What Is Risk Mitigation?
Life is a delicate balance of figuring out what we can and cannot control. It is completely natural to want to feel some sort of control over our lives; it’s actually an innate and fundamental need. If we didn’t try to control the world around us to some degree and simply allowed life to happen to us, we would never survive.
Even once we’ve determined whether or not something is beyond our control, it’s difficult to choose the actions and behaviors needed to achieve the results we want. There are times when sitting back and doing nothing leads us right where we want to be, and there are other times when inaction sets us back irreparably. The only way to make an informed decision is to apply what you’ve learned from the past, examine all sides of each choice from various perspectives and account for residual impacts.
While there is rarely a perfect solution for anything, putting substantial effort into a strategy for preventing negative outcomes usually yields positive results. Forethought and due diligence, at the very least, enables more options than just “major failure.” With that in mind, taking a risk-based approach is a smart way to navigate the complexities of life.
The same logic can be applied to managing your business. Risk-based decisions in an organization are often made considering the consequences of inaction or taking a particular action. However, implicit risk management is not enough. Only when your risk management program is a strategic and formalized process will it enable you to imagine the unimaginable and prepare for what’s to come.
So how can you stay vigilant enough to control risks that touch every process in every department?
What Is Risk Mitigation?
Risk mitigation is defined as the process of reducing risk exposure and minimizing the likelihood of an incident. It entails continually addressing your top risks and concerns to ensure your business is fully protected. Mitigation often takes the form of controls, or processes and procedures that regulate and guide an organization.
To better understand what risk mitigation means, let’s look at it in relation to the entire Enterprise Risk Management (ERM) process: Your controls are born out of your risks; your overall goal is to prevent certain risks from materializing. This leads you to develop policies and procedures to help prevent them. The process of strategically creating controls is what “risk mitigation” refers to.
What Are Some Risk Mitigation Examples?
To better understand risk mitigation, let’s examine some real-world examples of controls — or processes and procedures that we use in our everyday lives to reduce certain risks from materializing. Note: the following examples are aimed to provide context to better understand how mitigating activities work; every person has different circumstances and needs, so these are not to be taken as personal advice:
Mitigating financial risk
We need money to survive on a daily basis. We also need money to be prepared for the possibility of a major life event requiring a large sum to be put forward, and for when old age prevents us from being able to earn money through a job. In order to stay financially secure, we may decide to:
- Max out our retirement savings
- Keep an emergency fund in a liquid savings account
- Pay cash for everything to ensure we’re not buying anything we cannot afford
Risk mitigation in personal relationships
Positive personal relationships bring fulfillment to our lives, and like everything else we need to actively maintain the quality of those relationships to keep them from falling apart. Here are some examples of those nurturing efforts:
- Treating those we love with kindness and respect
- Consistently calling, sending cards, and visiting
- Cutting out relationships with people who don’t treat us well (in order to make more time for those that do)
Mitigating the risk of health problems
Our health is the foundation of our lives, so it’s critical to take proper measures of ensuring it. While there are infinite ways to maximize our health and minimize the risk of serious problems, here are just a few of the most common mitigation activities:
- Drinking plenty of water (the recommended amount for our body size)
- Staying away from toxic behaviors like smoking, drinking or eating processed foods
- Exercising regularly
Depending on how important certain areas of your life are to your overall identity and well-being, you may formalize your mitigating activities or not. For some, saving money, nurturing relationships, and staying healthy comes with ease and requires no structured plan to stay on track. For others, making a budget sheet, filling up a calendar with social events, or sticking to a recommended diet is critical for holding everything together.
What Are Some Risk Mitigation Strategies?
So what does risk mitigation look like within a business organization? Once you’ve identified and assessed a risk, it’s important to understand why it is a risk and determine how to respond appropriately. Let’s consider the risk of “data security.” The most basic materialization of this risk is a security breach. As soon as a security breach occurs, how would you implement ways to mitigate the impact?
Start by developing some initial best risk mitigation strategies. For example:
- Building firewalls
- Enforcing a password protection policy
- Adjusting access rights
Once these mitigation measures have been put into place to support those strategies, if a data breach occurs you can track it back to the source or failed activity. The mitigating activities should always support your broader strategy. When taking a preventative approach to data security, some of your strategies might include:
- Ongoing monitoring
- Matching all security level implementation to security requirements
- Improving employee adoption of security measures
Once you’ve identified your strategies for mitigating risk, it’s time to develop a plan for putting those strategies into motion. Ask yourself, “which actions do I need to take to carry out these strategies?”
How Do I Craft a Risk Mitigation Plan?
Organizations vary in the maturity of their risk mitigation plan; some have never formally documented anything, whereas others have extensive processes in place.
Here are two reasons why formal documentation and strategic, extensive risk management planning is critical:
Formalizing your risk mitigation processes helps uncover what is actually happening across business areas and it is the only way to get an accurate picture of where strengths and weaknesses lie.
If a risk were to materialize, you can see where something is not working effectively and/or determine if there are additional actions to take that can improve value.
Documenting, managing, and linking mitigation activities to the risk that they are helping prevent helps you see gaps and vulnerabilities in your organization. It also ensures that if a loss event or risk materializes, the activities that were meant to prevent it must be improved upon or expanded.
When thinking about developing your risk mitigation plan, keep in mind that it should address the following areas of concern:
Change Management: How do you manage change to the activity over time?
Compatibility: Is the activity aligned with other activities?
Corporate Objectives: Are performance goals advanced by this activity?
Cost: Does the cost exceed the benefit derived from it?
Dependencies: Are the relevant resource elements linked to the activity?
Effectiveness: Does it address specific risks?
Efficiency: Is it easy to implement and monitor?
Leverage: Can it provide benefit in other areas?
Ownership: Who is responsible for maintaining this activity?
Regulatory: Does it address compliance readiness standards?
Organizations often lose track of why a particular mitigation activity was implemented to begin with, and fail to recognize whether the mitigation activity is still relevant and properly maintaining the balance of risk exposure to cost. This is why it’s important to thoughtfully approach your risk mitigation strategy development.
What Are Some Risk Mitigation Best Practices?
There are endless ways to approach the development of a risk mitigation strategy. It can be overwhelming to determine the best, most effective way to mitigate risk. LogicManager has been empowering organizations to anticipate what’s ahead through effective risk management since 2005.
Through our experience, we’ve been able to determine the following best practices for risk mitigation:
Connect risks across silos
It’s essential to connect the dots between controls and their effects on each business process. You can accomplish this by connecting risk mitigation activities to respective departments, resources and the people they depend on. The best way to accomplish this is by implementing taxonomy technology. This allows you to view everything through one centralized repository. Once you’ve drawn cross-departmental connections, you’ll be able to build workflows that notify the appropriate stakeholders if at any point the resources, policies or processes connected to a given control change.
Centrally manage information
You want to be certain that the right people are looking at the most relevant information at any given time. This can be ensured by building a searchable repository of operational and procedural activities. You’ll want this repository to highlight controls, priority levels, historical changes and due dates. Note that with ERM software, you eliminate the burden of updating, notifying and tracking risks that are already maintained in another department.
Identify gaps in your risk management program
While you may have successfully addressed the risks in your organization and determined the direction of your risk mitigation efforts, it’s crucial to continually address the effectiveness of those efforts. There may be misalignments and ineffective controls that are weighing you down. Automated reporting of key risk indicators can eliminate redundancies and gaps to protect your organization.
Using Software As A Risk Mitigation Solution
Protecting your organization is the ultimate goal. To ensure your protecting it to the fullest extent, your top risks and concerns need to be continually addressed. LogicManager’s Risk Mitigation software enables you to make connections throughout your organization by linking controls to risks, activities, policies, procedures, and more to track effectiveness. Our risk mitigation software goes beyond risk-specific mitigation and helps you eliminate duplication, streamline operations, and achieve heightened business performance.
Without investing in risk mitigation, you’re eliminating areas that you can control. This leaves you entirely vulnerable to the impacts of external forces. While we may be able to achieve success in our personal lives by simply implicitly mitigating risk, it’s critical to go above and beyond in our businesses.
To realize the full potential of your business, start by investing your efforts into risk mitigation.