Risk Mitigation: What Is It and Types, and Best Practices

Risk Mitigation

Assessing risks is part of our survival mechanism. We are no strangers to it. The ability to limit risk (also known as risk mitigation) can have an impact on whether or not a business is able to survive.

Imagine a world where business leaders aren’t able to look back on their past mistakes and don’t consider how they could affect their business. This wouldn’t work, right?

Effectively reducing risk in an organization requires a basic understanding of the types of risk and how they can be prevented.

This article will cover four risk mitigation strategies and various types of risks. We also show you how work OS can help you to future-proof your business. Let’s begin with a definition.

What is risk mitigation?

Risk mitigation refers to the process of reducing potential risks through the development of a plan that will manage, eliminate or limit setbacks. Once the plan is created and implemented by management, they will monitor progress and determine if they should modify any actions.

Although it may be tempting to copy a business risk management plan, your plan will be unique to your business strategy.

It could mean the difference between maintaining strong relationships with clients and losing business by taking the time to develop a risk mitigation plan. Let’s look at what you want to accomplish when you mitigate risks.

Why do we mitigate risk?

Neglecting risk factors will not make them disappear, and forging ahead with no plan could cause financial damage. This is why it is so important to mitigate risk.

A concrete plan and clear actions are key to success. You can either prevent problems from spiraling out of control, or you can even avoid them altogether.

These tangible benefits are not just for the sake of it. For example, keeping your business financially viable. But it also offers intangible benefits. This includes helping to maintain a good reputation for stability in the industry and keeping both internal and external stakeholders satisfied.

This is particularly important. Recent surveys revealed that 59% of organizations think the complexity and number of business risks are increasing. Another finding is that 68% of organizations have experienced an unexpected event in the workplace due to a risk that they didn’t anticipate.

These operational surprises can lead to lost time, money, or other valuable resources. Stakeholders may feel that the risks are too great or not being managed properly. This could cause a management reshuffle. Risk mitigation is essential, but you must first know the risks that you face before you can create a plan.

Also read: What is Vendor Risk Management? A Full Guide for Your Business

What are the different types of risk?

There may be different risks for a business that caters to different customers or clients then one in your industry. No matter what industry or company you are in, there are some common risks:

  • Compliance risk- A company’s reputation and finances can be at risk when it violates any external or internal laws or regulations. Companies could lose customers or have to pay a fee if they break compliance regulations.
  • Legal Risk – A type of compliance risk, which occurs when a company violates the government’s rules. Companies could be subject to costly lawsuits if they are exposed to legal risks.
  • Strategic Risk – The result of a company’s poor business strategy or inaction.
  • Reputational Risk – A risk that could negatively impact the company’s standing and public opinion. A company’s reputation can lead to loss of profit and lower shareholder confidence.
  • Operational Risk – A business’ day-to-day activities could potentially drain its profits. Operational risks can be caused by both internal and external factors.

Once you have a good idea of the risks involved, it is time to give them a score that reflects the likelihood and severity of their occurrence.

What are the four types of risk mitigation strategies?

There are four main risk mitigation strategies. These include Avoidance, Reduction, Transference, and Acceptance.

Avoidance

You take steps to prevent the risk from happening with a risk prevention strategy. You may have to sacrifice other strategies or resources to ensure you are doing all you can to prevent the risk.

You might be at risk of not being able to complete an important task due to a shortage of specialists. You could also hire additional specialists to cover for a sick or unavailable specialist.

Hiring more people would obviously take more money out of your budget. This is why it is important to determine how much compromise you are willing to make.

Reduction

This mitigation approach would allow you to take steps to minimize the risk of a particular risk occurring or reduce its impact if it does.

Let’s suppose your budget is tight. There’s a chance you won’t be able to complete this project because of a lack of funds.

By proactively managing your budget, you can decrease the risk of this happening. You could use a lower-cost option for raw materials, or reduce the scope of the project to keep it within budget.

Transference

Transferring risk means passing on the consequences to another party. This might mean that a business pays an insurance company to cover some risks.

Contracts with suppliers, outsourcing partners, or contractors may also include risk transference.

For example, if a project is held up while it awaits a service or part from an external contractor, penalties could be imposed on the contractor to compensate for revenue lost.

Acceptance

The acceptance strategy is the final option. This means that you accept the risk as it is. Sometimes, the reward is greater than the risk. In these cases, it’s better to take the chance.

You might also find that the likelihood of the risk happening is very low or that the impact on the business is minimal. A business may have an ongoing strategy to accept risk for items that fall under this “Low risk” category.

It is important to keep track of any potential changes in risk acceptance and the likelihood of them occurring. It is also a good idea to continue weighing the risks against your risk appetite to determine if it is worth continuing to take on the risk.

We have discussed several mitigation strategies and identified various types of risk. It’s now time to take the above information and put it into practice.

5 Practical steps you can take to mitigate risk

Practicality is key to risk mitigation. If you don’t know how to mitigate the risks that you face, it won’t be a benefit for your business. We’ll be looking into this below.

These five steps will help guide you in your risk mitigation process. Let’s take a look at the steps.

1. Identify

You may want to assess any risks that could affect your project or other business operations before you create a plan. Most important, it’s important to collaborate with a wide range of stakeholders with different business perspectives, you have the best chance to identify all risks.

Project documentation can be a valuable resource for information. For hints on potential risks, look at similar projects.

Also read: Cybersecurity Risk Management: What It Is, Framework and Best Practices

2. Assess

Once you have a list of your potential risks, it is time to evaluate them. This includes analyzing their likelihood and the impact on your business.

After completing your risk assessment, the category you fall into will determine which category you should take. As we have already mentioned, You might choose to accept all “Low”, reduce or transfer all “Medium” risks, and avoid all “High”.

3. Treat

This is the time to decide on your mitigation actions and put in place strategies. You should keep track of each risk, its type, and the prevention strategies you have chosen in a Risk Register.

It is a tool for all stakeholders to use to understand and refer to the plan and to determine which actions to take if necessary. A risk register can help you avoid confusion and keep your team aligned in the event of any risks.

4. Monitor

Businesses and projects are constantly changing. Regular monitoring of each risk is important in order to determine its severity and devise a mitigation plan. To quickly review risks, you can schedule times for your weekly meetings and daily stand-ups.

You can also use several statistical tools, such as S-curves, to track the progress of your project and flag any changes in the risk profile. These tools include S-curves that allows you to monitor key variables like project duration and cost.

5. Report

Your business can be more successful in reducing risk by sharing information about risks, best practices, and mitigation strategies.

It is crucial to keep risks at the forefront of decision-making by stakeholders. Regular reporting can help uncover other risks that haven’t been identified.

Risk reporting is an integral part of business operations. This includes integrating reporting into daily and weekly workflows.

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