How to build a successful risk mitigation strategy
As Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” This same sentiment can be true when it comes to a successful risk mitigation plan. The only way for effective risk reduction is for an organization to use a step-by-step risk mitigation strategy to sort and manage risk, ensuring the organization has a business continuity plan in place for unexpected events.
Building a strong risk mitigation strategy can set up an organization to have a strong response in the face of risk. This ultimately can reduce the negative effects of threats to the business, such as cyberattacks, natural disasters and other vulnerabilities the business operations may face.
What is risk mitigation?
Risk mitigation is the practice of putting an action plan in place to reduce the impact or eliminate risks an organization might face. Once that plan has been developed and executed by the organization, it’s up to them to continue to monitor progress and make changes as the business grows and evolves over time. It’s important to hit every aspect of the supply chain and address risk throughout the entire business.
Types of risk
While risks will vary greatly from one industry to the next, there are a few commonly identified risks worth noting.
Compliance risk: When an organization violates rules both internal and external, putting its reputation or finances at risk.
Legal risk: This is a compliance risk that involves the organization breaking government rules, resulting in a risk of financial and reputational loss.
Operational risk: This is when there is a risk of loss from the organization’s normal daily business due to failed or flawed processes.
5 steps to a successful risk mitigation strategy
There are several tactics and techniques an organization could take to make a risk mitigation plan. Organizations need to be cautious, however, not to copy from another organization. In most cases, a business has unique needs and must make its own risk mitigation plan in order to be successful.
It’s important to take the time to build a strong risk mitigation team to strategize and put together a plan that works. This risk mitigation plan should weigh the impact of each risk and prioritize the risks based on severity. While plans will vary by necessity, here are five key steps to building a successful risk mitigation strategy:
Step 1: Identify
The first step in any risk mitigation plan is risk identification. The best approach for this first step is to heavily document each of the risks and continue the documentation throughout the risk mitigation process.
Bring in stakeholders from all aspects of the business to provide input and have a project management team in place. You want as many perspectives as possible when it comes to laying out risks and finding as many as possible.
It’s important to remember that all team members in the organization matter; taking them into consideration when identifying potential risks is vital.
Step 2: Perform a risk assessment
The next step is to quantify the level of risk for each risk identified during the first step. This is a key part of the risk mitigation plan since this step lays the groundwork for the entire plan.
In the assessment phase you will measure each risk against one another and analyze the occurrence of each risk. You will also analyze the degree of negative impact the organization would face if the risk were to occur for risks such as cybersecurity or operational risks.
Step 3: Prioritize
The risks have been identified and analyzed. Now it’s time to rank the risks based on severity. The level of severity should have been figured out in the previous step.
Part of prioritization might mean accepting an amount of risk in one part of an organization to protect another part. This tradeoff is likely to happen if your organization has multiple risks across different areas and establishes an acceptable level of risk.
Once an organization establishes this threshold, it can prepare the resources necessary for business continuity across the organization and implement the risk mitigation plan.
Step 4: Monitor
The groundwork has been laid and now it’s time to execute. By this stage a detailed risk mitigation and management plan should be in place. The only thing left to do is to let the risks play out and monitor them continuously.
An organization is always changing and so are business needs; therefore, it’s important that an organization has strong metrics for tracking over time each risk, its category and the corresponding mitigation strategy.
A good practice might be setting up a weekly meeting time to discuss the risks or to use a statistics tool for tracking any changes in the risk profile.
Step 5: Report
The last step of the risk mitigation strategy is to implement the plan in place and then reevaluate it, based on monitoring and metrics, for efficacy. There is a constant need to assess and change it when it seems fit.
Analyzing the risk mitigation strategy is crucial to ensure it is up-to-date, adhering to the latest regulatory and compliance rules, and functioning appropriately for the business. Contingency plans should be in place if something drastic changes or risk events occur.
Types of risk mitigation strategies
The risk mitigation strategies listed below are used most often and commonly in tandem, depending on the business risks and potential impact on the organization.
Risk acceptance: This strategy involves accepting the possibility of a reward outweighing the risk. It doesn’t have to be permanent, but for a given period it may be the best strategy to prioritize more severe risks and threats.
Risk avoidance: The risk avoidance strategy is a method for mitigating possible risk by taking measures to avoid the risk from occurring. This approach may require the organization to compromise other resources or strategies.
Risk monitoring: This approach would occur after an organization has completed its risk mitigation analysis and decided to take steps to reduce the chances of a risk happening or the impact it would have if it did occur. It doesn’t eliminate the risk; rather, it accepts the risk, focuses on containing losses and does what it can to prevent it from spreading.
Risk transfer: Risk transfer involves passing the risk to a third party. This strategy shifts the risk from the organization onto another party; in many cases, the risk shifts to an insurance company. An example of this is obtaining an insurance policy to cover property damage or personal injury.
Risk mitigation and IBM
Business faces many challenges today, including combating financial crime and fraud, controlling financial risk, and mitigating risks in technology and business operations. You must develop and implement successful risk management strategies while enhancing your programs for conducting risk assessments, meeting regulations and achieving compliance.
We deliver services that combine integrated technology from IBM with deep regulatory expertise and managed services from Promontory®, an IBM company. By using scalable operations and intelligent workflows, IBM helps clients achieve priorities, manage risk, fight financial crime and fraud, and meet changing customer demands while satisfying supervisory requirements.