What is Risk Mitigation?
Risk mitigation involves taking action to reduce an organization’s exposure to potential risks and reduce the likelihood that those risks will happen again.
Enterprises face various types of risks, some of which can cause serious loss of profits or even bankruptcy. The main types of risks a company faces are: strategic risk, compliance risk, operational risk, financial risk, and reputational risk.
To be successful and remain competitive, an organization must be aware of the types of risks that could potentially affect its reputation, operations, profits, security, and more. Ignoring those potential risks and not mitigating them could spell disaster for any company.
Risk mitigation is one of the steps in risk management, which includes identifying the risk, analyzing the risk, and mitigating the risk.
During the risk assessment process, an enterprise identifies potential risks that could harm its ability to operate. The next step in the risk management process after risk identification is risk analysis. This is where a company categorizes the potential risks and assigns a risk level to each one based on the likelihood that it will occur as well as its impact on the business.
Risk transfer is a risk management strategy that entails shifting risk to a willing third party. For example, a company could outsource certain operations, such as payroll or customer service. A company can benefit from this type of strategy, particularly if a transferred risk isn’t one of its core competencies.
Risk mitigation is another step in the risk management process. It’s not enough for an organization to assess and analyze the various types of risk, it also has to do something about those risks. There are a number of risk mitigation strategies a company can implement to deal with the various types of risk, including risk avoidance and risk reduction.
The goal of a risk avoidance strategy is to completely eliminate a particular risk rather than just reduce the effect it will have on the business. For example, tabling a project that includes a high risk enables a company to successfully avoid that risk. Another risk mitigation strategy is risk reduction, which deals with reducing the likelihood that a risk will occur or decreasing the severity of the consequences of the risk. One way to reduce risks is by implementing controls.
In addition, a company could use agile project management methods to review and reinforce strategies. Agile teams work to deliver value to the company by continuously reducing risk. Risk managers and business leaders could adapt agile project management techniques to meet their companies’ risk mitigation goals.