A business that doesn’t plan for risk and take measures to mitigate it is a business living on borrowed time. Risk mitigation is an essential business practice of developing plans and taking actions to reduce threats to an organization.
The threats to a business operation are numerous. A recent example is a ransomware attack that shut down Colonial Pipeline’s fuel distribution system. Natural events such as hurricanes, wildfires, and tornadoes can disrupt, shut down or damage a company. Many organizations have plans in place to address a violent attack in the workplace. And the COVID-19 pandemic is a golden example of a health risk that impacted almost every industry on the globe.
Some risks can’t be avoided. Therefore, companies need to have a risk mitigation plan to confront various threats, repair the damage, and restore operations. So, what is risk mitigation, what is the goal of risk mitigation, and what are risk mitigation examples?
What’s in a Risk Mitigation Plan?
The essential components of an effective risk mitigation strategy are identifying likely risks, prioritizing risk preparation and responses, and monitoring and updating the risk mitigation plan.
- Identify possible risk events – An organization should consider natural threats based on their location and potential risks to data, operations, and personnel.
- Make a risk assessment – Evaluate the potential of the risks identified. A risk assessment includes what measures, controls, and processes are needed to reduce the effect of a threat coming to fruition.
- Prioritize risks – Rank risks by their severity and potential impact on the operation. Ranking risks also help an organization determine the number of resources to devote to addressing each potential threat.
- Track risks – Monitor risks as they evolve and evaluate the risk mitigation plan’s ability to address them.
- Implement actions and assess progress – Continually evaluate the risk mitigation plan’s ability to address evolving risks and revise the plan accordingly.
What Is Risk Mitigation: Types of Risk Mitigation Strategies
Just as there are various types of risk, different companies have different tolerances and approaches to dealing with threats to their business. Here are some handling options for risk management:
- Risk avoidance – An organization avoids investments or operations in areas with too significant a risk or cost.
- Risk acceptance – Operating with an understanding that some risk will occur in one area so the organization can prioritize mitigating or profiting in other areas.
- Risk transfer – The process of allocating a portion of risk to a third party. An insurance policy is one example.
- Risk monitoring – Watching for changes in risks and their potential impact on an organization.
What Is Risk Mitigation: Risk Mitigation Best Practices
In addition to the risk handling options listed above, here are some best practices for risk mitigation:
1. Determining mitigation plans – Decision-makers are generally in charge of accepting and avoiding risk. But because identifying and addressing risks is an organization-wide endeavor, a risk mitigation strategy should be a mission decision. Also, leaders need to recognize that risks recur, and plans to address them need to be ready.
2. Mitigation plan content – Select a risk manager with the resources, knowledge, and authority to implement the risk mitigation plan. The plan should answer:
- What actions are required?
- When must these actions be accomplished?
- Who is responsible for taking action?
- What resources are needed?
- How will the action reduce the risk’s probability or severity?
3. Develop a contingency plan – High risks may necessitate having a contingency plan on hand if the initial actions fail to provide adequate mitigation. Also, include a trigger or timeline for implementing a contingency plan. One example would be having to evacuate operations and set up in another location.
4. Evaluate the status of each action – Determine when each step needs to be implemented and completed.
5. Monitoring risk – It’s incumbent on an organization to track evolving threats and amend strategies and actions as necessary. In addition, continually reassess the organization’s risk exposure.
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What Is Risk Mitigation: Risk Mitigation Training
The ability to strategically guide an organization through troubled waters is a supreme test of a business leader’s mettle. Gaining management training to create and implement a risk mitigation plan is a crucial component of Simplilearn’s Post Graduate Program in Project Management, developed with the University of Massachusetts Amherst. This project management program covers the essential elements of business strategy and management.