Life in business would be much easier if there were no risks to manage and mitigate. A variety of internal and external business risks can impact financial performance and disrupt the four critical elements a company needs to operate: people, processes, technology, and facilities. Each element faces risk-driven threats and vulnerabilities that must be addressed to avoid potential business problems.
As part of a company's risk management program, efforts to reduce risk require not only identifying risks but also developing plans to address them. Taking some risk is a necessary part of doing business, and effective risk mitigation does not completely eliminate risk. Instead, it is aligned with the organization's risk appetite and specifies the amount of risk executives will collectively assume to achieve the business goals they have set for the company.
Risk mitigation plan
To address identified business risks, the risks must be analyzed to determine the likelihood of occurrence and potential impact on business processes, employees, and financial results. A priority list should be developed to rank each risk according to its likelihood of occurrence and severity of impact on the business. For example, an event that is likely to have little or no impact on the organization, such as an employee taking his day off sick, will be treated very differently than a low-probability, high-impact event such as an earthquake or flood. . .
Risk management teams can also create risk assessment matrices that visually represent the potential business impact of various risks. Also known as a risk heat map, this map plots risks in a color-coded matrix to help executives and risk managers create mitigation plans.
Common risk mitigation strategies
Once the plan is established and the overall risk management framework is in place, determine what strategies will be used to mitigate specific risks, threats, and vulnerabilities and document the necessary actions. Below are the seven most widely used mitigation strategies for business risk.
1. Accept and deal with risks
Companies can determine that risks do not threaten business operations and respond effectively to threat occurrences. Examples of risk acceptance include accepting the risk of delays in production schedules that are not expected to harm the business, accepting adjustments to budget forecasts that may impact business operations, and accepting employees working remotely. This includes accepting the need to continue.
2. Avoid risks
Companies make conscious decisions to avoid dealing with certain risks and their consequences. Examples of risk avoidance include identifying specific risks and appropriate remedies or alternative processes to avoid potential negative outcomes, identifying all expected and unexpected costs for a project, and preventing budget overruns. This includes taking the necessary steps to protect the project and identifying qualified replacement members for the project. A project team that can intervene as needed to avoid delays.
3. Take risks
When an identified risk emerges, the company delays or terminates the event to an acceptable level before it progresses to the point where it could harm the business. Examples of risk challenges include evacuating employees before a severe storm to minimize potential risks to life, and evacuating employees during a power outage to minimize business interruption. These include activating power systems, identifying cybersecurity threats and immediately blocking malware before it occurs. Infiltrate a company's internal computing environment or isolate it to prevent its spread.
4. Prioritize risks
When multiple risk events occur simultaneously, such as a severe storm or power outage, organizations establish a priority list of actions to address the most critical risks first. Examples of risk prioritization include starting backup procedures to protect systems and data due to impending flooding or potential water damage to the office, extinguishing fires, shutting off power, and power in the event of a lightning strike. Examples include reporting to the company or fire department. A transformer explodes.
5. Risk control and management
At the core of the risk management process, companies address specific risks by documenting planned control actions, testing their suitability, and implementing them. Examples of risk control and management include establishing policies for physical security and data protection, developing business continuity and disaster recovery plans, and ensuring project delivery schedules are maintained and cost overruns are avoided. This includes devising a project management method for the project.
6. Transfer risk
Issues related to specific risks are forwarded to other parties, often insurance companies that receive coverage such as cybersecurity liability insurance. Examples of risk transfer include purchasing business interruption insurance to cover unplanned expenses after a cyber attack, contracting with a project management company to oversee a particularly difficult project, and providing financial support for a company's environment. These include hiring external auditors to certify that reports and disclosures are appropriate. , social and governance initiatives are accurate.
7. Document and monitor risks
All aspects of enterprise risk management, including risk profile, risk factors, and inherent risks, must be carefully documented at each stage of the process. Similarly, all risk-related activities should be monitored so that problems can be quickly identified and addressed. Examples of risk documentation and monitoring include monitoring risk management costs to prevent unplanned expenses, monitoring operational activities to avoid compliance issues, and monitoring incoming and outgoing data traffic using intrusion detection systems and firewalls. This includes identifying suspicious data packets that may be indicators of a cyber attack.
Get ready to reduce business risk
Risk mitigation strategies are an important part of a company's risk management program. The availability of multiple strategies provides risk managers with a wealth of tools to address business risks within an enterprise. Different approaches may be used for different risks, but a definitive mitigation strategy must be established and readily available. Otherwise, organizations face the possibility that their risk management efforts will fail, a risk no company should take.