality that knows how to deal with risk.
- Encourage consideration of mitigation options: Get everyone involved and consider feedback from your team. Everyone might have a different idea or method to mitigate risk. You can use data and analytics to assess options and choose the best path to take.
- Not all risks require a mitigation plan: As mentioned above, sometimes it’s best to accept risk. Understand that this is an option, and some risk doesn’t require a plan at all.
Trends with Risk Mitigation
Despite the importance of risk mitigation, consulting companies are seeing trends across businesses when it comes to risk assessment and management. For example:
- Lacking education: In many cases, education is needed to teach companies and their employees how to manage risk and how to use risk management software.
- Choosing ignorance: Some stand by “ignorance is bliss” and would rather ignore risks and managing them until a problem occurs.
- Non-existent tools: A lot of businesses don’t have the means to perform self-assessment
- Little understanding: Some companies are oblivious to their strengths and weaknesses
- It’s a need, but not being done: Most management asks their team regularly about compliance and measurement, but nothing is being done about it. It’s important to note that tools are there to help with this!
What are Risk Mitigation Tools?
Risk mitigation tools help to identify and assess risks using metrics and visualisations. They aid businesses in being able to prioritise and monitor risks. Within the tools, you can also upload documentation and connect information systems.
Some types of risk mitigation tools include:
- Flowcharts
- Standards
- Checklists
- SWOT analysis
- Data gathering
- Automation tools
Automation solutions provide a robust view of business’ risks and make it easy to monitor how actions will impact the organisation in real-time. Automation solutions connect data across systems, perform advanced analytics, and can be used to generate flowcharts and visualisations to manage operations.
The Use of Analytics Tools
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.
The Bottom Line
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.
