What are Risk Mitigation Strategies & Benefits?

A sign of a great business leader is their tenacity, grit, and ability to take and mitigate risks. That’s because no business exists without risk, so there needs to be a forward-thinking and ahead-of-the-curve plan to face the sometimes inevitable challenges that come along with running a business. In an ever changing business environment, your success depends on risk mitigation strategies.

In this article, we’ll cover what risk mitigation planning involves, review risk mitigation strategies, and take a look at some risk mitigation strategies examples. We’ll also see how automation solutions can be a saving grace.

Coming Up

1. What is Risk Mitigation?

2. What is the Goal of Risk Mitigation?

3. What are the Benefits of Risk Mitigation?

4. What are the 4 Types of Risk Mitigation Strategies?

5. What are the Types of Risk?

6. What is in a Risk Mitigation Plan?

7. What are Risk Mitigation Best Practices?

8. What are Risk Mitigation Strategy Examples?

9. What are Risk Mitigation Tools?

10. Wrap Up

What is Risk Mitigation?

Risk mitigation is the practice of identifying, analysing, and assessing potential risks and choosing how to handle them accordingly.  Risk can come from internal or external factors that are sometimes with (and at times not within) the control of the business or its leaders.

However, how a business chooses to face a risk is within the control of its stakeholders and executives.

Since risk will always be involved in any business, the way in which a team can foresee potential risks and manage them will undoubtedly present a competitive advantage.

What is the Goal of Risk Mitigation?

Every business operates in a volatile environment. Whether it is internal or external, a small incident can cause a chain effect and impact your company. The goal of risk mitigation is to reduce the negative impact of risk.

In some cases, it involves avoiding the risk altogether. Ultimately, with a strong risk mitigation plan in order, the company can minimise the potential damage and protect its ability to achieve its goals.

By properly assessing, prioritising, and understanding the plan, your business is preparing itself for the future.

What are the Benefits of Risk Mitigation?

Understanding what mitigation strategies are helpful to you. Employing these strategies can reap many benefits. Here are four benefits that you can anticipate when performing the process of risk mitigation:

1. Loss Minimisation

When you have planned ahead and increased your ability to face a situation that is not suitable, you can work to minimise your loss. These strategies can help businesses recover more quickly from an incident if risks were foreseen and suitable plans were made.

2. Stay Prepared

A robust mitigation strategy is like preparing for anything that can come your way. Your teams know what can happen and have done everything to reduce risks and have a plan in place covering what to do in case of risk occurrence.

3. Improved Probability of Success

Mitigation strategies increase the chances of success as businesses are able to reduce financial risks, protect work quality, and anticipate upcoming challenges in advance to remain agile.

4. Ease of Adaptation

Risk mitigation strategies help businesses to be more flexible. As a result, it’s easier to adapt to situations. When you prepare for risk, you are able to ingrain a risk-loving culture that isn’t afraid of the unknown, but rather everyone feels prepared for upcoming events.

What are the 4 Types of Risk Mitigation Strategies?

There are four main risk mitigation strategies worth knowing so you can determine which method to put into effect based on the risk at hand. These include:

1. Avoidance

Eponymously titled, the risk avoidance strategy employs measures that help avoid risk at all costs. One of the ways to do this is to compromise on resources and strategies to ensure that the risk does not occur.

2. Reduction

The reduction approach is slightly more relaxed than avoidance. Here, you would employ strategies that would reduce risks or the impact on the business after a risk analysis.

3. Acceptance

As the name suggests, the acceptance strategy simply accepts that the risk is going to happen, but the reward outweighs the risk. Often, this strategy is used when it is beneficial to you in the long run and the effect of the risk is less detrimental than avoidance or mitigation.

4. Transference

This strategy allows you to transfer the consequences of the risk to a third party. This way it motivates the third party to ensure that the risk does not impact them, and consequently, your business. An example of risk transference is insurance.

What are the Types of Risk?

Risks come in different forms. Understanding the types can help you plan effectively.

Here are some common risks:

• Compliance Risk - Compliance risk is impacted by the company’s adherence to laws, regulations and standards. Failure to comply can lead to reputational and financial loss.

• Legal Risk - A company operates under certain laws and contracts and breaching them can cause a company to be impacted financially, as well as  waste time and lose money due to expensive lawsuits.

• Strategic Risk - This is a risk associated with a strategy that the company employs or does not employ. Strategic risks occur as a cost of doing business in an effort to add value to the customer or end user.

• Reputation Risk - These kinds of risk affect public opinion about the company. Ultimately, how the public views a business will impact its potential to make a profit. Additionally, shareholders could lose confidence in the company, prompting further losses.

• Operational Risk - Operational risks are associated with how a business executes its daily tasks. Internal and external factors can easily impact the business and, as such, they need to be closely monitored.

As you know, finance departments face these risks on a daily basis. It’s necessary for them to communicate what’s happening with senior management and spot problems, share opportunities, and provide valuable insights at any point in time.

Risk often stems from manual errors, delayed problem resolution, and compromised processes and data. Key person dependencies and bottlenecks further threaten any business. As a result, most companies are utilising automation solutions to overcome these inherent downfalls.

With automation and risk management tools, your staff’s time can be freed up and better spent on high value tasks and a focus on providing insights over manual and repetitive tasks.

Additionally, finance automation tools connect to all system, prevent manual errors, and empower companies to scale and grow, all while reducing the risks mentioned above.

What is in a Risk Mitigation Plan?

A robust risk mitigation plan has 5 steps. Here’s a look at the steps so you can deploy your own risk mitigation plan:

1. Identify Events and Priorities: The first thing to do is identify the risks and prioritize what’s most important to the business’ functioning. Here, think about stakeholder needs, the business project or product, and the goals of the company.
2. Risk Assessment: Now, analyse the possible risks, and arrange them under categories of high, low, and medium. If done visually, it paints a clear picture for you. These categories should be based on the likelihood of their occurrence. Here’s how a risk assessment matrix can help visualise risks.
3. Treatment: At this point, you’re ready to determine how you plan to attack the risks. With whatever you choose to do, document your risk measurement plan and ensure that all responsible parties are aware of what action they are going to take. Documentation also serves as a way to share your plan with stakeholders for approval and a better understanding.
4. Monitoring: Businesses and risks are never static. Things keep changing, and it is important to keep an eye out for situations. This way you can act quickly to continuously reduce the unwanted impact on your company. At the same time, you can assess how your risk mitigation plan is panning out. Should you need to make changes at any point in time for a better outcome, you have the liberty to do so.

5. Reporting: Communicate your findings so that you can ensure that your team is informed of how the risk mitigation strategy worked or didn’t work.. This is best practice and can allow better collaboration, improve performance, and build trust within the organisation.
   

What are Risk Mitigation Best Practices?

It is important to establish some best practices that everyone in your business can follow. Below are some of the best practices that should be undertaken to improve your company’s attitude and action plans around risk mitigation:

1. Involve Stakeholders

These include everyone who is involved with your business, from your customer to your employee to your board members. It is important to include all perspectives when creating a plan because they have different perspectives and understandings of the business, so their input is highly useful and actionable.

2. Develop a Culture Conducive towards Risk Management

A strong business culture geared towards risk management and awareness can perform much better. This is because employees who are prepared and know risk exists are more readily able to control and mitigate detrimental consequences of risk.

3. Communication is Key

As mentioned previously, as part of the mitigation plan, communication is imperative. It helps develop your culture, and risk awareness can improve collaboration within the teams. If everyone knows what is going to impact them, working together may be a way to get out of trouble quickly.

4. Continuous Monitoring

If continuous monitoring is not maintained, certain risks can be overlooked and they can impact the business in the future. To ensure this does not happen, risk monitoring practices must be defined and implemented across the board.

What are Risk Mitigation Strategy Examples?

To discuss strategy examples, let’s organise how risk can occur. Depending on the strategy and the risk there are various permutations of these kinds of examples.

Here are just a few:

1. Avoidance

Picture this, there is a shortage in the market for coal. It is integral for your business as a source of fuel. However, to avoid this risk entirely, you may choose to do away with using coal immediately. Another option is in order to avoid the impacts of using coal, your business begins to investigate alternative sources of fuel, and seek environmentally friendly options.

2. Reduction

What can one do if your budget is tight? The risk analysis provides information that funds are needed for a specific process to be completed, but you’re running low. Immediately, and instinctively, you can reduce running out of funds by readjusting or reallocating your budget. Additionally, you can seek alternative suppliers and/or methods of achieving the same end goal to make it work.

3. Acceptance

Acceptance occurs when the likelihood and impact of the risk is less detrimental to the business than not pursuing the original plan at all. Risk acceptance requires that you properly assess the potential outcome so if you take on the risk, you know you can still recover.

An example of this would be if a company decides to hire a supplier in an potentially unstable geographic region. They accept that their supplier could go out of business or be hindered, but they continue to work with said supplier as there are backups in place should that situation arise.

4. Transference

Put yourself in the shoes of a contractor. You have hired freelance labour to support your construction. However, you know that there’s a risk of the schedule being delayed based on the performance of the workers.

So, to counter this risk, you enter a clause in your contract with the labourers about the number of days to work and the amount of pay. You also consider making a penalty for labourers who delay the project.

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There are many examples available to understand how risk can be mitigated. However, what is important to note is that managing risk is a very company-specific ability. Just because one strategy worked for one company, it doesn’t mean that the same strategy may work for you.

That being said, a universal solution to help manage risk is the implementation of automation solutions. Automation solutions add an extra level of internal control, help to reduce compliance risk, and can help to streamline processes to avoid mistakes or key person dependencies.

What are Risk Mitigation Tools?

When developing risk management strategies, you have tools available to enhance your business plans. Here is a non-exhaustive list of tools to work with:

• Risk Register: Risk registers are used to record and control risks. It describes the risk when it occurred and identifies how strong the risk is. This is used to prioritise which risks to deal with first.

• SWOT Analysis: This analysis is a study of a company’s internal and external environments. It looks at the strengths and weaknesses of the company and juxtaposes them with opportunities and threats the company faces in the environment it exists in.

• Root Cause Analysis: This tool helps identify risks inherent in the system’s processes. It often is used when an error has occurred. It helps you find out what happened, how it happened, and finally why it happened so you can make adjustments to improve moving forward.

• Automation: Automation gives you the opportunity to regularly monitor risk. It provides a robust view of the business risks, as well as business processes for increased visibility. In doing so, it becomes easy to monitor, catch errors early on, and provide for collaboration across teams.

Wrap Up

Level up your risk mitigation strategies by taking the time to assess your business’ risks and their impacts. Once you put a plan in place, be sure to continuously monitor how the business is functioning and the outcome of your risk mitigation strategies.

If you see that something isn’t working, don’t be afraid to go back to the drawing board and choose a different path forward.

Ultimately, the goal of any risk mitigation strategy is to position your company to make it through and handle the challenges (risks) that come along with running a business.

With the aid of automation solutions, you can work to minimise and manage risks by staying on top of how your business is functioning with automated reporting, customisable dashboards, centralised data, and streamlined workflows.