Risk mitigation

To achieve success across their aims and ambitions, organizations need to constantly assess and review the products and services they offer, the procedures employed in their operations and supply chains, and the impact of stakeholder demands and regulations. All these areas pose possible risks that organizations must address through effective risk mitigation strategies. In addition, new risks and threats are continually emerging, such as cyber security and different environmental impacts. To address the risks, a large and growing number of organizations implement management systems compliant with standards developed by bodies such as ISO (International Organization for Standardization). These cover aspects such as quality, safety, information security, environment among others. ISO management systems help organizations implement structured risk planning and mitigation across operations, products, and supply chains in the area of the specific ISO management system being implemented.

What is risk mitigation?

Risk mitigation or treatment is a key component of the wider risk management process and it has the specific purpose of selecting and implementing options for addressing risks. It refers to the process of planning for unforeseen events and having a way to lessen negative impacts. Although the principle of risk mitigation is to prepare a business for all potential risks, a proper risk treatment/mitigation plan will weigh the impact of each risk and prioritize planning around that impact.

Risk management and mitigation as a key component of the first is a requirement of most ISO standards; ISO has also developed a guidance standard – ISO 31000 – to aid organizations in their implementation. It provides directions on how companies can integrate risk-based decision making into an organization’s governance, planning, management, reporting, policies, values and culture.

Why is risk mitigation important?

The risk mitigation process is crucial for many reasons. Not all risks are avoidable so when analyzing risks in the risk management process, organizations need to develop plans to manage, eliminate, or reduce any impacts as far as is practical should a particular risk occur. Essentially, risk mitigation is the pre-planned processes an organization triggers when something out of the ordinary happens.

The risk management process should identify how to protect people and assets, ensure business continuity and resilience, maintain financial stability, preserve reputation and public trust, comply with legal and regulatory requirements and enhance decision-making capabilities.

The risk mitigation process steps

The process is dynamic and requires continuous and periodic monitoring and review to adapt to new risks and changes that may emerge.

Once risks have been identified, they must be analyzed to understand their potential impact and likelihood. Some risks pose a greater threat than others, and risk prioritization helps organizations focus their resources on which to address first.

After risks are analyzed and evaluated, organizations must decide how to address them. This could involve avoidance, reduction, transference and acceptance of the risks based on their nature and potential impact. Continuous monitoring and reviews are important to ensure that risk mitigation strategies remain effective and management system processes are adjusted as needed.

Types of risk mitigation

In the realm of risk management, understanding the various types of risk mitigation such as risk avoidance, risk transfer, risk reduction and risk acceptance is crucial for developing a comprehensive strategy.

Each one of the four types of risk mitigation targets specific areas of concern, from technical glitches to strategic misalignments, and requires tailored approaches to effectively manage the potential threats. By categorizing risks into distinct types, organizations can allocate resources more efficiently and implement focused mitigation tactics that align with their unique operational, financial, and strategic objectives.

Risk Avoidance

Changing plans to eliminate the risk or condition. For example, if a project involves working at heights, using alternative methods that do not require working at such heights can avoid the risk of falls.

Risk Transference

Shifting the risk to a third party, such as through insurance or outsourcing. For instance, a company might purchase insurance to cover potential losses from a cyber-attack, transferring the financial risk to the insurer. This example could be taken further by outsourcing cybersecurity and contracting another party to manage this aspect of the organization’s business. Outsourcing management elements are quite common in business.

Risk Reduction

Taking steps to reduce the severity or likelihood of the risk. An IT company might implement robust security protocols and encryption to mitigate the risk of data breaches. Another example is for a business that thinks its just-in-time production or delivery policy has been compromised and resorts to warehousing a buffer stock to ensure it can continue.

Risk Acceptance

Acknowledging the risk and choosing to accept it without active engagement. This might occur when the cost of treating a risk is greater than the potential loss from the risk itself.

Risk mitigation strategies and examples

An organization will inevitably be exposed to several typical enterprise risks including financial risks, strategic risks, operational risks, compliance risks, reputational risks, IT security risks, occupational safety and health risks, market and customers’ risk, environmental risks, quality risk and technological risks. The combination of risk mitigation strategies to address each of these will involve discussion between all the parties involved, including internal and external stakeholders, to determine the optimal approach.

Risk mitigation strategies are essential for managing and minimizing risks within an organization. There are many strategies that could be adopted alone or in combinations. Strategies to mitigate risks will differ between companies and the fields of business they are involved in, therefore, it is difficult to generalize what action plans could be used to mitigate risks.

ISO management systems standards such as ISO 90001 (quality), ISO 50001 (energy), ISO 14001 (environment) ISO 450001 (organizational health and safety) ISO 22000 (food safety) and ISO 27001 (information security), provide general guidance on risk management.

Certification to these standards by independent certifying bodies allows organizations to demonstrate their commitment to customers and stakeholders, building trust and, in some instances, providing a ticket to trade.

The ISO 31000 standard, which provides principles and guidance for risk management, is not itself a certifiable standard, but it provides in-depth guidance that can help organizations approach the subject of risk management and mitigation in a structured way. Third party certification bodies such as DNV can help companies with risk management online courses and the risk management foundation course to gain training and certification for standards that are certifiable.