What is Risk Mitigation? Definition and Strategies for Businesses

Regardless of industry or size, all organizations encounter risks that can impact operations and growth. However, how you handle that risk can greatly impact the outcomes and help minimize or even eliminate disruptions.

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When your risk management process cannot prevent a risk from occurring, using risk mitigation strategies can be beneficial.

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Businesses must address various challenges, such as weather issues, natural disasters, workplace dangers, cybersecurity threats, and disruptions in the supply chain, among other operational risks. According to a Deloitte survey of executives, 94% believe risk management is increasingly vital for reaching strategic objectives.

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Risk events can take many forms, and there is no one-size-fits-all solution to handle them. However, through careful planning, preparation, and a solid risk management strategy, you can reduce the threats to your business.

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This blog outlines 10 risk mitigation strategies and how to implement them.

What is Risk Mitigation?

Risk mitigation is a strategy designed to prepare for and reduce the impact of business threats. Like risk reduction, risk mitigation involves measures to lessen the adverse effects of threats and disasters on business continuity (BC).

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Potential threats can include cyberattacks, severe weather events, and other physical or digital harm sources. Risk mitigation is a part of the broader risk management process, and how it is implemented can vary from one organization to another.

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What is the Goal of Risk Mitigation?

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While the main goal of risk mitigation is to prepare a business for all possible risks, an effective plan will assess the impact of each risk and prioritize actions based on that impact. Risk mitigation recognizes that some disasters are inevitable and is relevant for scenarios where a threat cannot be completely avoided.

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Instead of aiming to eliminate risk, mitigation focuses on managing the consequences of a disaster and taking steps beforehand to reduce harmful and possibly long-lasting effects.

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Ideally, an organization could avoid all risks and threats altogether. However, having a risk mitigation plan enables an organization to prepare for the worst.

4 Types of Risk Response

Each step in this process is essential, but risk response is critical because it is the point where you apply training in real situations to prevent harm to your team or interruptions to operations.

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Risk Avoidance

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“Risk avoidance is used when the potential consequences are considered too severe to make the cost of addressing the issue worthwhile.”

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For instance, a company may avoid specific business activities or practices to eliminate any associated risk. This strategy is common in business and can include actions as simple as reducing investments or as significant as refraining from building offices in areas affected by conflict.

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Risk Acceptance

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When a risk is minimal, it may be reasonable to let it happen. For instance, if you organize an outdoor event with a 15% chance of rain, accepting that small risk might be better than changing your plans.

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However, for threats that could have a more significant impact, deciding what level of risk you are willing to accept is essential.

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Risk Transfer

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This approach distributes risks among different parties based on their ability to manage or reduce those risks. For example, suppose a product contains defective materials made by a third-party. In that case, the manufacturer may assign part of the responsibility for that risk to the third-party supplier.

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Risk Mitigation

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Many types of risks cannot be avoided or accepted. However, you can lessen safety and business risks by decreasing their frequency or potential impact. For example, an industrial bakery cannot eliminate significant heat sources, but it can take measures to protect employees and property from harm.

10 Types of Risk Mitigation Strategies

The process of reducing risks is not the same for everyone. After you learn how to manage your risks, you will see that different situations require different strategies. 

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Here are 10 useful risk mitigation strategies that can help you make informed choices and tackle a variety of challenges.

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Challenge the Risks

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Some risks can be identified in advance, and you can monitor them as they develop. It's important to evaluate these risks and let them continue as long as the threat remains small and manageable. When necessary, take steps to reduce or control them before they turn into a more serious problem.

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For Example, Weather forecasts may not always be accurate, but snowstorms are fairly predictable. To manage this risk, you can remain open the days before a storm and close operations early enough to allow your employees to get home safely.

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Prioritize Your Risks

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A single hazard can create several risks for your business and employees. When this occurs, you can reduce the impact by prioritizing the risks and address them based on their importance, following your risk matrix.

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For Example, As a business continuity manager at a hospital, especially in areas prone to extreme weather events, potential disasters like hurricanes can be highly concerning. In the event of a disaster, prioritize the safety of patients and staff.

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Subsequently, allocate remaining time and resources to minimize damage to your facilities and equipment. Focus on critical items like expensive machinery or infrastructure before addressing less essential assets like office furniture.

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Exercise the Risks

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Since you have already identified the risks, you can implement them. Conduct experiments, drills, or tabletop exercises to simulate the threats your team may encounter and assess how well your action plans work.

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For Example, Fire drills can benefit businesses just as much as schools. They provide a valuable way to measure how quickly employees can evacuate a building and identify potential challenges they might face during a fire. This information can then be used to minimize risks and improve emergency procedures.

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Isolate the Risk

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Businesses often involve activities that can be risky but are essential for their operation. While you may not be able to change the risks, you can reduce their impact by separating these activities from other parts of your operations.

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For Example, Public servers come with specific risks because they are accessible to anyone who might try to hack them. However, you can reduce the chances of a security breach by placing your database, file servers, and other important resources behind a firewall.

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Eliminate the Risk

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Avoidance eliminates risk by removing its source. This means changing practices, processes, or parts of a project or event to avoid the risk rather than just lowering its impact completely. This method is often used when a risk presents a serious threat, and the potential consequences are too severe to accept, even with management options in place.

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For Example, A manufacturing company might use a highly toxic chemical that can harm the environment and pose serious health risks to employees. To address this issue, the company decided to stop using this chemical altogether and choose a safer alternative. This change not only helps meet safety regulations but also reduces potential risks.

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Buffer the Risk

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Sometimes, you can reduce risks by adding extra resources such as time, money, or staff. Buffers help you lower the likelihood of adverse outcomes, strengthen weaknesses, and make the task easier to handle.

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For Example, A crane lifting heavy equipment to a building's roof involves various risks to individuals and property. However, many of these risks can be managed. For example, you can add extra time to the schedule for train spotters to be stationed on the ground.

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Quantify the Risk

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When considering business opportunities, weigh the potential benefits against the associated risks. To make an informed decision, you need to assess and compare the positive and negative financial aspects. It's also important to note that the situation may change as the activity progresses.

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For Example, Deliveries are a crucial part of many pizzerias' business, so disrupting them can harm profitability. In some cases, such as sending a driver out in light rain to make deliveries at night, the potential revenue can outweigh the risks if drivers are cautious.

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However, in situations like a snowstorm, where the reward is low, and the risk is higher, it's best not to send the driver out.

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Monitor the Risk

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Hazards and their associated risks are rarely constant. A two-way communication system enables you to keep track of these risks and stay informed about conditions that could impact your employees and facilities. It also allows you to send important updates quickly and respond to requests for help or information.

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For Example, Employees working at restaurants, coffee shops, and retail stores often have to deal with unexpected and rapidly changing situations during civil unrest. Having a two-way communication system enables you to receive real-time updates from employees and provide timely guidance on whether they should stay inside, leave the area, or wait for the police to assist.

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Develop Contingency Plans

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Even the most carefully made plans can sometimes go wrong. If you believe you have a hazard under control, it's wise to consider its effects and whether a backup plan could help lower the risk further.

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For Example, Developing a contingency plan is essential for managing the risks associated with traveling to areas with unpredictable conditions, such as locations affected by natural disasters, infrastructure issues, or unexpected events. A backup plan can minimize potential risks and ensure a safer trip.

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Utilize Best Practices

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Life can sometimes be unpredictable, but most risks your company encounters are not new. Instead of starting from scratch, take advantage of the best practices established by organizations like the OSHA and the ISO for common operational risks.

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For Example, Construction technology is constantly improving, but many of the industry's risks are long-standing. OSHA offers standards, training programs, and resources to help reduce most of these risks. Business leaders can use these tools without extensive research or testing.

Conclusion

Eliminating all business risks is impossible, but identifying them early gives you the best opportunity to reduce them to manageable levels. 

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With ioSENTRIX, companies can efficiently identify, categorize, and manage risks. Start your journey toward better risk management by contacting our experts.

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