What is risk mitigation?

Risk mitigation is a culmination of the techniques and strategies that are used to minimize risk levels and pare them down to tolerable levels. By taking steps to negate threats and disasters, an organization is going to be in a strong position to eliminate and limit setbacks.

The goal of risk mitigation is not to eliminate threats. Rather, it focuses on planning for inevitable disasters and mitigating their impact on business continuity. Different types of potential risks include cyberattacks, natural disasters such as tornadoes or hurricanes, financial uncertainty, legal liabilities, strategic management errors and accidents.

When common risk instances occur, circumstances can make them detrimental to an organization. If an organization isn’t equipped to deal with the problem, the minor issue might turn into something catastrophic, leaving the business with a significant financial burden. In the worst-case scenario, the business might need to close.

The best way to prevent this from happening is having a risk mitigation plan in place. If an event occurs, the organization has contingency plans to mitigate the damage that the organization sustains. Risk mitigation focuses on the inevitability of some disasters and is most often used where a threat is unavoidable. The purpose of the risk mitigation plan is to prepare for the worst and come to terms with the fact that one or some disasters that are listed can occur. Once that realization has been made, it's the responsibility of leadership to make sure that the risk mitigation plan is in place and ready for whatever disaster might occur.

At the broadest level, risk mitigation requires a team of people, processes and technology that enables an organization to evaluate its risks and then create a comprehensive plan for mitigating those risks. A project management team would be the best business strategy to evaluate risks.

The risk mitigation process is not one-size-fits-all and will not be the same from one organization to the next. However, there are several steps that are relatively standard when making a thorough risk mitigation plan. These steps include recognizing recurring risks, prioritizing certain risks and implementing then monitoring the established plan.

Like the risk mitigation process, the strategy­—or approach—an organization uses to establish a risk mitigation plan varies depending on the organization. However, there are common techniques when addressing risk.

The risk avoidance strategy is a method for mitigating risk by taking measures to avoid the risk from occurring. This approach might require the organization to compromise other resources or strategies. Not making an investment or starting a product line are examples of such activities as they avoid the risk of loss.

This approach would occur after an organization completes its risk mitigation analysis and decides to take steps to reduce the chances of a risk happening or the impact. It doesn’t eliminate the risk; rather, it accepts the risk and focuses on containing losses and doing what it can to prevent it from spreading. One example of this in the healthcare industry is health insurance covering preventive care.

Risk transfer involves passing the risk to a third party, such as getting an insurance policy to cover certain risks like property damage or injury. This shifts the risk from the organization onto someone else, often, an insurance company.

This strategy involves accepting the possibility of a reward outweighing the risk. It doesn’t need to be permanent, but for a given period it might be the best strategy to prioritize other risks and threats. It is impossible to eliminate all risks and is called residual risk or “left over.”

Developing a risk mitigation plan requires many moving parts and coordination across an organization. Below are some best practices when approaching and executing a risk mitigation plan.

Communicating risk across the organization is an important aspect of risk mitigation planning. Open communication across the entire organization is vital not only for the organization, but also for all the employees involved. A key risk with a high organizational impact should be communicated clearly and monitored across all departments.

Risk culture starts at the executive level. Risk culture is the collective values and beliefs around risk that are held by a group of individuals. For complete compliance from an organization, the risk culture needs to come from business leaders and management and be communicated clearly. The importance of compliance should be firm from the very top and present throughout the organization.

Ensure that there are strong controls and metrics in place to monitor risks. Management tools, such as a risk assessment framework can help aid in ongoing monitoring. An RAF works by monitoring which risks are high and low and provides reports for the technical and nontechnical stakeholders involved.

Keeping the organization’s risk profile up-to-date is important. Organization leaders need the most current data and reports to make informed decisions and strong action plans going forward to control risk.