Risk Mitigation Plan- 5 Strategies to Consider
When a business understands the most likely problems that could arise in different operational capacities, measures can be taken to reduce the impact of these issues on customers, employees, processes, and the bottom line.
What is Risk Mitigation Planning?
Risk Mitigation Planning is a way for businesses to limit the impact of operational threats on the company's bottom line. Strategic planning ensures that a business can have confidence in reducing the impact of a range of risks, limiting the loss that could be experienced as a result.
The term mitigation is key, as this planning strategy does not eliminate the threats entirely. Instead, risk mitigation plans acknowledge that certain risks will always be a part of running a business and limits the negative financial impact through key actions and strategies.
There are various risk mitigation strategies and many businesses apply these techniques in their daily operations. An example of a common risk mitigation technique is when a medical office has two waiting rooms - one dedicated to check-ups, and one for sick patients - to reduce viral spreads. Similarly, law firms also mitigate risk by establishing IT protocols for protecting private data with systematic security measures.
Risk Mitigation Strategies
The following five risk mitigation strategies are used to identify, analyze, evaluate, and manage risks and their consequences. Businesses can use these strategies to manage their everyday operations or undertake new projects.
1. Risk Acceptance
Accepting risk involves identifying potential threats and assessing whether the consequences of those risks are manageable. This strategy is not about avoiding or reducing threats, it is about increasing awareness of risks that cannot be avoided.
Examples of implementing this strategy for commonly identified risks include-
- Risks Impacting Schedules - Examine the potential risks that could impact the scheduling of operations, such as meeting deadlines.
- Risks Impacting Costs - Identify additional costs that the risks might create. This could involve implementing a plan to lower the budget of a project to give extra room for unexpected expenses. Generally, the risk acceptance strategy is about awareness of unavoidable extra costs due to events such as global economic downturns.
- Risks Impacting Performance - Risks such as global pandemics will affect the team's productivity or the performance of products. This is about identifying and accepting the risks as part of the project plan so that the whole team understands the potential threats to performance.
2. Risk Avoidance
This strategy begins with the identification of the assumed and accepted risks and involves brainstorming opportunities for avoidance. Actions taken in this strategy include planning for risks to get a clear picture of the best steps to prevent negative outcomes. For example, when a company launches a new product, the team could implement testing protocols before the approval of final production to avoid the risk of product malfunction.
- Risks to Scheduling - Identify key issues that may affect the project timeline. Due dates, deadlines, and delivery of services or goods can all be impacted if there is a risk of being too optimistic about the timeline. The avoidance strategy can be used to create a more flexible schedule that offers allowances for planning, testing phases, and potential changes, all of which mitigate the risk of scheduling issues arising.
- Risks to Costs - A team can determine anticipated expenditures for the project, then outline any other possible costs that would be added to the expected expenses. All costs could be accounted for in the initial budget, to avoid overspending.
- Risks to Performance - Having insufficient or inadequate resources to complete the task and dealing with unpleasant team dynamics pose risks to performance. In this situation, businesses can experiment with more durable or high-quality materials and utilize interactive team management.
3. Risk Control
When mitigating risks within a project, team members can implement the control strategy. This involves assessing the identified risks and taking actions to reduce or prevent the potential negative impact. Rather than avoiding or accepting the risks entirely, this focuses on the consequences, and how to manage them.
- Control Risks to Schedule - Diversify tasks and allow flexibility in the timeline to complete sub-tasks and related projects. This could include tracking the amount of time spent on each task and assigning the appropriate roles to each team member. Time management strategies are vital ways to control risks to scheduling.
- Control Risks to Cost - Outlining possible issues within a project budget is how companies can control risks to cost. Focus on decision-making processes and management, or assess funding sources for vulnerabilities. Delegation of funds is a key point here, especially in the capacity to re-prioritize spending and eliminate costly resources.
- Control Risks to Performance - This strategy focuses on how the teams' tasks are directed and managed, as well as product quality control methods and other actions to control the risks of reduced performance.
4. Risk Transferral
This risk mitigation strategy understands that although there are unavoidable risks, actions can still be taken. This strategy works by transferring the impact of the consequences to another party. The most common form of risk transference is taking out insurance, where the business pays a premium that will ideally protect the company from more significant losses in the future.
- Scheduling Transference - This strategy can be used to shift the responsibility of deadlines to the appropriate team members, rather than the company. As individual departments such as the scheduling, production, and design teams, are responsible for their individual deadlines, remaining teams can solely focus on completing their own tasks.
- Cost Transference - This could include holding accountants and financial teams or advisors accountable for any problems that may arise in budgeting. For example, if a budget goes over, the finance teams who are responsible for tracking expenses will address this issue, rather than the entire project team.
- Performance Transference - Product performance issues could be caused by purchased materials, not just production methods. In this case, the production company could assume the consequences and take action such as announcing a product recall. Conversely, it can transfer the fault to the vendor who was responsible for providing the raw materials.
5. Risk Monitoring
Monitoring projects and operations for threats and their consequences involves assessing any evolutions that may affect the risk impact. Evaluating the performance of the project or operation as it is happening allows a real-time response to mitigate risks, and requires awareness of how each change can impact the likelihood of potential risks occurring.
- Monitor Schedule - To maintain awareness of how the timeline is being met, daily, weekly, or bi-weekly updates can be held to evaluate the team's efficiency and the amount of time it takes to complete tasks. This allows a team to reassess the schedule in real-time and make changes as needed to stay on track with the deadline.
- Monitor Cost - Creating a budget committee or finance team is advantageous for evaluating potential risks to costs, as team members can outline company expenditures and routinely assess spending so that budget changes can be made as needed.
- Monitor Performance - Businesses should monitor the performance of team members, resources, and products to assess the ideal way to create quality output.
These risk mitigation strategies are vital for companies to ensure smoother scheduling, effective financial management, and maintenance of high performing products and labor output.