Risk management is a relatively new concept in industries besides financial institutions, but its importance is clear. Organizations need to successfully identify the threats they have to their business and their ongoing projects and then work on ways in which they can implement various strategies to reduce or eliminate the chances of the risk becoming an actual threat. These strategies need to take a higher priority because CEOs only spend about 9% of their meeting time on average dedicated to risk management.
One such strategy of risk management is risk mitigation. This strategy is only applied when the risks cannot be avoided or accepted, so the only option is to eliminate, reduce or control the impact of the risks that have been identified, This is done by implementing certain practices beforehand itself, without any damage or impact taking place.
Once certain risk mitigation strategies are in place, risks can be foreseen and easily taken care of. With the help of a risk management platform and extensive knowledge and expertise from the employees, this becomes a possibility. Even though each business needs to make strategies that are specifically designed for them, this article sheds light on how enterprises can implement or perfect risk mitigation strategies.
Proper Diagnosis of Risks on a Regular Basis
Companies need to evaluate the health of their business regularly. This process needs to include more than just progress reports that include the current state of their business operations and their value, but also needs to consider future risks to the company. This will help them work on the anticipated risks in the future. The historical and current business performance of the company will help with this as well.
Once all the data of the company’s past operations and current operations has been gathered, it will show the methods that have been used in the past and the methods that are being used today. This will help them realize which ways work effectively and which do not.
Organizations will realize that there are some risks that keep occurring over time, and some are rare. Problems with the product or service of the company, certain dependencies, and economic changes are some examples of recurring risks in daily operations.
By conducting a thorough analysis of the business regularly, all the employees in an organization know what exactly is going on in the company and track the performance of the company. It becomes easier to recognize any problem areas and helps in developing insights for the future.
Evaluating Risks for Risk Mitigation Strategies
The best way to reduce risk to the company is to evaluate the risks first. Organizations need to evaluate their risks so that they can determine the possible impact of the risk, such as the level of disadvantages and losses, that are associated with the risk. Not more than 23% of surveyed CEOs can guarantee that they have enough knowledge about the risks that their business could face in the future. This makes risk evaluation even more important.
Below are the steps involved in evaluating risks so that companies can create a successful risk mitigation strategy.
Identification of Risks
The first step is to recognize all internal risks in the company. Usually, internal risks are easy to prevent. They can be managed by creating processes within the company and making sure all employees have detailed knowledge and some level of expertise on risk management.
Once employees are trained in Project Risk Management, they will be able to identify which risks are strategy-based, which ones are internal and external, and how they impact the project or the performance of the company, the delivery schedules, and how it affects the expenditures of the company. This identification of risks should also include how the risks will affect the customers of the company as well, such as having an impact on their services, if it will affect the brand image, and so on.
Impact Assessment
The next step in the process is to determine how likely the risk is to occur and also how significant the impact will be in case the ‘risky event’ does take place.
Develop Strategies
After risks have been categorized based on their probability and significance, the next step is to implement risk mitigation strategies. These should only be developed for risks that have been categorized as medium to high in terms of probability. The risk strategy needs to have a medium cost and high return, and can be used under the given scenarios:
High Impact, High Probability Risk
When the yield is high, then mitigating the risk makes sense to the business, especially if avoiding the risk only puts the additional cost on the company. Here the risk does not get eliminated. The damage of the risk gets reduced. However, since the probability and impact are both high, it makes more sense to avoid the risk altogether if possible.
High Impact, Low Probability Risk
These risks usually have a high return and medium cost. This makes a risk mitigation strategy an ideal way to manage the risk. Since the probability of the risk occurring is low, it might become more expensive to avoid the risk than to mitigate it. Another option would be to transfer the risk to a third party.
Low Impact, High Probability Risk
Here the high return of risk mitigation would offset the high chances of the risk occurring. A risk treatment would work depending upon how low the impact of the risk is when compared to the cost of the mitigation. Another option would be to accept the risk since it is not critical.
The Best Risk Mitigation Strategy
The ideal scenarios in which the different types of risk mitigation strategies have been discussed, making it easier for companies to understand which way they should take for mitigating different risks. These will help you implement the four types of risk mitigation strategies for each risk:
- Avoiding the risk altogether by coming up with a preemptive
- Transfer the risk to a third party in case the financial impact is large
- Accept the risk when the cost to treat the risk is more than its impact
- Limit the risk by coming up with strategies to reduce or eliminate the risk when it occurs
Final Thoughts
The best risk mitigation strategies won’t be effective if your employees do not know how to implement them successfully. A risk management platform is of great help in planning and making the process more efficient, but employees need to have prior knowledge of risk management and mitigation to be able to successfully manage any risk they might identify to the company or to their project.
