Risks are present in practically every important business choice, as we all know. Even if decision-makers dismiss an opportunity because it appears to be too risky, that decision can be fatal in and of itself. Being overly cautious may result in new markets not being sought, new goods not being produced, or competitors gaining an advantage. As a result, having a thorough, data-backed strategic risk mitigation plan in place to monitor and manage risk is critical. This post is a guide to helping you understand how to do strategic risk mitigation rightly.
But before then, let’s go over some of the basics…
What is Strategic Risk Mitigation?
The practice of limiting risk exposure and reducing the chance of an incident is known as risk mitigation. It basically means addressing your main risks and issues on a regular basis to guarantee that your company is not prone to attacks. Controls, or rules and procedures that regulate and steer an organization, are common forms of mitigation.
Let’s have a look at what risk mitigation entails in the context of the full Enterprise Risk Management (ERM) process; Your controls are dependent on your risks, with the overarching purpose of preventing specific hazards from occurring. As a result, you develop policies and procedures to assist prevent them. “Risk mitigation” in itself refers to the process of setting up strategic controls.
Read Also: Risk Mitigation: Examples & How to plan for Risk Mitigation
What Are Some Examples of Risk Mitigation?
Let’s look at some real-world examples of controls — or processes and procedures that we utilize in our daily lives to prevent certain hazards from materializing. That, for the most part, would help us better understand risk mitigation. Note that the following examples are intended to give context to how mitigating activities operate; because everyone’s circumstances and needs are different, hence, try not to view these as personal advice;
#1. Financial Risk Mitigation
To get by on a daily basis, we need money. We also need it to prepare ourselves for the possibilities of a major life event that would necessitate a large sum of money, as well as for when old age stops us from working. In order to maintain our financial stability, we may decide to:
- Set out retirement funds
- Maintain an emergency fund in a liquid savings account and pay for everything with cash to guarantee we don’t buy anything we can’t afford.
#2. Risk Mitigation in Personal Relationships
Positive personal relationships bring fulfillment to our lives. Hence, we must actively maintain the quality of those relationships, just like everything else, to prevent them from breaking apart. Here are a few examples of those efforts to nurture:
- Kindness and respect for those we care about
- Calling, sending cards, and visiting on a regular basis
- Cutting off relationships with people who don’t treat us nicely (in order to make more time for those that do)
#3. Mitigating the risk of health problems
Because our health is the cornerstone of our lives, it is vital that we take adequate precautions to protect it. While there are countless ways to improve our health and reduce the risk of significant illnesses, the following are a few of the most prevalent mitigation strategies:
- Getting lots of water (the right amount our body size needs)
- Avoiding harmful habits such as smoking, drinking, and eating processed meals
- Regular exercise
You may or may not formalize your mitigating actions, depending on how important particular aspects of your life are to your total identity and well-being. Saving money, cultivating relationships, and being healthy comes naturally to certain people. This means that they hardly need any strategic plan to stay on track. Making a budget sheet, filling a calendar with social engagements, or following a prescribed diet are all important for others to keep everything in order.
Note that while these examples may not be totally business related, our personal life directly or indirectly affect our businesses.
Read Also: Risk Analysis: Methods, Types, Process, Examples, Pros & Cons
Strategic Risk Mitigation
Prior to any mishap or disaster, risk mitigation measures basically aim to eliminate, limit, or control the impact of hazards that relates to certain decisions. Risks can be anticipated and managed with these techniques in place. Today’s technology, fortunately, allows firms to create strategic risk mitigation measures to the maximum extent possible. While each company must determine which tactics are best for them, here are a few simple strategies and pointers to help get on the right path.
Diagnostics for the Business
To forecast the future of a firm, it is necessary to first understand both history and current business performance. Cumulative company data will reveal what is feasible, what has been executed, and what has previously proven to be successful. For starters, dependencies, changes in necessities, the environment and conditions, and skillset gaps are all dangers that will continue to exist and repeat.
On the other hand, business analytics will help to define what’s going on in a company, track performance, identify issues that need handling, and communicate reliable data for analysis, planning, and forecasting.
This is one pretty important aspect of strategic risk mitigation we shabbily implement or totally ignore.
Risk Assessment
Strategic risk mitigation measures can only be established when all potential threats, disadvantages, and losses have been thoroughly assessed. The following are the steps you would need to implement in risk assessment.
#1. Identification
The first step in identifying and assessing a risk is to determine whether it is preventable. Internal risks are often controlled on a rule-based level, such as through the use of operational procedures monitoring and employee and manager guidance and teaching.
Risks that firms make voluntarily in order to gain larger returns are known as strategic risks.
On the other hand, natural disasters, for instance, are examples of external hazards that occur beyond of a company’s control. External risks are often not avoidable. Furthermore, costs, performance, and schedules are just a few of the business variables that can be affected by any risk category.
Hence, risks to be considered in the evaluation include those that may have an influence on the present and potential consumers, as well as those that may have an impact on the resources required to successfully complete internal practices
Read Also: Strategic Risk Management: Overview, Plans, Implementation (+ Free tips)
#2. Evaluation of the Effects
Calculate the likelihood and importance of certain “risky” events. Anticipated risks can (and should) be appraised in terms of their probability and impact.
#3. Create a strategy
For risks with a high or medium probability, risk mitigation planning methods and implementations should be in place. Low risks may be tracked or monitored for impact at this point, but they are less relevant.
The Most Strategic Risk Mitigation Plan
For good risk management, some solutions may be monetarily impossible. Risks are generally accepted when solutions can be devised to reduce risk to “as low as possible.” Efforts to decrease or eliminate the related risks are hinged on techniques (such as time, cost, or complexity). The best risk mitigation approach may lessen the likelihood of a risk, the severity of the outcome, or the organization’s exposure to risk. To achieve the best results, more than one mitigation method should be in place.
Risk avoidance, acceptance, transference, and limitation are the four categories of risk mitigation measures.
Avoid:
Risks that have a high probability of causing financial loss or damage should be avoided in general.
Transfer:
Risks that have a low possibility of occurring but a high financial impact should be shared or transferred. For example, by acquiring insurance, forming a partnership, or outsourcing you are somewhat transferring those risks.
Accept:
When it comes to some risks, the cost of mitigating the risk outweighs the cost of accepting the risk. The risks should be accepted and carefully evaluated in this case.
Risk limiting:
This is the most common mitigation strategy, in which businesses take steps to address a perceived risk and control their exposure. Risk management usually entails a mix of risk acceptance and risk avoidance.
How Do You Mitigate Strategic Risks?
- Accept and assume risk.
- The avoidance of risk.
- Controlling risk.
- Transferring of risk.
- Watch and observe risk.
What Are the 6 Steps That Are Used to Mitigate Risk?
Step 1: Hazard identification. This is the process of assessing each work area and task in order to identify all “inherent to the job” hazards.
Step 2: Identifying risks
Step 3: Risk assessment.
Step 4: Risk management…
Step 5: Documenting the process.
Step 6 involves monitoring and review.
What Are the Three Pillars of Risk Mitigation?
A unified risk management approach based on three key pillars: secure coding, secure testing, and risk assessment, it can help improve product security across the enterprise. Organizations want to be able to move quickly, get their products and services on the market, and keep their data safe.
What Are the Different Types of Mitigation Measures?
Examples of a mitigation measure include:
- Land use and zoning policies are adopted and enforced.
- Building codes must be implemented and enforced.
- Mapping of flood plains.
- Tornado shelters have been reinforced.
- Burying electrical cables to prevent ice buildup.
- Raising of homes in flood-prone locations.
Conclusively
By improving the ability to identify, evaluate, and monitor risks, today’s information technology can help perfect risk mitigation strategies. Furthermore, it improves businesses’ ability to forecast events with greater accuracy.
Prescriptive analytics, for example, vastly improves risk assessment accuracy by providing simulation and optimization opportunities that eliminate confirmation bias— a problem that many companies face when relying solely on descriptive and predictive analytics. Furthermore, appropriate technology, such as optimization software that uses prescriptive analytics, enables firms to detect when resources are being diverted to ineffective strategies. It overcomes organizational biases, allowing businesses to design more effective risk mitigation methods and make better judgments.
