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?
Understanding Risk Mitigation and Its Key Elements
A Risk Mitigation Plan is a comprehensive strategy designed to identify, assess, and reduce risks to a project or organization. It is a critical part of any project management or corporate strategic planning, acting as a protective blueprint aimed at minimizing the potential for negative outcomes that could impact a project's success or an organization's operational efficiency. A Risk Mitigation Plan includes several essential steps and components to be effective.
The contents of an effective Risk Mitigation Plan involve a sequence of actions:
Identification of Potential Risk Events: This step requires the organization to analyze its specific environment and operations to pinpoint natural, operational, and human risks that could potentially arise. This could involve looking into geographical threats for natural disasters, security vulnerabilities for data, and safety issues that could affect personnel.
Risk Assessment: Once potential risks are identified, the organization assesses them to understand their potential severity. This involves determining what procedures, safeguards, and policies need to be put in place to reduce the likelihood or impact of these risks materializing.
Prioritization of Risks: Risks are not all equal; thus, they must be prioritized. This prioritization is based on the risk's potential impact on operations and the likelihood of it occurring. This ranking process is crucial for efficient resource allocation, ensuring that the most severe risks are addressed with the appropriate level of resources.
Tracking of Risks: An active monitoring process is necessary for tracking identified risks over time. This includes keeping an eye on how risks evolve and the effectiveness of the mitigation strategies put in place.
Implementation and Progress Assessment: A Risk Mitigation Plan is not a static document; it requires constant review and adjustment. As actions are implemented to address risks, their effectiveness needs to be continually assessed. If the environment changes or new information comes to light, the plan must be revised to ensure it remains relevant and effective in mitigating risks.
In essence, a Risk Mitigation Plan is an evolving strategy that involves careful planning, consistent monitoring, and flexible responses, enabling organizations to manage potential threats proactively and maintain smooth operations.
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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.
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 PMP course, developed with the University of Massachusetts Amherst. This project management program covers the essential elements of business strategy and management.