Published: December 5, 2023
Contributors: Teaganne Finn, Amanda Downie
Risk mitigation is one of the key steps in the risk management process. It refers to the strategy of planning and developing options to reduce threats to project objectives often faced by a business or organization.
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.
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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 may 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 may 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 may occur.
At the broadest level, risk mitigation requires a team of people, process, 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.
The first step in risk mitigation is risk identification, which is the process of understanding which risks are present and assessing the threat to the organization, as well as the operation and employees. It’s important to consider a range of business risks including cybersecurity threats (for example, data risks and data breaches), financial risks, natural disasters, and other potentially harmful risk events that might disrupt the organization and business operation.
Once a list of identified risks has been established the next step is for the risk mitigation team to assess each one and quantify the risks. The risk levels are established in this step and will often involve checking the measures, processes, and controls in place to reduce the impact of the risk.
Risk evaluation compares the severity of each possible risk and ranks them according to prominence and consequence. This is a vital step as organizations must decide which risks have the most damning effect on the organization and its workforce. Also, in this step, an organization establishes an acceptable level of risk for different areas. This will then create a reference point for the business and better prepare the resources that are needed for business continuity.
Risks can change and so can risk levels depending on several different factors. The monitoring phase in the risk mitigation plan is an important step due to these ever-changing risks. By monitoring risk, an organization can determine when the severity increases and when it decreases, then act accordingly. It’s important for the organization to have strong metrics for tracking risks. This tracking helps the organization stay compliant under different regulations and compliance requirements.
Once the risks have been assessed, prioritized, and evaluated, it’s time to implement the plan. During this step, all appropriate measures should be put into place across the organization. Employees should be briefed and trained on all aspects of the risk mitigation plan. Regular testing and analysis should be done often to ensure that the plan is up to date and complies with regulations.
In this step, and further down the road, adjustments might need to be made. It’s important to make changes when the team learns something new or when there is a shift in priorities. A constant evaluation of the risk management strategy reveals vulnerabilities and enhance the decision-making process.
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.
Risk avoidance
The risk avoidance strategy is a method for mitigating risk by taking measures to avoid the risk from occurring. This approach may 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.
Risk reduction
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 preventative care.
Risk transference
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.
Risk acceptance
This strategy involves accepting the possibility of a reward outweighing the risk. It doesn’t must be permanent, but for a given period that it may 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.
Keep stakeholders informed
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.
Establish a strong risk culture
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.
Establish risk tools
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.
Conduct regular risk assessments
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.
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