Risk management planning is a crucial tool that businesses use to minimise the occurrence or severity of disruptions to business operations. It allows businesses to effectively identify risks, analyse the impacts they could have on business operations, and manage them before they detrimentally affect profitability, production or safety. At Resilient Services, we specialise in developing tailored risk mitigation solutions that align with an organisation’s unique risks and business objectives. In this guide, we’ll explore the four main types of risk mitigation strategies, how they work, and how businesses can implement them effectively.
Key Risk Mitigation Strategies
Risks in business are inevitable, and can arise from natural disasters, IT disruptions, management errors, reputational impacts, workplace injuries and legal liabilities. Considering the nature of a risk, the potential it has to disrupt business operations and operational alternatives will help your business determine which of the risk mitigation strategies to apply. In risk mitigation, there are four key mitigation strategies:
Risk Acceptance (Planning for Unavoidable Risks)
Risk acceptance is a technique commonly used where the costs associated with preventing a specific risk seem to outweigh the potential loss that could arise from it. This strategy is used where the risk is quite small in magnitude and is not a regular one faced by a business. By accepting some risks, it allows a business to dedicate more appropriate levels of resources to more frequent and dangerous risks. A common example is where a business that sells products from a store knows that items may be stolen occasionally, but where the items are of low value and do not detrimentally impact the business’s profits, it may be more effective to accept the risk instead of employing an expensive security team to minimise theft.
Risk acceptance involves accepting the potential negative impacts a risk may bring as it may cost more in time and money to try to mitigate the risk. These risks are usually minor and infrequent. In these cases, businesses must have a continuity plan in place.
Risk Avoidance (Eliminating Risks)
Risk avoidance involves limiting or ceasing certain activities altogether as they may heighten the risk dramatically of an unwanted event. By completing stopping a process, procedure or service, it can completely eliminate the possibility of a business facing a specific risk, allowing a business to direct their focus towards handling risks where the processes cannot be eliminated. For example, choosing not to sell certain products or offer certain services that may inherently carry with them riskier liabilities, thereby increasing the chances of legal action being brought against a company, it may be a safer choice to completely cut out the risk. Instead, offering products and services that carry less risk with them may be more manageable for a business to handle, should an issue arise.
Risk Transference (Outsourcing or Insurance)
Risk transference involves shifting the (mostly financial) impacts of a risk from one entity to another. Insurance is a common example of risk transference, whereby the insurance company will willingly deal with the loss should an incident covered by insurance occur. This transference of risk onto a third party is commonly used where businesses will insure expensive goods sold or the facilities used, as the theft or destruction of both could drastically impact the business’s longevity. Instead, it will be the third party (the insurance company) incurring the monetary loss, protecting the profitability and longevity of the business.
Risk Reduction (Minimising Impact)
Risk reduction involves focusing on reducing the possible losses that could be sustained from specific operations and activities that inherently carry risks with them while continuing to employ them. The risk is not transferred to another entity, and the business has not ceased the operations involving the risk, but will instead attempt to mitigate the extent to the risk may have on the business, should it eventuate. This can be necessary to use where certain processes are essential to the business’s operations and cannot be avoided. For example, a jewellery store that sells expensive jewellery knows that it will be an inherently risky product to sell as it may attract thievery, but as it is considered an essential product to sell, the focus will be put towards mitigating the risk of thievery by installing cameras and employing a security team.
Best Practices for Effective Risk Mitigation
Adopt a risk-first mindset across the organisation. Leverage technology such as AI and predictive analytics for risk detection. Regularly test business continuity plans through simulated crisis scenarios. Ensure compliance with national and international risk management standards. Engage risk management consultants to identify hidden vulnerabilities.
Choosing the Right Risk Mitigation Strategy
A comprehensive risk management plan often includes a combination of all four mitigation strategies. Each risk must be evaluated individually, and organisations should determine whether avoidance, reduction, transfer, or acceptance is the most appropriate response.
Need Expert Risk Mitigation Support?
Put your business in the safest hands possible. The knowledgeable and friendly team at Resilient Services are passionate about safeguarding your business and its operations from the crises and disruptions the world may bring. Resiliency and continuity are key considerations that underline Resilient Services’ approach to making your business stronger, smarter and more secure.
Contact Us to develop a proactive risk management plan that keeps your business resilient and future-ready.
