Risks are inevitable in business. Businesses must reduce their exposure to risks and find ways to mitigate them to remain competitive in business. Identification and acknowledgement of risks that affect the operations, profitability, security, or reputation of the business is the first step. Developing strategies to mitigate these risks is the next and the most essential step! Risk mitigation is an important step in risk management that includes identifying the risk, assessing the risk, and mitigating the risk.
What Is Risk Mitigation? And Why Is It Important?
What Is Risk Mitigation ?
Risk mitigation can be defined as taking steps to reduce or minimize risks. When you devise a strategy for reducing prospective risks and working with an action plan, it is important that you choose a strategy that relates to your company’s profile and nature of business.
Here’s why risk mitigation is important:
– A robust risk mitigation plan helps establish procedures to avoid risks, minimize risks, or reduce the impact of the risks on organizations.
– It guides organizations on how they can bear and control risks. This helps a business in achieving its objectives.
– The ability to understand and control risks makes an organization more confident and helps in making the right business decisions.
– It increases the stability of the organization and reduces its legal liability.
– It protects people involved and company from any potential harm.
Different Types of Risk Mitigation Responses
Let’s take a close look at different management strategies for mitigating risks:
Accepting a risk does not reduce the impact of it on the organization. However, risk acceptance is considered as a valid option. Accepting risks involve identifying and analyzing risks and bringing these risks into the attention of stakeholders so that everyone involved are aware of the risks and its consequences. The most common reason for accepting a risk is that the cost of mitigation options might outweigh the benefit.
This is exactly the opposite of the accepting risk. If the risk poses unwanted consequences, the organization chooses to avoid the action that leads to the exposure of the risk. Not starting a project that involves high unwanted risks avoids the risk completely.
Risk transfer is the involvement of handing over the risk or a part of risk to a third-party. A conventional means to transfer risk is to outsource some services to a third-party. Many organizations outsource payroll, recruitment services to third party. It might involve some drawbacks and take out some control from your organization.
Businesses use this tactic most often in risk mitigation. It may include reducing the probability of the occurrence of the risk, or the severity of the consequences of the risk. If the organization cannot reduce the occurrence of the risk, then it needs to implement controls. Implementing controls should aim at reducing the chances of the risk occurring or finding out the cause for the risks and try avoiding it. Implementing appropriate controls depends on an organization’s decision making process and the nature of the business. One typical example for reducing a type of risk could be using a component tested and available in the market than subcontracting to create the same to a third-party.
Creating a Risk Management and Risk Mitigation Plan
Risk management and mitigation process consists of identifying, assessing and mitigating risks. There are different steps involved in creating a risk mitigation plan. These include:
● Identify Risks
All the risks must be noted distinctively. This includes every risk big or small, that may harm the organization. The identified risk can be added to a risk register.
● Define and Describe Risks
Define and describe a risk. Describe the intensity of the risk and the areas it will impact.
● Allot Risks
All risks that are identified and described must be forwarded to respective entities to take action on mitigating them. The person handling the individual risk is answerable to the management about it.
● Categorize Risks
There are different types of risks, such as business risks and non-business risks. You can also categorize risks as small risks, medium risks, and high risks. Then, there are risks which you can afford to take and those that should be avoided.
● Minimizing Risks
This is the main part of risk mitigation, which involves taking actions to minimize risks. Appropriate actions should be taken to control risks and dodge them when they come up, so they don’t become a barrier in achieving business objectives.
Best Practices for Risk Mitigation
Here are some ways businesses can make their risk mitigation strategies more effective:
● Promote Transparency
There should be complete transparency in an entire organization. Even minor miscommunication or misinformation could lead to big problems. Therefore, its important that each step is clearly discussed and known to each stakeholder to mitigate risks.
● Build a Team
Many businesses have experts in their team who deal with risks tactfully and also know the consequences if risks occur. Businesses should appoint such experts to oversee risk mitigation in an organization, and also hold team members responsible for each type of risk.
Regular reporting provides a clear picture of the situation and the actions that need to be taken. Thus, management should encourage all teams to regularly report on the risks they’re managing and controlling.
● Evaluate carefully
Evaluation of risks helps you identify which risks might occur, and when and where. This helps you create better risk management plans.
● Share objectives with your team
Each stakeholder must have one common goal: to cut down risks that come their way. No personal interest should be involved. This helps keep everyone on the same page and upholds the business ethics and interests.
While risks are an inherent part of every business, risk mitigation helps businesses minimize the impact of certain risks, while acknowledging and accepting others.
VComply provides an effective way for businesses to track and mitigate risk. VComply helps manage and automate the risk management processes such as risk assessment and risk treatment. The best risk mitigation strategies involve maintaining a risk register, regular reporting, teamwork, and planning.