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14 smart ways to manage business risk.

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It’s impossible to truly eliminate risk when it comes to economic decisions that are best for your business. Decisions have to be made even when we don’t know all the facts and are unsure of the future. For instance, market regulations are an uncertain environment where the stakes are higher and risk-taking isn’t optional if you want to move forward.

So how do you account for those uncertainties when trying to make informed, smart decisions for your business? Below, 14 Forbes Business Development Council members explain how to manage risk in uncertain economic situations.

Forbes Business Development Council members share tips on managing risk in business.

1. Look To Past Situations

In every business decision, you have risks and uncertainties. First, you should try to define all risks. If you have had similar situations and experiences, have a look at the past to look for solutions. Create backup plans for different scenarios and be flexible enough to adjust your decision. - Hendrik Bender , Sovereign Speed GmbH

2. Think Through Multiple Scenarios

You’ll never have 100% of the information you need to make a decision. The goal is to manage the risk and make calculated decisions. I’ve found thinking through at least three different scenarios helps me understand potential risks. Best-case, likely-case and worst-case scenario planning is a good way to flush out possible outcomes. I also try to consider unplanned consequences that could arise. - Julie Thomas , ValueSelling Associates

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3. Eliminate Business System Silos

Siloed business systems are too rigid to handle uncertain risk. Signals often exist but in disparate places and forms—such as from regulators or affected customers talking with your sales, support or finance teams. Businesses should feed signals from across functions into a unified view for visibility into cash position, future cash inflow and actions that can influence deals or renewals. - Dan Brown , FinancialForce

4. Control Whatever Variables You Can

Stay informed and analyze past data sets that are similar. Most importantly, control the variables that you can while being sure that you fail fast. Each failure brings you one step closer to success! Just don't make a habit of accepting failure. - Donald O'Sullivan , Pegasystems

5. Trust Your Intuition

This is the exact capability of visionary leaders, who search not only data but facts as well, learn from historical businesses or projects, apply SWOT, calculate risk and determination of mitigations and make a Plan B for consequences. These leaders not only trust their intuition but also never stop learning, taking risks and setting the future. - Majeed Hosseiney , Elements Global Services

6. Be Prepared For A Pivot

I recommend a combination of approaches when managing risk. A SWOT analysis can help steer a company or team in a promising direction. I also recommend a pivot strategy if market regulations drastically change. Start with Plan A, but quickly pivot to Plan B if necessary. Do quarterly or even monthly evaluations to determine if you are staying on track. - Matthew Rolnick , Yaymaker

7. Research And Assess Market Trends

The future is always uncertain. Leaders must research the market and trends and then assess the information at hand today and make a decision. Sometimes, the best decision is to wait until the future is a bit more certain. - Jan Dubauskas , Healthinsurance.com 

8. Engage Regularly

Managing uncertainty requires being engaged and remaining informed so decisions can possess the flexibility needed to accommodate change. Being engaged with customers, regulators and suppliers enables you to help shape their direction in a manner positive to your business. Remaining informed of their leanings enables you to build in the flexibility needed to accommodate their changing positions. - Nathan Ives , DataGlance, Inc.

9. Embrace And Accept Change

Leaders should embrace change as the market will change, in good times or tough times. Accept this change and be able to pivot when needed to adapt to new normals, new regulations and other conditions. No one will ever have 100% of the information needed to make decisions, so thinking through different scenarios that could present themselves is always beneficial. - Michael Hines , Demand Management, Inc (DMI)

10. Make A Risk Management Plan

Apply standard project management and institute best practices for risk management. Make a risk management plan for your business by identifying potential risks and quantifying them the best you can. Plan how to best mitigate those risks based on their likelihood. Create a risk register to track it all and revisit the plan on a regular basis to keep it current as conditions change. - Michael Fritsch , Confoe

11. Break Potential Risks Into Smaller Risks

One strong point in favor of managing risk is to go by experience. Experience does help, but the same experiences will not work for Covid. Depending on the situation, I strongly suggest breaking risks into smaller risks. For smaller risks, identify what impact will be caused. Go back and check if any of the experiences of an individual or an organization will help. If it will, apply it. If not, address the risk. - Ashok Bhat , Acronotics

12. Prioritize Contingency Planning

Contingency planning has to be part of a firm’s armor when it comes to managing uncertainty. Starting early to plan through what-if scenarios and having pseudo-teams focused on contingency and implementation will be essential. Firms can also work with industry peers and industry bodies to ascertain industry assumptions; these will be critical for benchmarking through contingency planning. - Oluchi Ikechi , Accenture

13. Determine If You Can Manage The Risk

Weigh the risk and determine if you can manage it. Start by identifying and evaluating risk, which includes assessing its probability and impact. What do you then do with it? Based on your cost-benefit analysis, you may choose to accept it, take steps to reduce it or transfer it to someone else. A practical analysis will lead to more informed strategic decisions in the face of uncertainty.  - Chor Meng Tan , Wiley

14. Think Through The Worst-Case Scenario

Paralysis by analysis can cause unnecessary indecision. Asking yourself, “What is the worst that could happen,” can put circumstances into perspective and help you be more decisive during times of uncertainty. Oftentimes, the worst-case scenario is manageable. - Brandon Rigoni , Lincoln Industries

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Start » strategy, 6 forward-thinking ways to mitigate risk for your small business.

Discover ways to minimize and manage risk for your small business, including a tight cybersecurity policy and creating a risk management team.

As a business owner, decision-making is your responsibility. While some decisions are straightforward, others, like investing in technology or bringing on an investor, require more time and thought. It's crucial to have effective processes in place for making these high-risk decisions, ensuring a smoothly functioning business.

Here are six strategies to successfully manage and minimize risks in your small business.

Monitor your cash flow closely

Issues with cash flow management don’t pop up out of the blue; they originate from long-term mismanagement or the business owners’ attention being on other priorities. Keeping a close eye on your cash flow ensures you’re abreast of your financial situation and enables you to analyze issues and mitigate potential pitfalls if income streams disappear.

For many business owners, spending hours in the books isn’t feasible with the litany of other responsibilities on their plate — and that’s OK. However, if you’re unable to take stock monthly of your financial situation and monitor cash flow yourself, it’s time to find a reliable accountant. Your accountant can take responsibility for bookkeeping, cash flow management, payroll, and even your small business’s taxes when the time comes.

[Read more: How to Create a Cash Flow Statement to Keep Track of Your Business Finances ]

Establish a cybersecurity policy

Many small businesses often believe they won’t be the target of cyberattacks, resulting in a majority of small businesses ( 51% ) failing to have a digital defense plan in place to protect their customers and intellectual property.

Significant business is done over the web in today’s landscape, and small businesses should establish a cybersecurity policy to protect themselves and their customers’ data. Consider consulting with a data privacy professional to understand the needs of your infrastructure and hit baseline necessities, like password management and a process for updating software. Mitigate the risk cyberattacks pose by developing an airtight security policy.

[Read more: Newly Remote Workforce? Take These 4 Cybersecurity Steps Now ]

One major way to track your online reputation as a business is to read and respond to every review your business gets.

Create a risk management plan and team

Whether you’re able to use in-house employees or hire an outside firm, creating a risk management team affords your business the advantage of having processes in place. Instead of scrambling for answers when a risk goes awry, your team has adequate training to assess the situation, minimize the damage, and take action based on their skill sets.

Relying on an outside firm might cost more capital than an in-house team, but they’ll bring deep knowledge and experience to the table — mapping out risks, implementing strategies for recovery , and lending support if and when it’s needed because it is their only job function.

[Read more: 4 Simple and Easy-to-Deploy Ways to Protect Your Company Data ]

Implement proper insurance coverage and risk transfer

Assessing your insurance needs and liability ensures you’re covered in the event a risk goes wrong. You can further reduce the risks of having significant payouts by buying more coverage or additional insurance plans. At the very least, ensure your insurance covers any inventory, employees, equipment, and miscellaneous property or vehicles.

Avoid long-term commitments

Long-term financial commitments may seem like a good idea at first, but they can decimate your cash on hand after a bad month or two.

Try to stay away from long-term financial commitments like company car leases or hefty mortgages to minimize the risk of your small business. Instead, opt for smaller, bite-sized payments you can handle while continuing to get your business up and running. Consider renting a storefront or having a virtual office rather than buying office space. If your employees drive a lot, organize an easy gas mileage reimbursement program rather than buying a fleet of company cars.

Track your online reputation

The vast majority of consumers trust online reviews as much as personal recommendations, according to BrightLocal . As such, small businesses have the opportunity to attract more customers and build deeper loyalty by curating a transparent online presence. From reviews to ratings to user-generated content, keeping an eye on what people say about your business online has never been more accessible — or more overwhelming.

One major way to track your online reputation as a business is to read and respond to every review your business gets. These responses should remain professional and in the voice of your brand. Because they’re public, reviewing responses on search engines and social media offers potential customers a window into how you do business.

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What is business risk?

You know about death and taxes. What about risk? Yes, risk is just as much a part of life as the other two inevitabilities. This became all the more apparent during COVID-19, as each of us had to assess and reassess our personal risk calculations as each new wave of the pandemic— and pandemic-related disruptions —washed over us. It’s the same in business: executives and organizations have different comfort levels with risk and ways to prepare against it.

Where does business risk come from? To start with, external factors can wreak havoc on an organization’s best-laid plans. These can include things like inflation , supply chain  disruptions, geopolitical upheavals , unpredictable force majeure events like a global pandemic or climate disaster, competitors, reputational  issues, or even cyberattacks .

But sometimes, the call is coming from inside the house. Companies can be imperiled by their own executives’ decisions or by leaks of privileged information, but most damaging of all, perhaps, is the risk of missed opportunities. We’ve seen it often: when companies choose not to adopt disruptive innovation, they risk losing out to more nimble competitors.

The modern era is rife with increasingly frequent sociopolitical, economic, and climate-related shocks. In 2019 alone, for example, 40 weather disasters caused damages exceeding $1 billion each . To stay competitive, organizations should develop dynamic approaches to risk and resilience. That means predicting new threats, perceiving changes in existing threats, and developing comprehensive response plans. There’s no magic formula that can guarantee safe passage through a crisis. But in situations of threat, sometimes only a robust risk-management plan can protect an organization from interruptions to critical business processes. For more on how to assess and prepare for the inevitability of risk, read on.

Learn more about McKinsey’s Risk and Resilience  Practice.

What is risk control?

Risk controls are measures taken to identify, manage, and eliminate threats. Companies can create these controls through a range of risk management strategies and exercises. Once a risk is identified and analyzed, risk controls can be designed to reduce the potential consequences. Eliminating a risk—always the preferable solution—is one method of risk control. Loss prevention and reduction are other risk controls that accept the risk but seek to minimize the potential loss (insurance is one method of loss prevention). A final method of risk control is duplication (also called redundancy). Backup servers or generators are a common example of duplication, ensuring that if a power outage occurs no data or productivity is lost.

But in order to develop appropriate risk controls, an organization should first understand the potential threats.

What are the three components to a robust risk management strategy?

A dynamic risk management plan can be broken down into three components : detecting potential new risks and weaknesses in existing risk controls, determining the organization’s appetite for risk taking, and deciding on the appropriate risk management approach. Here’s more information about each step and how to undertake them.

1. Detecting risks and controlling weaknesses

A static approach to risk is not an option, since an organization can be caught unprepared when an unlikely event, like a pandemic, strikes. So it pays to always be proactive. To keep pace with changing environments, companies should answer the following three questions for each of the risks that are relevant to their business.

• How will a risk play out over time? Risks can be slow moving or fast moving. They can be cyclical or permanent. Companies should analyze how known risks are likely to play out and reevaluate them on a regular basis.
• Are we prepared to respond to systemic risks? Increasingly, risks have longer-term reputational or regulatory consequences, with broad implications for an industry, the economy, or society at large. A risk management strategy should incorporate all risks, including systemic ones.
• What new risks lurk in the future? Organizations should develop new methods of identifying future risks. Traditional approaches that rely on reviews and assessments of historical realities are no longer sufficient.

2. Assessing risk appetite

How can companies develop a systematic way of deciding which risks to accept and which to avoid? Companies should set appetites for risk that align with their own values, strategies, capabilities, and competitive environments—as well as those of society as a whole. To that end, here are three questions companies should consider.

• How much risk should we take on? Companies should reevaluate their risk profiles frequently according to shifting customer behaviors, digital capabilities, competitive landscapes, and global trends.
• Are there any risks we should avoid entirely? Some risks are clear: companies should not tolerate criminal activity or sexual harassment. Others are murkier. How companies respond to risks like economic turmoil and climate change depend on their particular business, industry, and levels of risk tolerance.
• Does our risk appetite adequately reflect the effectiveness of our controls? Companies are typically more comfortable taking risks for which they have strong controls in place. But the increased threat of severe risks challenges traditional assumptions about risk control effectiveness. For instance, many businesses have relied on automation to increase speed and reduce manual error. But increased data breaches and privacy concerns can increase the risk of large-scale failures. Organizations, therefore, should evolve their risk profiles accordingly.

3. Deciding on a risk management approach

Finally, organizations should decide how they will respond when a new risk is identified. This decision-making  process should be flexible and fast, actively engaging leaders from across the organization and honestly assessing what has and hasn’t worked in past scenarios. Here are three questions organizations should be able to answer.

• How should we mitigate the risks we are taking? Ultimately, people need to make these decisions and assess how their controls are working. But automated control systems should buttress human efforts. Controls guided, for example, by advanced analytics can help guard against quantifiable risks and minimize false positives.
• How would we respond if a risk event or control breakdown happens? If (or more likely, when) a threat occurs, companies should be able to switch to crisis management mode quickly, guided by an established playbook. Companies with well-rehearsed crisis management capabilities weather shocks better, as we saw with the COVID-19 pandemic.
• How can we build true resilience? Resilient companies not only better withstand threats—they emerge stronger. The most resilient firms can turn fallout from crises into a competitive advantage. True resilience stems from a diversity of skills and experience, innovation, creative problem solving, and the basic psychological safety that enables peak performance.

Change is constant. Just because a risk control plan made sense last year doesn’t mean it will next year. In addition to the above points, a good risk management strategy involves not only developing plans based on potential risk scenarios but also evaluating those plans on a regular basis.

Learn more about McKinsey’s  Risk and Resilience  Practice.

What are five actions organizations can take to build dynamic risk management?

In the past, some organizations have viewed risk management as a dull, dreary topic, uninteresting for the executive looking to create competitive advantage. But when the risk is particularly severe or sudden, a good risk strategy is about more than competitiveness—it can mean survival. Here are five actions leaders can take to establish risk management capabilities .

• Reset the aspiration for risk management.  This requires clear objectives and clarity on risk levels and appetite. Risk managers should establish dialogues with business leaders to understand how people across the business think about risk, and share possible strategies to nurture informed risk-versus-return decision making—as well as the capabilities available for implementation.
• Establish agile  risk management practices.  As the risk environment becomes more unpredictable, the need for agile risk management grows. In practice, that means putting in place cross-functional teams empowered to make quick decisions about innovating and managing risk.
• Harness the power of data and analytics.  The tools of the digital revolution  can help companies improve risk management. Data streams from traditional and nontraditional sources can broaden and deepen companies’ understandings of risk, and algorithms can boost error detection and drive more accurate predictions.
• Develop risk talent for the future.  Risk managers who are equipped to meet the challenges of the future will need new capabilities and expanded domain knowledge in model risk management , data, analytics, and technology. This will help support a true understanding of the changing risk landscape , which risk leaders can use to effectively counsel their organizations.
• Fortify risk culture.  Risk culture includes the mindsets and behavioral norms that determine an organization’s relationship with risk. A good risk culture allows an organization to respond quickly when threats emerge.

How do scenarios help business leaders understand uncertainty?

Done properly, scenario planning prompts business leaders to convert abstract hypotheses about uncertainties into narratives about realistic visions of the future. Good scenario planning can help decision makers experience new realities  in ways that are intellectual and sensory, as well as rational and emotional. Scenarios have four main features  that can help organizations navigate uncertain times.

• Scenarios expand your thinking.  By developing a range of possible outcomes, each backed with a sequence of events that could lead to them, it’s possible to broaden our thinking. This helps us become ready for the range of possibilities the future might hold—and accept the possibility that change might come more quickly than we expect.
• Scenarios uncover inevitable or likely futures.  A broad scenario-building effort can also point to powerful drivers of change, which can help to predict potential outcomes. In other words, by illuminating critical events from the past, scenario building can point to outcomes that are very likely to happen in the future.
• Scenarios protect against groupthink.  In some large corporations, employees can feel unsafe offering contrarian points of view for fear that they’ll be penalized by management. Scenarios can help companies break out of this trap by providing a “safe haven” for opinions that differ from those of senior leadership and that may run counter to established strategy.
• Scenarios allow people to challenge conventional wisdom.  In large corporations in particular, there’s frequently a strong bias toward the status quo. Scenarios are a nonthreatening way to lay out alternative futures in which assumptions underpinning today’s strategy can be challenged.

Learn more about McKinsey’s Strategy & Corporate Finance  Practice.

What’s the latest thinking on risk for financial institutions?

In late 2021, McKinsey conducted survey-based research with more than 30 chief risk officers (CROs), asking about the current banking environment, risk management practices, and priorities for the future.

According to CROs, banks in the current environment are especially exposed to accelerating market dynamics, climate change, and cybercrime . Sixty-seven percent of CROs surveyed cited the pandemic as having significant impact on employees and in the area of nonfinancial risk. Most believed that these effects would diminish in three years’ time.

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Climate change, on the other hand, is expected to become a larger issue over time. Nearly all respondents cited climate regulation as one of the five most important forces in the financial industry in the coming three years. And 75 percent were concerned about climate-related transition risk: financial and other risks arising from the transformation away from carbon-based energy systems.

And finally, cybercrime was assessed as one of the top risks by most executives, both now and in the future.

Learn more about the risk priorities of banking CROs here .

What is cyber risk?

Cyber risk is a form of business risk. More specifically, it’s the potential for business losses of all kinds  in the digital domain—financial, reputational, operational, productivity related, and regulatory related. While cyber risk originates from threats in the digital realm, it can also cause losses in the physical world, such as damage to operational equipment.

Cyber risk is not the same as a cyberthreat. Cyberthreats are the particular dangers that create the potential for cyber risk. These include privilege escalation (the exploitation of a flaw in a system for the purpose of gaining unauthorized access to resources), vulnerability exploitation (an attack that uses detected vulnerabilities to exploit the host system), or phishing. The risk impact of cyberthreats includes loss of confidentiality, integrity, and availability of digital assets, as well as fraud, financial crime, data loss, or loss of system availability.

In the past, organizations have relied on maturity-based cybersecurity approaches to manage cyber risk. These approaches focus on achieving a particular level of cybersecurity maturity by building capabilities, like establishing a security operations center or implementing multifactor authentication across the organization. A maturity-based approach can still be helpful in some situations, such as for brand-new organizations. But for most institutions, a maturity-based approach can turn into an unmanageably large project, demanding that all aspects of an organization be monitored and analyzed. The reality is that, since some applications are more vulnerable than others, organizations would do better to measure and manage only their most critical vulnerabilities.

What is a risk-based cybersecurity approach?

A risk-based approach is a distinct evolution from a maturity-based approach. For one thing, a risk-based approach identifies risk reduction as the primary goal. This means an organization prioritizes investment based on a cybersecurity program’s effectiveness in reducing risk. Also, a risk-based approach breaks down risk-reduction targets into precise implementation programs with clear alignment all the way up and down an organization. Rather than building controls everywhere, a company can focus on building controls for the worst vulnerabilities.

Here are eight actions that comprise a best practice for developing  a risk-based cybersecurity approach:

• fully embed cybersecurity in the enterprise-risk-management framework
• define the sources of enterprise value across teams, processes, and technologies
• understand the organization’s enterprise-wide vulnerabilities—among people, processes, and technology—internally and for third parties
• understand the relevant “threat actors,” their capabilities, and their intent
• link the controls in “run” activities and “change” programs to the vulnerabilities that they address and determine what new efforts are needed
• map the enterprise risks from the enterprise-risk-management framework, accounting for the threat actors and their capabilities, the enterprise vulnerabilities they seek to exploit, and the security controls of the organization’s cybersecurity run activities and change program
• plot risks against the enterprise-risk appetite; report on how cyber efforts have reduced enterprise risk
• monitor risks and cyber efforts against risk appetite, key cyber risk indicators, and key performance indicators

How can leaders make the right investments in risk management?

Ignoring high-consequence, low-likelihood risks can be catastrophic to an organization—but preparing for everything is too costly. In the case of the COVID-19 crisis, the danger of a global pandemic on this scale was foreseeable, if unexpected. Nevertheless, the vast majority of companies were unprepared: among billion-dollar companies in the United States, more than 50 filed for bankruptcy in 2020.

McKinsey has described the decisions to act on these high-consequence, low-likelihood risks as “ big bets .” The number of these risks is far too large for decision makers to make big bets on all of them. To narrow the list down, the first thing a company can do is to determine which risks could hurt the business versus the risks that could destroy the company. Decision makers should prioritize the potential threats that would cause an existential crisis  for their organization.

To identify these risks, McKinsey recommends using a two-by-two risk grid, situating the potential impact of an event on the whole company against the level of certainty about the impact. This way, risks can be measured against each other, rather than on an absolute scale.

Organizations sometimes survive existential crises. But it can’t be ignored that crises—and missed opportunities—can cause organizations to fail. By measuring the impact of high-impact, low-likelihood risks on core business, leaders can identify and mitigate risks that could imperil the company. What’s more, investing in protecting their value propositions can improve an organization’s overall resilience.

Articles referenced:

• “ Seizing the momentum to build resilience for a future of sustainable inclusive growth ,” February 23, 2023, Børge Brende and Bob Sternfels
• “ Data and analytics innovations to address emerging challenges in credit portfolio management ,” December 23, 2022, Abhishek Anand , Arvind Govindarajan , Luis Nario  and Kirtiman Pathak
• “ Risk and resilience priorities, as told by chief risk officers ,” December 8, 2022, Marc Chiapolino , Filippo Mazzetto, Thomas Poppensieker , Cécile Prinsen, and Dan Williams
• “ What matters most? Six priorities for CEOs in turbulent times ,” November 17, 2022, Homayoun Hatami  and Liz Hilton Segel
• “ Model risk management 2.0 evolves to address continued uncertainty of risk-related events ,” March 9, 2022, Pankaj Kumar, Marie-Paule Laurent, Christophe Rougeaux, and Maribel Tejada
• “ The disaster you could have stopped: Preparing for extraordinary risks ,” December 15, 2020, Fritz Nauck , Ophelia Usher, and Leigh Weiss
• “ Meeting the future: Dynamic risk management for uncertain times ,” November 17, 2020, Ritesh Jain, Fritz Nauck , Thomas Poppensieker , and Olivia White
• “ Risk, resilience, and rebalancing in global value chains ,” August 6, 2020, Susan Lund, James Manyika , Jonathan Woetzel , Edward Barriball , Mekala Krishnan , Knut Alicke , Michael Birshan , Katy George , Sven Smit , Daniel Swan , and Kyle Hutzler
• “ The risk-based approach to cybersecurity ,” October 8, 2019, Jim Boehm , Nick Curcio, Peter Merrath, Lucy Shenton, and Tobias Stähle
• “ Value and resilience through better risk management ,” October 1, 2018, Daniela Gius, Jean-Christophe Mieszala , Ernestos Panayiotou, and Thomas Poppensieker

Want to know more about business risk?

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Risk Management: How to Minimize Risk and Secure Success

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What is risk management?

Types of risks, what is risk analysis, what is the importance of risk management, traditional risk management vs. enterprise risk management, risk management process, how to create a risk management plan, risk management best practices, benefits of risk management, challenges of risk management.

The business world is full of uncertainty, hazards, and surprising turns.

No company can completely control every risk they face. Sometimes it's possible to know what lies ahead, but sometimes it’s not.

Whether it's your first time venturing into the great unknown or you're a seasoned entrepreneur used to risking failure, navigating a crisis is daunting. Managing hurdles is not just about stepping over minor pitfalls – it's about knowing how to sustainably mitigate major risks. And more often than not, the ones that get you are the ones you don't see coming.

Managing risk is hard. It can be challenging to know what dangers lurk in your organization and how these risks will affect daily operations, let alone future growth.

A successful risk management plan helps organizations consider their full range of risks and assess the relationships between those risks and strategic goals. These risks can come from various sources such as legal liabilities, economic uncertainties, technology issues, and natural disasters.

Businesses now have many resources to deal with risky situations, such as   vendor security and privacy assessment software   to manage cybersecurity risks and other tools to manage financial risks.

Risk management is a process organizations use to identify and manage risks. A risk is an unlikely event or condition that, if it occurs, has a positive or negative effect on one or more organizational objectives.

Every organization faces risks. Whether it's a financial, environmental, or technology risk, each can cripple your business if not properly managed. An effective risk management strategy considers the relationship between the possible risks and the ultimate objectives.

Risk reveals shortcomings and weaknesses, limits our time, and forces us to consider options. And this is good because it means we can explore our options, attempt new strategies, and learn from those around us. Risk equals growth, and risk management helps you identify what’s in your way, challenge you to fix these issues, and assist you along the way.

Risk management is a critical part of every company's operations. As necessities grow and competition increases, organizations often underestimate risks and the potential damage they cause. Risk management and business continuity go hand in hand, growing ever more critical as companies invest more readily and heavily into their IT operations. These two disciplines are often bundled together, though they should be considered separately.

Enterprise risk management (ERM) is a holistic approach to risk management that emphasizes predicting and understanding risk throughout a company. ERM highlights the necessity of managing positive risk in addition to focusing on internal and external threats.

Positive risks are opportunities that, if not accepted, can either create corporate value or harm an organization. The goal of any risk management plan is not to remove all risk, but rather protect and create value for the organization with prudent risk decisions.

The risk management process captures and manages emergent risks and incorporates new knowledge in current risk analysis, reflecting the dynamic nature of project activity.

Suppose you're in charge of risk management at your organization. In that case, you are likely responsible for making sure that not only are dangers to your business addressed but that your business is also capable of meeting its goals. Here are six types of possible threats to consider in your organization.

• Financial risk: This refers to the money that flows in and out of a company and the possibility of an unexpected financial loss. Organizations need solid financial management to meet their goals and counteract economic risk. It's critical to foresee financial risks, assess their impact, and prepare to respond to or avert adverse situations.
• Compliance risk: Government agencies enact a slew of industry laws, rules, policies, and best practices to streamline corporate activities. Failure to comply with these requirements can have significant financial and legal ramifications for businesses, putting company objectives and operations at risk. Conducting a compliance audit and maintaining a thorough understanding of applicable regulations of the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), and state and municipal agencies helps reduce compliance risks.
• Security and fraud risk: There's increased potential for hacking as more consumers use the internet and mobile channels to transmit personal data. Data breaches , identity theft, and payment fraud are examples of how this type of risk increases for organizations. Not only does this risk jeopardize a company's trust and reputation, but it also exposes it to a potential burden in the event of a data breach or fraud.
• Reputation risk: An angry customer, a product failure, negative press, or a lawsuit can harm a company's brand image. In recent years, reputational risk has become even more of a problem for businesses due to social media's growth which offers instant interactions, making it more difficult for companies to control their brand image. Understanding the hazards to your reputation and how to handle them is essential.
• Operational risk: The risk of loss from failed internal procedures, people, systems, and external events, is referred to as operational risk. Global crises, IT system failures, data breaches, fraud, human loss, and lawsuits are just a few examples. These operational risks can have a detrimental effect on your organization’s money, time, and image, whether it’s due to people or process failures.  You can handle these potential operational hazards by training and preparing a business continuity plan. Both strategies allow you to consider what could go wrong and plan for a backup.
• Competitor risk: While a company may be mindful of rivals in their market, it's easy to overlook what other companies offer that's of interest to your clientele. The business risk in this situation is that a company leader becomes so comfortable with their success and the status quo that they stop looking for opportunities to pivot or improve. Customers are lost due to increased competition mixed with a refusal to adjust.

There are three levels of knowability to explore for each risk. Project risks are, by definition, unplanned. However, this doesn’t imply that they are always hidden. Understanding risk management entails knowing how much you know about the risks before commencing the process.

Risks are classified into three categories based on the level of knowability.

• A known risk is one previously raised by a stakeholder, colleague, or oneself. It may come up during the project planning phase or just be mentioned by an expert. These must be investigated thoroughly and recorded.
• An unknown risk is one that didn't arise immediately, but can only be known or identified by a select group of respondents, such as an expert or specialist. While creating a business risk management strategy, you should spend some time attempting to uncover these.
• Unknowable risks can’t be realistically predicted, such as overall system failure, a financial collapse, or a catastrophe. While it’s pointless to identify all of them in your strategy, it’s critical to understand that you can’t predict every danger. But it doesn't imply the risks don't exist.

Want to learn more about Vendor Security and Privacy Assessment Software? Explore Vendor Security and Privacy Assessment products.

Risk analysis is the process of identifying and assessing potential concerns that might negatively influence significant business efforts or projects. This practice is carried out to assist companies prevent or mitigate risks. Because risk analysis primarily depends on perception, project leaders must involve stakeholders early in the risk identification process.

Risk analysis examines the probability of unfavorable occurrences induced by natural forces, such as strong storms, earthquakes, floods, and serious incidents caused by purposeful or unintentional human activity. Assessing the potential for damage from these occurrences and their chance is essential for risk analysis.

If an unexpected incident occurs, the consequences could be slight, such as a fall in overhead expenses. In the worst-case scenario, it could be devastating, resulting in considerable financial difficulties or possibly the closure of your organization.

This is when risk management becomes a critical component of your overall business plan. Such a strategy helps mitigate any unfavorable occurrences or developments that could otherwise be devastating by detecting and evaluating inherent hazards to your business. Assessing and evaluating risks effectively protects assets, improves decision making, and enhances operational efficiency across the company to save money, time, and resources.

Risk management has never been more critical than it is right now. Because of the increasing speed of globalization, the risks that modern firms confront have become more complicated. New hazards regularly emerge, many of which are tied to and caused by the now-ubiquitous usage of digital technology. Risk specialists and managers now label climate change as a "threat multiplier".

The coronavirus pandemic, which began as a supply chain concern, swiftly became an existential danger, affecting staff health and wellbeing, business processes, consumer interactions, and brand reputations. Businesses quickly altered their systems in response to the pandemic's risks. However, they now have to deal with new dangers in the future, such as workforce mobility and optimization of their supply networks.

Companies and their board members are reconsidering their risk management frameworks as the market continues to cope with COVID-19. They're re-evaluating their risk exposure and looking into risk management practices. Companies that now employ a reactive risk management approach are investigating the comparative advantages of a more proactive strategy. Sustainability, resiliency, and enterprise agility is gaining popularity.

Organizations realize that they can’t operate in a risk-free environment. How they handle the risks is determined by various factors, including sector and company size. Some market segments, such as financial services and insurance, have more developed risk functions than others because their business practices are risk-based. They are subject to laws that compel them to mitigate risk in specified ways.

Risk management exists in sectors where risk isn’t the core business. Still, hazards vary from industry to industry and business to business, as do strategies for managing risk.

There are two approaches you can take to evaluating and monitoring your company's risks: traditional and enterprise risk management. While the concepts are similar, there are several substantial distinctions between the two.

Traditional risk management

Traditional risk management (TRM) is primarily concerned with loss exposures caused by hazard risk. This technique removes any exposure attributable to business risk from its scope and instead focuses on managing health and safety, acquiring insurance, and regulating financial recovery.

Many organizations think TRM is deceptive and lacks relevant insights into the real and developing nature of risk. This is due to its tendency to emphasize negative scenarios, not to mention its reasonably restricted reach. As a result, TRM is an unstable basis for making informed judgments.

TRM is widely used by businesses and is highly standardized.  The two most commonly used standards for risk management by companies are COSO and ISO 31000. Even though both of these standards are up-to-date on the benefits of taking risks and enjoying the rewards, they remain significantly tilted toward risk management and avoidance.

Enterprise risk management

Enterprise risk management (ERM) is an extension of traditional risk management and elevates it to a strategic organizational level in response to a fast-changing risk environment. It assesses risk via a broader lens and allows for a holistic approach that considers both opportunities and threats.

ERM is significantly more dynamic and allows for far more straightforward case-by-case adaptation. No two organizations are alike, and no two businesses are conducted identically. Some business owners are more conventional, while others are more likely to be impulsive and risk-takers. An ERM program is unquestionably focused on the latter.

ERM strategies help stakeholders and boards of directors make educated and informed choices. ERM allows risk teams to collaborate with decision-makers to decide which risks are too high and generate profit.

Here’s a quick summary of the differences between TRM and ERM.

Risk management, in general, entails developing a risk management approach and plan, identifying elements of the risk management framework, and providing advice on actions, practical methods, and technologies for executing each element.

Setting up and implementing a risk management process is similar to installing a fire alarm. Although you hope the alarm never goes off, you're ready to cope with the slight inconvenience now in return for future safety

Many bodies of knowledge in the risk management discipline detail what businesses must do to mitigate risk. One of the most well-known sources is the ISO 31000 standard , established by the International Organization for Standardization (ISO). ISO recommends a five-step risk management approach that any type of company can apply.

The first step is to identify potential dangers. To examine what could go wrong, one must first examine what must go well. Begin by reviewing your goals and objectives, as well as the numerous resources or assets that permit them. Risk practitioners frequently take either a top-down or bottom-up approach when considering what can obstruct such objectives.

The top-down approach evaluates mission-critical activities that must not be compromised, such as sales transactions in a store or assembly lines in a factory. It then specifies the situations that might threaten those operations.

For the bottom-up approach, risk professionals investigate several known threat sources, such as ransomware attacks or economic downturns, and consider the impact on business.

Here are a few questions to help you determine risks:

• Are there any new or recently revised legal and regulatory laws the team should know?
• Is this risk affecting other aspects of the company? If so, make sure to indicate the risks to that department.
• What occurrences in the past have caught the business off guard?

Anticipating potential project risks doesn’t have to be doom and gloom for your business. Identifying risks is an exemplary process for your entire team to participate and learn. Make use of your whole team's aggregate expertise and experience. Request that everyone identify hazards they have personally encountered or may have more knowledge about. This technique promotes communication and cross-functional learning.

Risks are any uncertainty that influences or affects objectives. The greater the effect of a threat, the greater the priority. Priority examination occurs in the following steps, but first, it's essential to assess the various risk elements to construct a measurable scenario.

Tip: Set a time limit for identifying hazards or you'll remain trapped in analysis paralysis and never proceed on to the following stages. Bear in mind that this is a continual process, so you’ll continue to add risks as time goes on.

As previously stated, a risk is only a concern if it affects business. The second stage in the risk management process is to determine the likelihood that a risk will materialize and have a substantial effect.

Risk analysis deals with calculating the probability of a risk event occurring and estimating the severity of the repercussions if it does. While there's typically an immediate effect, there could be additional long-term implications. Therefore, it's critical to account for these variables in the calculations.

Risk analysis also helps determine the priority levels of each risk so that resources for mitigation are neither over or under-allocated in the subsequent stage. This helps risk management teams choose where to focus first. While evaluating each vulnerability, consider facts such as potential financial loss to the company, time sacrificed, and the magnitude of the impact.

For example, say an employee loses their laptop that contains patient records. There's an immediate loss of property, but the loss of that patient data can result in penalties, litigation, and reputational harm much beyond the cost of the lost gadget.

Risk leaders must include time considerations in risk analysis calculations. Financial reporting systems are frequently seen as crucial, but their integrity and availability requirements are critical during tax season. Another time-based aspect to examine is the frequency of risk events.

Tip: When using risk assessment software , it’s critical to map risks to various documents, rules, procedures, and business operations. The system will have a risk framework in place to assess threats and inform you of the far-reaching consequences of each risk.

You can evaluate and prioritize each risk using a risk heat map. A risk heat map is beneficial because it visually depicts the nature and effect of a business's risks. This activity is best developed in partnership with senior management.

Risk maps are most successful when firms properly evaluate the numerous risk groups they encounter, the various dangers inside each class, and their potential probability and impact on the business.

Businesses should also keep the following factors in mind while developing risk maps:

• The precise systems and business assets that are vulnerable to various risks
• The nature of each risk's impact on the business (monetary, operational, reputational, etc.)
• Whether there’s an appropriate level of damage, and if so, how much damage is bearable for the enterprise
• Current internal controls and any new measures that’ll be installed
• Risk tolerance and risk appetite of the company

While the initial risk prioritization may be based on a mix of possibility and effect, the final ranking is impacted by elements essential to the stakeholders. For example, if the company's current leadership believes that customer trust is a vital value, risks that impact consumers are prioritized. By scrutinizing each risk, a business can identify any recurring difficulties throughout a project and better streamline the risk management strategy for future projects.

Tip: It's critical to remember that risk maps aren’t static. Businesses must regularly analyze their risk maps to ensure that significant risks are appropriately handled. They should also have a process in place for evaluating and revising their risk maps as threats and vulnerabilities emerge.

Every risk must be reduced or eliminated to the greatest extent possible. This is accomplished by establishing contact with experts in the area where the risk exists. This stage is also known as risk response planning.

During this stage, a business evaluates its highest-ranked risks and addresses or adjusts them to achieve acceptable risk levels. You develop risk reduction strategies, preventive measures, and contingency plans in this stage. Once completed, add the risk treatment strategies for the most critical or highest-ranking hazards to your project risk register.

Below are a few aspects to consider as you develop your mitigation strategy:

• No additional treatment is required if the risk is already at an acceptable level based on the organization's risk appetite.
• Transfer some of the risks to another business, such as an insurance company or an outside service provider.
• Substantially limit the chance or effect of each risk to an acceptable standard using various management, technological, and administrative risk controls.
• If none of these risk response strategies can be used, risk managers must prevent the risk by removing the operations or situations that would allow the scenario under review to occur.

It's critical to ensure that the procedures used are efficient and cost-effective. The resources allocated  to treat the risk should be proportionate to the safeguarded assets.

Tip: It's tempting to choose mitigation strategies over current operational processes. You won't be able to put every plan into action straight soon. Try to strike a balance between how you execute risk mitigation measures and ensure that the weight of risk management doesn’t interfere with operations. You also don't want to compell a whole process to be overhauled merely to reduce the risk you placed in the green zone of the risk heat map.

Even after completing each stage, you must track and monitor performance to ensure that risks stay within the limitations defined by the organization's leadership. Risk factors, asset prices, and stakeholder preferences can shift quickly.

The risk monitoring stage includes evaluating the status of risks, assessing the efficacy of mitigation methods implemented, and interacting with relevant stakeholders. Risk monitoring should take place at all stages of the risk management process.

Here are some questions to consider while monitoring risks:

• How can I keep the other department heads interested in assisting with risk management?
• How can I train my team to identify and prioritize risk occurrences?
• Is there any evidence that a danger initially defined as high risk should now be classified as a low threat, or is it the other way around?

An essential component of monitoring is ensuring that managers and senior executives are updated on progress toward risk targets and developments that may impact the company. As diverse teams across the company take steps to detect, assess, and respond to risk, the outcomes influence and enhance the next iteration.

Effective communication among your stakeholders and team members is critical for constant threat monitoring. And while it may feel as though you're herding cats, keeping track of those fluctuating goals is important with your risk management strategy and project risk register in place.

Tip: Don't use a "wait and see" approach, because you may not realize when a risk event has transpired. Events such as cyberattacks and regulatory changes are sometimes discovered months or even years later, despite the security measures and risk management strategy in place. Make sure your risk management strategy incorporates continuous monitoring so you aren't taken by surprise when continuous monitoring could have helped you take action sooner.

A risk management plan is a completed document that outlines all the potential risks associated with an idea. It's usually outlined in the business plan or business case, submitted to stakeholders at the start of a project.

A comprehensive risk management plan will often include the following elements.

• Communication and collaboration: Since developing risk awareness is an essential component of risk management, leaders must also design a strategy to communicate the organization's risk policy and protocols to staff and other stakeholders. This stage establishes the tone for risk choices at all levels.
• Setting the context: This phase involves establishing the organization's distinct risk appetite and risk tolerance, or the extent to which risk might differ from risk appetite. Business objectives, company culture, regulatory laws, political climate, and so on are all factors to consider here.
• Risk identification: This stage identifies the risk scenarios that could influence the organization's capacity to do business, either positively or negatively. As previously stated, the final list should be documented and maintained up to date in a risk registry.
• Risk analysis: This phase examines the likelihood and effect of each risk for further classification. A risk heat map can offer a visual picture of the type and impact of a company's risks. For example, an employee calling in sick is a high-probability occurrence with little or no effect on most businesses. An earthquake is an example of a low-probability risk with a significant impact, depending on where it occurs.
• Risk avoidance occurs when companies remove, withdraw from, or refrain from participating in possible risks.
• Risk mitigation occurs when an organization takes steps to reduce or optimize a risk.
• Risk sharing or risk transfer occurs when the business enters into a contract with a third party (like an insurer) to shoulder some or all of the expenses that may or may not arise.
• Risk acceptance occurs when a risk fits within the risk appetite and tolerance of the company and is accepted without action.
• Risk monitoring: This stage requires identifying and implementing systems that rigorously assess the objectives, risk ownership, compliance with policies established via the governance process.
• Risk reporting: This stage helps businesses assess and evaluate their risk management plan. It also keeps stakeholders involved in risk mitigation by sharing progress. Risk management software is helpful during this phase to collect all of the data points and provide an easy-to-read dashboard.

Whether you're developing IT risk management strategies for a vendor or assessing your own company's risk assessment strategy, you need a plan. Here are some of the crucial risk management best practices to consider.

• Conduct a business impact analysis (BIA). Conducting a BIA goes hand in hand with risk analysis. It's an excellent method for identifying the risks that’ll have the most impact on your business.
• Determine the action items and their owners. Identify action items that emerge from the risk register and their owners. Assign risk owners to their respective risks.
• Begin identifying threats in the early phases of the project. Begin the risk identification process as soon as the project starts. Thoroughly examine the assumptions and terms and conditions specified in the proposal or  statement of work (SOW)   document.
• All stakeholders should be kept up to speed on the risk statuses. Try to communicate regularly, especially with weekly status updates.

Risk management isn't always a popular topic, but it does prevent disasters from taking place. It's the insurance policy to your strategy and gives you peace of mind that you're protected and your hard work and investment won't go to waste without a return.

When well done, risk management safeguards your reputation and saves you time and money. Yet, few businesses have a process in place to manage it effectively. Below are some benefits of risk management.

Forecasting potential threats

One of the advantages of risk management is that it transforms a company's culture. Businesses that place a greater emphasis on risk management are more proactive. Risk management requires organizations to examine each of their business operations and determine what may go wrong. This extensive what-if survey helps businesses become more proactive and forecast potential challenges.

Companies that employ risk management extensively have fewer business disruptions since such concerns are anticipated and addressed at an early stage. A proactive strategy is beneficial since it allows businesses to detect failing initiatives early.

Improves business operations

The daily activities of risk management demand that organizations gather an increasing amount of data on their operational processes to identify the elements of the process that are unproductive or have room to improve.

Risk management teams are also responsible for regularly monitoring the operations of several departments with respect to external entities and potential problems. As a result, various possibilities are recognized and procedures are enhanced. Risk management methods frequently coexist alongside business process reengineering and process quality enhancements.

Better customer experience

Risk management planning can have a significant impact on how your business operates. Better organizational efficiency and consistency contribute to happy consumers. Improving information security helps you avoid downtime, impacting your customers' satisfaction. A company that expands sustainably attracts more satisfied consumers.

Savvy executives undoubtedly know that effective risk management is critical for successful businesses. They also understand that failure to use effective risk identification and assessment strategies could lead to significant losses in product quality, service delivery, and market share.

Here are some challenges of risk management.

Integration with business practices

The danger of risk management is that business leaders perceive it as a purely bureaucratic exercise. This can cause them to overlook its importance or invest in prevention systems that aren’t appropriate to the nature of the risks they face. Most business executives consider risk management planning as a compulsory regulatory task they must complete to meet market expectations.

Risk management is frequently consigned to a lower-level function that addresses essential but non-strategic concerns. As a result, risk management initiatives inside an organization are insufficiently connected with strategic planning. This is partly influenced by how risk managers have led their risk identification and assessment initiatives.

Increased expenses

Risk management and planning require businesses to shell out money. Companies will need to increase their cash-generating strategies to fund training and upkeep for something that hasn't yet occurred.

It’s a risky business

Managing risk is one of the most important responsibilities a business faces each day. Investing in risk management is the only way to ensure that your company will continue to prosper.

Resolve to be proactive, not reactive. Understand the risks and address them before they matter.

Want to know more about project management? Discover everything you need to know about  project planning  to ensure success.

Keerthi Rangan

Keerthi Rangan is an SEO specialist and a former content marketing specialist at G2 focused on the IT management software market. Her content helps organizations understand the different IT concepts and corresponding software available to transform their businesses, data, and people. Keerthi leverages her background in Python development to build subject matter expertise in the software and IT management space. Her coverage areas include: network automation, software-defined networking (SDN), blockchain, databases, asset management, disaster recovery, intent-based networks, infrastructure as code (IaC), SaaS, and more.

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Managing Risks: A New Framework

Smart companies match their approach to the nature of the threats they face. by Robert S. Kaplan and Anette Mikes

Summary .   

Risk management is too often treated as a compliance issue that can be solved by drawing up lots of rules and making sure that all employees follow them. Many such rules, of course, are sensible and do reduce some risks that could severely damage a company. But rules-based risk management will not diminish either the likelihood or the impact of a disaster such as Deepwater Horizon, just as it did not prevent the failure of many financial institutions during the 2007–2008 credit crisis.

In this article, Robert S. Kaplan and Anette Mikes present a categorization of risk that allows executives to understand the qualitative distinctions between the types of risks that organizations face. Preventable risks, arising from within the organization, are controllable and ought to be eliminated or avoided. Examples are the risks from employees’ and managers’ unauthorized, unethical, or inappropriate actions and the risks from breakdowns in routine operational processes. Strategy risks are those a company voluntarily assumes in order to generate superior returns from its strategy. External risks arise from events outside the company and are beyond its influence or control. Sources of these risks include natural and political disasters and major macroeconomic shifts. Risk events from any category can be fatal to a company’s strategy and even to its survival.

Companies should tailor their risk management processes to these different risk categories. A rules-based approach is effective for managing preventable risks, whereas strategy risks require a fundamentally different approach based on open and explicit risk discussions. To anticipate and mitigate the impact of major external risks, companies can call on tools such as war-gaming and scenario analysis.

Editors’ note: Since this issue of HBR went to press, JP Morgan, whose risk management practices are highlighted in this article, revealed significant trading losses at one of its units. The authors provide their commentary on this turn of events in their contribution to HBR’s Insight Center on Managing Risky Behavior.

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Risk Mitigation Strategies: Types & Examples (+ Free Template)

Effective enterprise risk management is more important than ever. A recent 2023 State of Risk Oversight Report by NC State University shows that while two-thirds of business leaders (out of 454 respondents) acknowledge escalating risks, only a third are geared up to tackle them.

This points to a serious disconnect between the organization’s needs and its risk management strategy. No plan is bulletproof, but effective preparation and monitoring will help you minimize risks and their impact on business.

In this article, we explore the different risk mitigation strategies and how you can implement them to protect your organization’s performance and stability.  

What Is Risk Mitigation?

Risk mitigation is a proactive business strategy to identify, assess, and mitigate potential threats or uncertainties that could harm an organization’s objectives, assets, or operations. It entails specific action plans to reduce the likelihood or impact of these identified risks. 

Conversely, risk management is a broader, more comprehensive process that involves various stages like risk identification, assessment, response, and monitoring. 

While risk mitigation focuses on direct actions to eliminate or diminish threats, risk management encompasses the entire life cycle of dealing with risks. 

They may sound similar, but risk mitigation is a subset and vital component of the risk management process.

Why Is Risk Mitigation Important?

The stakes are high, according to the 2023 State of Risk Oversight Report. We're seeing near-record levels of risk events and complexities across organizations.

So what does a robust risk mitigation plan offer you? For starters, it's not about ignoring risks, but rather tackling them head-on with actionable steps. This ensures you have a business continuity plan in the face of disruptions. 

An effective risk mitigation process also provides a clearer picture of potential obstacles, which helps with strategic decision-making. This helps manage operational risks and create a resilient supply chain . It also assures employees that they are working with a company that prioritizes job security.

But risk mitigation isn't all defense—it also sets you up to seize growth opportunities. By identifying and minimizing risks, you can make calculated moves that optimize your business portfolio .

What Are The Types Of Risks?

Your risk mitigation strategies should be tailored to your business, which means it can't be a carbon copy of another organization's risk mitigation strategy. The risks you face will vary based on your industry, sector, and other unique factors.

Some of the most common types of risks include:

• Competitor risk: Threats from rival organizations.
• Economic risk: Vulnerabilities due to economic fluctuations.
• Political risk: Impact of political factors.
• Financial risk: Exposure to financial uncertainties.
• Operational risk: Daily hazards in operations , including cybersecurity risks. 

📚You can learn more about risk types and strategies to mitigate them in this article .

What Are The Risk Mitigation Strategies?

Described below are the most common risk mitigation strategies.

Tip: You should always start with a complete risk analysis to pick the right strategy for your business.

Risk avoidance strategy

The most straightforward way to deal with risks is to remove them entirely. This involves steering clear of any actions or situations that could harm your business. But be cautious: sidestepping one risk might require sacrificing other resources.

A large technology company plans to launch a new product in an international market, but a risk assessment uncovers considerable regulatory and political obstacles. 

Opting for a risk avoidance strategy, the company chooses not to enter the new market, eliminating these high-stakes risks. Instead, it reallocates resources to bolster existing markets or pursue other low-risk opportunities. 

While this approach removes immediate risks, it also sacrifices the potential revenue and growth the new product could have generated in that market.

Risk transfer strategy

Sometimes you can pass risks on to someone else. This usually involves using contracts, insurance, or outsourcing . This is a good strategy if it's cheaper to pay another company to take on the risk than to deal with it yourself.

💡 Examples:  

• Work with a third-party logistics provider (3PL) for your shipping and delivery needs. The contract often includes clauses that transfer the risk of damaged or lost goods during transit to the 3PL. Upon damaged products, the 3PL is liable to compensate your business for the losses.
• Pay an insurance company a small fee to avoid the full financial implications of unforeseen events like accidents.

📚 Recommended read: Unlocking The Power Of Logistics Strategy To Achieve Supply Chain Excellence

Risk acceptance strategy

Sometimes taking a risk is a good choice, especially if the potential reward is high or the likelihood of problems is low. Each business has its own comfort level for risk and uses that to decide which risks are worth taking. It’s also better to accept risks if the costs of avoiding them are too high.

Many startups know they have a high chance of failing early on. But they're willing to take that risk because the possible rewards, like growth and profit, make it worthwhile. 

If you’re following this strategy, you must constantly monitor the threat level. If it rises above acceptable risk levels, or if your risk appetite changes, you might need to switch to a different strategy to protect your business.

Risk reduction strategy

In cases where you can’t avoid or accept the risks, it’s best to pursue measures to reduce their impact altogether. Risk reduction involves implementing proactive and concrete actions to make a potential problem less severe.

💡 Examples: 

• An oil drilling company in a hurricane-prone region may invest in advanced high-tech weather systems to better predict stores. This move will help them to prepare in advance and reduce the likelihood of costly disruptions due to natural disasters. 
• If you identified that you’ll run out of funds to complete a project, you could switch to more affordable materials or scale back the project size. You could also look for extra funding. Each option helps lower the risk of running out of money before completing the project.

Risk monitoring strategy

Risks are an ongoing fact of doing business and carefully monitoring them will ensure that mitigation measures remain effective. Risk monitoring involves regular evaluations and adjustments to strategies to address changing circumstances. 

💡 Example: 

A manufacturing company can continually monitor supply chain risks like supplier reliability, geopolitical issues, and market trends. If there are potential disruptions, they can take timely actions to adjust sourcing strategies or secure alternative suppliers.

What Are The Steps To Mitigate Risks?

The following steps will help you identify risks and implement a responsive risk mitigation strategy:

1. Understand what you’re up against

Systematically examine all the possible risks to your business by conducting an internal and external analysis. You can use the SWOT analysis to identify the current and future state of your business. Pay attention to the “Threats” quadrant that highlights potential risks. 

You can also use other strategic analysis tools like PESTLE Analysis or Porter’s 5 Forces to analyze the business’s external environment for any potential threats. 

💡Involve key stakeholders to gain a diverse perspective and access to insights that may not be immediately apparent. They can help you see what’s happening on the front lines so you can assess risks accurately.

2. Assess and prioritize the risks

After listing all the possible risks, it’s time to analyze the probability of their occurrence and the potential negative impact. You can use a risk matrix to help you assess and prioritize risks based on their likelihood and impact. This will help you focus your resources on the most critical risks.

💡While the risk matrix is easy to read and use, it often relies on qualitative judgments. This can sometimes result in poor resource allocation. To avoid this, whenever possible, convert risks into monetary terms. This provides a more accurate picture of how each risk could financially impact your business.

3. Prepare a plan to execute your risk mitigation initiatives

Once you’ve identified and categorized the potential risks to your business, it’s time to create an action plan. For each identified risk, decide on the most suitable approach: will you avoid, mitigate, transfer, or simply accept it?

Once you've determined your approach for each risk, allocate the needed resources. This includes people, money, and time devoted to implementing the chosen risk mitigation strategies . Have a backup with contingency plans for risks that may not be fully addressed by your initial strategies.

💡You can use Cascade’s Risk Mitigation Strategy Plan Template to cover all the key elements of an effective strategy. 

4. Execute your strategy and monitor risks 

Risks are always changing. That's why you need to continuously keep an eye on them to make sure your mitigation plans are up-to-date. Establish regular check-ins, such as daily or weekly meetings, to quickly assess the status of your risk mitigation strategies. 

To make this process even more efficient, use specific metrics tied to the risks you're managing. Set up triggers that alert you when it's time to take extra steps.

💡Look for strategy execution tools like Cascade that integrate seamlessly with various business platforms. This allows you to bring all your key business data together in a centralized hub, making it easier to stay on top of risks and adjust your strategies as needed.

5. Update risk and adapt your plan

As your business landscape evolves—whether due to market shifts, technological upgrades, or internal developments—your risk mitigation plan must keep pace. Not only can new risks arise, but the importance of existing risks can change as well.

To make these adjustments more data-driven, you can use Cascade's reports . 

These reports help you pinpoint any threats, monitor risks, and keep your team aligned with updated priorities. By constantly refining your plan, you ensure it remains effective in a shifting environment.

Mitigate Risks And Master Chaos With Cascade 🚀

To be resilient and successful, it's crucial to spot and neutralize threats before they escalate. Instead of being reactive, the key is to be proactive—maintaining financial stability, safeguarding your reputation, and staying ahead of the competition.

With features like alignment and collaboration, real-time analytics, and data tracking in one place, Cascade empowers you to detect and manage risks with confidence. 

Our strategy execution platform integrates various data sources, giving you centralized visibility over your execution engine. This insight enables you to clear dependencies and mitigate potential risks faster to improve your odds of success. 

Curious? Sign up for free or book a 1:1 with Cascade strategy expert . 

More related resilience and risk management strategy templates: 

• 16 Business Continuity Plan Templates For Every Business
• Operational Risk Assessment Template
• Healthcare Risk Assessment Template
• Compliance Risk Management Plan Template
• Risk Response Plan Template

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What Is Risk Management & Why Is It Important?

• 24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

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What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

• Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
• Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
• Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

• Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
• Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
• Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
• Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

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What is Risk Mitigation? 4 Useful Strategies to Mitigate Risk

As humans, we’re used to assessing risks; it’s part of our survival mechanisms. But limiting risk — also called risk mitigation — impacts whether a business survives.

Imagine a scenario where business leaders don’t stop to reflect on past mistakes or constantly dive into new opportunities without considering how they could impact their business — this wouldn’t be sustainable.

To effectively reduce risk within an organization, we need to understand the different types of risk and how to prevent them. In this article, we’ll cover the various types of risks, share four risk mitigation strategies, and show you how to build a plan on monday.com Work OS to help you future-proof your business.

What is risk mitigation?

Risk mitigation is the practice of reducing the impact of potential risks by developing a plan to manage, eliminate, or limit setbacks as much as possible. After management creates and carries out the plan, they’ll monitor progress and assess whether or not they need to modify any actions.

In a nutshell, risk mitigation describes the tactics and techniques that bring risk levels down to a tolerable level for the business.

Though it might feel tempting to take a page from another business’s risk management book, your plan will depend on your unique business strategy.

Taking the time to create a unique risk mitigation plan could be the difference between maintaining a strong relationship with clients and losing out on business. Let’s look closer at what you would want to achieve when you mitigate risks.

Why do we mitigate risk?

Unfortunately, ignoring risk factors won’t make risks disappear, and forging ahead without a plan may damage your bottom line. This is why risk mitigation is important.

With a concrete plan with clear action items, you can prevent risks from turning into problems that spin out of control or even prevent risks altogether.

This not only carries tangible benefits — such as keeping your business profitable — but it also has intangible benefits, such as helping you maintain a good reputation for stability within the industry and keeping internal and external stakeholders happy.

The latter is significant. In a recent survey, two-thirds of respondents said the volume and complexity of risks were near their highest level in 14 years for all types of organizations, while less than one-third described their risk management processes as mature or robust.

Those operational risks can cost time, money, and other valuable resources. If stakeholders feel the risks are too high or mishandled, that could lead to a reshuffle in management. So risk mitigation is essential, but before you can develop a plan, you need to know what risks you can face.

What are the types of risk you may encounter?

The risks you face may differ from those of another business or industry, catering to different clients or customers. That said, a few common risks include:

• Compliance risk — when a company violates external or internal rules, regulations, or standards, its reputation or finances are at risk. Companies may face losing customers or paying a fine due to breaking compliance regulations.
• Legal risk — a type of compliance risk that happens when a company breaks the government’s rules for companies. Companies facing legal risks could also get caught up in expensive lawsuits.
• Strategic risk — the result of a company’s faulty business strategy or lack thereof.
• Reputational risk — a risk that can negatively impact the company’s standing or public opinion. Reputational risks can result in profit losses and decreased confidence among company shareholders.
• Operational risk — a business’ day-to-day activities can potentially drain its profits. Both internal systems and external factors can cause operational risks.

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Many businesses organize matrices by potential consequences and likelihood, like the one above. Identifying which risks you’ll face is the first step toward preventing them. Generally, there are a few types of risk mitigation strategies you can use to protect your business.

What are the four risk mitigation strategies?

There are four common risk mitigation strategies: avoidance, reduction, transference, and acceptance.

Risk avoidance

With a risk avoidance strategy, you take measures to avoid the risk from occurring. This may require compromising other resources or strategies to ensure you’re doing everything possible to avoid the risk.

For example, you may face a risk where you won’t be able to complete a task for an important project due to a lack of specialists. To avoid this risk, you could hire multiple specialists in case one got sick or wasn’t available.

Of course, hiring more resources would take a bigger slice out of the budget, so assessing how much you can compromise is an important step in this strategy.

Risk reduction

With this mitigation approach, once you’ve completed your risk analysis , you would take steps to reduce the likelihood of a risk happening or the impact should it occur.

Let’s say your budget is tight, and there’s a risk you can’t complete a particular project due to a lack of funds.

You can reduce the likelihood of that risk occurring by proactively managing the costs within the budget. In this scenario, you could choose a cheaper option for raw materials or reduce the project scope to complete it within budget, like the image below:

Risk transfer

Transferring risks involves passing the risk consequence to a third party. For many businesses, that might involve paying an insurance company to cover certain risks.

Risk transference might also be written into contracts with suppliers, outsourcing partners, or contractors. If a project gets delayed awaiting a part or service from an external contractor, for instance, the contractor might face penalties for any loss of revenue the business incurs.

Also, if a company has employees or contractors from around the world, a global compliance adviser can help support and address the challenges inherent to extending operations across different countries.

Risk acceptance

Lastly, we have the risk acceptance strategy, which means accepting the risk as it stands. Sometimes, the possibility of reward outweighs the risk, and it’s more beneficial in the long run to take the chance.

It could also be that the probability of the risk occurring is minimal or the negative impact is minor. For items in this “Low” risk category, a business might have an ongoing strategy to accept the risk.

With risk acceptance, it’s vital to monitor the risk carefully for any changes to impact or likelihood of occurrence. You may also want to keep weighing the risk against your risk appetite and assess whether carrying the burden of risk continues to be the best move.

We’ve identified different types of risks and discussed several mitigation strategies. Now, it’s time to put the above into action and see how you can mitigate risks.

Practical steps you can take to mitigate risk

Risk mitigation steps need to be practical. It won’t help your business if you can’t figure out how to actually mitigate the risks you’re facing.

The following five steps will help you figure out a way forward through your risk mitigation process. Let’s break it down.

1. Identify all possible risks

Before developing any plan, you may want to identify any risk that could impact your project or wider business operations. In this stage, it’s important to collaborate with a broad selection of stakeholders with different business perspectives to give yourself the best chance of identifying all possible risks.

For projects, project documentation can act as a valuable source of information. Review similar projects for hints about potential risks you might encounter.

2. Conduct a risk assessment

Now you’ve got a list of all your possible risks, it’s time to assess them by analyzing the likelihood that they will occur and the degree of negative impact your business would face.

Your actions for each risk will depend on which category they fall into after your risk assessment . For example, as we mentioned earlier, you might decide to accept all “Low” category risks, reduce or transfer “Medium” risks, and avoid all “High” category risks.

3. Treat the risks

At this point, you’re deciding on your mitigating action and putting strategies in place. Make sure to record each risk, its category, and your chosen prevention measures in a risk register.

This is a resource for all stakeholders to refer to and understand the plan and which actions to take if needed. A risk register will prevent confusion down the line, helping your team stay organized and aligned if risks occur.

On monday.com, you can get as detailed as necessary, and add risk owners, dates, and statuses for a fully actionable plan:

4. Monitor risks regularly

Businesses aren’t static and projects frequently change. It’s essential to regularly monitor each risk to check its category and mitigation strategy.

There are many different ways you could conduct risk monitoring. You can set up times in your weekly meetings or daily stand ups to quickly review risks. You can also use several statistical tools — such as S-curves — to track project progress and flag any changes in the risk profile for key variables, such as project cost and duration.

5. Report on any potential risks

Sharing information on risks, best practices, and mitigation approaches can make your business’ risk mitigation strategy even more effective. Keeping risks at the forefront of stakeholders’ minds is vital for informed decision-making, and regular reporting may surface other risks that haven’t been identified yet.

The most effective risk mitigation strategies make risk reporting part of regular business operations by weaving it into the daily or weekly workflows. One way to easily implement reporting is with the built-in reporting capabilities and pre-built risk management templates on monday.com Work OS.

How monday.com can help you mitigate your risk

monday.com Work OS brings visibility and automation to your risk management strategy, allowing you to identify business risks across all departments and present them in a single risk register and mitigation plan.

Customization

The platform is highly customizable, so you can view, track, and report on your data at a business, functional, team, or project level, depending on your needs. With a few clicks, you can change your risk mitigation plan as things progress and alert your team or stakeholders to those changes.

Choose from pre-selected statuses to keep everyone informed, or change the text and the label color to make them your own:

Automations

The powerful automations immediately notify risk owners and stakeholders of any changes and enable them to take action. Use the monday.com Workflows Center to create custom processes that update stakeholders when important dates arrive, notify the right people when a status changes, create dependencies as needed, and much more.

Collaboration

On monday.com Work OS, it’s easy to collaborate on risk identification and categorization. Anyone can view, share, and annotate documents and tag colleagues to ask questions, gain clarity, or inform, which means everyone stays aligned and in agreement on the way ahead.

Visualization

Teams can view the strategy in several different ways according to what works for them. From the table view to dashboards, charts, Kanban, and others, it’s easy to get the full picture of events and action items.

Centralization

Lastly, keep all important files and documents in one central place. You can even create documents on monday.com with Workdocs, a tool that allows your team to seamlessly collaborate on new ideas, outlines, or proposals without disrupting each other.

You can also embed monday.com boards, dashboards, videos, and more directly into your Workdoc. Each component will automatically sync and update as you work, so nothing falls through the cracks.

Help future-proof your business with monday.com risk mitigation

It’s impossible to remove all business risks — however, early risk identification provides the best chance of mitigating them to levels your business can handle.

With monday.com, businesses can easily identify, classify, and manage risks. Take the first step towards risk mitigation by downloading our free risk register template .

What’s the difference between risk mitigation and risk management?

Risk mitigation is a part of the risk management process. While risk management encompasses the broader process of identifying, analyzing, and addressing risks, risk mitigation focuses explicitly on taking actions to reduce the probability of risks occurring and minimize their impact.

What is a risk mitigation plan?

A risk mitigation plan is essential for identifying, assessing, and reducing risks to a project or organization. It typically involves identifying likely risks, prioritizing risk preparation and responses, and monitoring and updating the plan accordingly. 

What is a key risk indicator (KRI)?

A key risk indicator (KRI) is a metric that measures the likelihood of an adverse event occurring and its possible effects on the organization. KRIs also consider the organization's ability to absorb the impact based on its current resources.

What are the 4 Ts of risk management?

There are different ways of mitigating actual and potential risks. One common way to summarize the critical steps required to mitigate risk is using the 4 T's- tolerate, terminate, treat, and transfer.

What are two basic strategies for mitigating risk?

The two basic strategies for mitigating risks are first to identify all the various activities or steps needed to reduce the probability or potential impact of an adverse risk. Second, to create an action plan to deal with risk should it occur.

What is the goal of risk mitigation?

The goal of risk mitigation is to reduce the likelihood of business or project risk down to an acceptable level, as well as to put strategies in place to monitor and respond to potential threats in the event they happen. Risks could involve a financial risk caused by a natural disaster, or a cybersecurity risk. Mitigation strategies could include an insurance policy, a better project planning process, employee training, or a better contingency plan.

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In the ever-evolving business landscape, risks and uncertainties are as inevitable as change itself. But are these risks merely stumbling blocks, or can they be stepping stones to greater resilience and success? 

Whether you’re an entrepreneur or a seasoned corporation, understanding and effectively managing risks is pivotal to the longevity and prosperity of your business.

We will explore the strategies successful businesses use to anticipate potential threats and turn them into opportunities for growth and innovation, uncovering the art and science of risk mitigation. We’ll examine every critical aspect of risk appetite, from financial risks to operational disruptions, technological challenges, and unforeseen market shifts.

Let’s transform risk into reward, uncertainty into certainty, and challenges into triumphs.

Table of contents

What is risk mitigation, the importance of risk mitigation for businesses, benefits of risk mitigation, types of risks your business may encounter, types of risk mitigation strategies, best practices for mitigating risks, how leantime can help mitigate risk, key risk indicators (kris) and early risk identification, risk mitigation as part of the broader risk management process, leveraging best practices and industry standards.

Risk mitigation refers to minimizing potential risks that could negatively impact a project or business. This is achieved by creating and implementing a plan to manage, eliminate, or reduce the occurrence of setbacks. Once the risk mitigation plan is executed, it is monitored to track progress and determine whether any adjustments are required.

“In brief, risk mitigation refers to the strategies and methods implemented to reduce risk to an acceptable level for the business. While adopting a risk management plan from another business may be tempting, your plan should be tailored to your specific business strategy.”

Investing time in developing a risk assessment can play a significant role in maintaining a healthy relationship with clients and preventing loss of business. Let’s examine what you aim to achieve when reducing risk factors in more detail.

In today’s dynamic and uncertain business landscape, effective risk mitigation strategies have become more critical than ever before. Businesses must proactively identify, evaluate, and mitigate all potential risks that could impact their operations, reputation, and bottom line.

Whether financial, operational, legal, or strategic, every type of risk can have significant consequences for a business. Therefore, they must adopt a comprehensive risk management approach, including risk assessment, treatment, and monitoring.

The business can maintain stability, protect its assets, and ensure long-term success despite the increasingly complex and uncertain business environment.

A risk mitigation strategy offers numerous benefits, including improved decision-making, reduced financial loss, enhanced operational efficiency, and increased stakeholder confidence.

With these types of risk mitigation used, it is essential to understand the different types of risks that your business may face. By identifying these risks, you can develop appropriate mitigation strategies to reduce their impact on your organization. Some common types of risks that may be encountered include:

Compliance Risks

These and other risks are associated with the potential failure to comply with laws, regulations, and industry standards that apply to your business. Non-compliance can result in fines, penalties, and damage to your company’s reputation.

Legal Risks

Legal risks involve potential litigation or disputes arising from contractual disagreements, employee issues, intellectual property infringement, or other legal matters. Addressing legal risks may require the involvement of legal counsel and could lead to costly settlements or judgments.

Strategic Risks

Strategic risks are the potential negative consequences that can arise from the decisions and actions taken by your business. These risks can arise due to various factors, such as poor market positioning, competitor actions, or ineffective business strategies. They can adversely affect the overall success of your business.

With risk mitigation, it is important to continually evaluate and adjust your business plan to stay ahead of potential threats. This may involve conducting market research, examining emerging trends, and developing contingency plans that can be implemented quickly in response to unforeseen events.

By effectively managing strategic risks, you can increase your business’s resilience and improve its chances of long-term success.

Reputational Risks

Reputational risks are among the most significant threats that a company may face in today’s highly competitive business environment. They can arise from various sources, such as negative publicity, social media backlash, or customer dissatisfaction. They can damage a company’s reputation, making it harder to attract and retain new customers and ultimately impacting its bottom line.

To mitigate risk, it is vital for companies to maintain open communication with all stakeholders and respond proactively to any issues that may arise. It is crucial to identify possible risks, assess their impact, and develop a comprehensive strategy to address them.

This strategy should include measures to monitor and manage online and offline conversations about the company and respond quickly and effectively to any negative comments or feedback.

In addition, companies should establish clear policies and procedures for addressing reputational risks, including guidelines for communicating with stakeholders, handling crises, and managing social media.

They should also invest in training their employees to handle reputational risks and ensure that everyone in the organization understands the importance of protecting the company’s reputation.

Overall, managing reputational risks requires a proactive and strategic approach. By maintaining open communication with stakeholders, monitoring conversations, responding quickly and effectively, and investing in employee training, companies can protect their brand image and public perception and ultimately ensure their long-term success.

Operational Risks

Operational risks encompass any factors that may occur that could disrupt your business’s day-to-day operations, such as equipment failure, supply chain disruptions, or human error.

To minimize operational risks, it is crucial to implement effective management processes, maintain up-to-date technology and equipment, and ensure employees are well-trained and follow established procedures.

In an ever-changing business landscape, it’s crucial to have a solid understanding of the common strategies to protect your organization from potential hazards. These strategies can help you navigate challenges and reduce risks’ overall impact.

Let’s explore the four common strategies for managing and reducing risks:

Avoidance is a proactive approach to risk mitigation, where the business takes measures to prevent the risk from occurring in the first place. This might involve altering business plans or processes to eliminate the potential risk. One example, a company might decide not to enter a new market with high compliance risks, or it might choose to discontinue a product line with significant legal risks.

Reduction focuses on minimizing the likelihood of a risk happening or reducing its impact if it does occur. This strategy involves implementing processes, technologies, or training that can help mitigate the potential negative effects of a risk.

For instance, a business might invest in employee safety training to reduce the chances of workplace accidents or implement strong cybersecurity measures to protect against data breaches.

Transference

Transference involves passing the risk consequence to a third party, such as an insurance company, a contractor, or a supplier. By transferring the risk, companies can effectively manage a risk event’s potential financial and operational implications.

Examples of risk transference include purchasing insurance policies to cover potential losses or outsourcing certain tasks to specialized vendors who can better manage specific risks.

Acceptance means embracing the risk as it stands, either because the possibility of reward outweighs the potential negative consequences or because the probability of the risk occurring is minimal or its impact is minor.

This strategy is often used when the cost of mitigating the risk is greater than the potential loss, or when the risk is deemed an inherent part of doing business. In these cases, companies might choose to accept the risk and focus on managing the consequences if the risk event occurs.

In conclusion, understanding and implementing these common risk mitigation strategies can help your business effectively manage potential threats and pave the way for continued growth and success.

In order to effectively manage and reduce risks in your business, it is essential to follow a set of best practices. These practices aim to provide a systematic and comprehensive approach to risk management, ensuring that potential threats are addressed proactively.

Identifying Risks

The first step in mitigating risks is to identify them. This involves thoroughly analyzing your business operations, processes, and environment to uncover potential threats and vulnerabilities. By identifying risks early, taking actions and appropriate measures to prevent or minimize their impact on your business.

Assessing Likelihood and Impact

Once you have identified the different risks, assessing their probability of occurrence and potential impact on your business is crucial. This will help you determine the severity of each risk and prioritize your risk mitigation efforts and resources accordingly.

Understanding the probability and repercussions of risks enables you to make informed decisions about which risks require immediate attention and which can be monitored over time.

Prioritizing Risks

This is a critical step in the risk mitigation process. By ranking risks based on their probability and impact, you can focus your efforts on taking action on the most significant threats first. This ensures that resources are allocated efficiently and that high-priority risks are managed effectively.

Treating Risks with Appropriate Actions

Once you have prioritized risk levels, creating and implementing appropriate risk mitigation strategies is essential. These can include avoidance, reduction, transference, or acceptance, depending on the nature and severity of each risk.

The choice and types of risk and strategy should be tailored to your specific business needs and objectives, ensuring that risks are managed to align with your overall goals.

Monitoring Risks Regularly

Risk management is an ongoing process that requires continuous monitoring and assessment. Regularly reviewing the status of identified risks and tracking the effectiveness of implemented mitigation strategies is essential for maintaining a proactive approach.

This also allows you to identify new risks that may emerge and adapt your strategies accordingly.

Reporting on Risks to Stakeholders

Effective communication is a key component. It is important to keep stakeholders informed about identified risks, their potential impact, and the steps being taken to mitigate them. Transparent reporting fosters a culture of accountability and trust, ensuring that all parties are aligned in their efforts to manage and mitigate risks.

Following these best practices, you can create a strong business risk management foundation. Utilizing project management software like Leantime can aid in reducing risks through features such as customization, automation, collaboration, and visualization, ensuring a thorough approach to handling and controlling potential business risks.

Effective risk mitigation requires a comprehensive approach that incorporates various tools and strategies. Leantime’s project management software offers several features that can help organizations manage and risk avoidance more effectively:

Customization Features

Leantime provides customization features that allow your business and organization to tailor their risk management processes to their unique needs. These customization features enable the software to be tailored to the unique requirements of each organization, ensuring that it can effectively support its risk management processes.

By providing customizable features, Leantime makes it easier for organizations to identify and manage other business risks promptly, which can lead to better operational efficiency, increased productivity, and improved overall performance.

With Leantime, businesses and organizations can have peace of mind knowing that their risk management processes are customized to their specific needs and are being managed effectively.

Automation to Streamline

Automation is a key aspect of risk mitigation, as it helps to reduce the likelihood of human error and improve efficiency. Leantime offers automation features that can streamline risk mitigation processes, such as automated task assignments and notifications, allowing them to stay on top of certain risks and take prompt action when needed.

Collaboration Tools for Effective Teamwork

Effective risk mitigation often requires collaboration among team members and across departments. Leantime’s collaboration tools, such as shared workspaces and real-time communication features, facilitate teamwork and ensure that all stakeholders are on the same page when it comes to addressing risks.

Visualization for Better Understanding

Understanding the potential impact of risks is crucial in developing appropriate mitigation strategies. Leantime offers visualization features, such as risk heat maps and Gantt charts , that help employees better comprehend the severity and likelihood of risks, enabling them to make more informed decisions on how to address them.

Centralization of Information for Easy Access

Having a centralized location for risk information is essential for efficient risk management. Leantime provides a central hub where you can store and access all relevant risk data, making it easier for team members to stay informed about potential risks and take appropriate action to mitigate them.

Effective risk mitigation involves understanding the importance of Key Risk Indicators (KRIs) and recognizing the benefits of assessing risks. This section delves into these critical aspects of risk management.

Importance of KRIs

Key Risk Indicators (KRIs) are essential metrics that measure the likelihood of an adverse event occurring and its possible effect on the organization. These indicators help identify potential threats and prioritize their mitigation efforts. 

By monitoring KRIs, most organizations can proactively address risks before they escalate and cause significant damage. In the context of risk mitigation, KRIs serve as a valuable tool to assess the effectiveness of current strategies and make necessary adjustments to protect the business.

Benefits of Early Risk Identification

It’s important for successful risk mitigation. Identifying risks at an early stage allows the organization to address them more effectively and reduce their potential impact. Some benefits include the following:

• Greater Preparedness: Early risk identification enables organizations to develop comprehensive risk mitigation plans, ensuring that all potential issues are accounted for and dealt with accordingly.
• Better Resource Allocation: By identifying risks early, an organization can allocate resources more efficiently, prioritizing high-risk areas requiring immediate attention and minimizing potential harm.
• Increased Adaptability: Early identification of other risks allows organizations to adapt and respond to changes more effectively, reducing the likelihood of potential disruptions and promoting business resilience.

Risk mitigation is an essential component of the broader risk management process. It focuses on reducing the impact of potential risks by developing specific plans and actions to manage, eliminate, or limit setbacks as much as possible.

Connection Between Risk Mitigation and Risk Management

Risk management encompasses identifying, assessing, and prioritizing risks, followed by implementing a risk mitigation plan. These strategies are designed to address certain risks and minimize their impact on the business.

By incorporating risk mitigation into risk monitoring, businesses can proactively address potential setbacks and maintain a stable, secure, and profitable environment.

Importance of having a risk mitigation plan

A well-developed risk mitigation plan is crucial, as it helps promptly and efficiently address and identify risks. A risk mitigation plan includes essential steps such as identifying, assessing, prioritizing, treating, monitoring, and reporting risks.

Adhering to these guidelines, businesses can proficiently handle potential challenges and ensure the seamless operation of their activities.

Risk mitigation focuses on avoidance, reduction, transference, and acceptance, allowing an organization to tackle different types of risks, including compliance, legal, strategic, reputational, and operational risks. 

Leantime, a project management software, can help your team of employees mitigate risks through features like customization, automation, collaboration, and visualization. By utilizing Leantime, you can enhance their processes and ensure a successful risk mitigation plan.

Adopting best practices and industry standards is important for businesses to develop effective risk mitigation strategies. Organizations like the Occupational Safety and Health Administration (OSHA) and the International Organization for Standardization (ISO) provide guidelines and standards that can help create comprehensive risk mitigation plans.

Adopting Best Practices From Organizations Like OSHA and ISO

OSHA provides safety and health regulations for various industries, ensuring that organizations maintain a safe working environment and minimize the risk of accidents and injuries.

Complying with OSHA standards reduces the likelihood of operational risks and helps a business avoid legal and reputational risks associated with workplace accidents.

Similarly, ISO offers various international standards covering various aspects of business operations and software development, including quality management, information security, and environmental management.

By adopting ISO standards, a business can ensure consistency in its processes, reduce the likelihood of errors, and enhance its overall risk mitigation efforts.

Continuously Refining Risk Mitigation Plans

Risk mitigation is an ongoing process that requires a business to continually monitor, assess, and update their plans. By staying informed about the latest industry standards and best practices, businesses can adapt their risk mitigation strategies to address new or evolving risks.

This proactive approach to risk management ensures that the business remains resilient and can swiftly respond to potential challenges.

Leveraging best practices and industry standards is crucial to an effective risk mitigation strategy. By adopting guidelines from organizations like OSHA and ISO and continuously refining risk mitigation plans, the business can successfully navigate possible risks and secure their long-term success.

In conclusion, risk mitigation is crucial to managing a successful business. As we have discussed, a business may encounter various types of risks, such as compliance, legal, strategic, reputational, and operational risks.

To effectively mitigate these risks, companies must employ widely used risk reduction techniques like avoidance, reduction, transference, and acceptance.

One of the best ways to mitigate risks is by following a systematic approach that includes identifying, assessing, prioritizing, treating, monitoring, and reporting risks.

Implementing these practices ensures that the business is well-prepared to address potential challenges and maintain a competitive edge in their respective industries. Furthermore, incorporating risk mitigation best practices and industry standards can provide additional support in managing risks effectively.

Lastly, utilizing project manageme nt software like Leantime can greatly assist in mitigating risks. With customization, automation, collaboration, and visualization features, Leantime empowers your business to manage its risks better and ensure continued success.

As business navigates an ever-changing landscape, it is essential to prioritize risk mitigation efforts to safeguard the company’s future.

By implementing effective strategies and leveraging tools like Leantime, organizations can confidently face potential challenges head-on and maintain a strong foundation for continued growth.

Gloria Folaron

Gloria Folaron is the CEO and founder of Leantime. A Nurse first, she describes herself as an original non-project manager. Being diagnosed with ADHD later in life, she has hands on experience in navigating the world of project and product management and staying organized with ADHD.

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If you like Leantime and want to support us you can start by giving us a Star on Github or through a sponsorship.

How to Highlight Risks in Your Business Plan

Tallat Mahmood

5 min. read

Updated October 25, 2023

One of the areas constantly dismissed by business owners in their business plan is an articulation of the risks in the business.

This either suggests you don’t believe there to be any risks in your business (not true), or are intentionally avoiding disclosing them.

Either way, it is not the best start to have with a potential funding partner. In fact, by dismissing the risks in your business, you actually make the job of a lender or investor that much more difficult.

Why a funder needs to understand your business’s risks:

Funding businesses is all about risk and reward.

Whether it’s a lender or an investor, their key concern will be trying to balance the risks inherent in your business, versus the likelihood of a reward, typically increasing business value. An imbalance occurs when entrepreneurs talk extensively about the opportunities inherent in their business, but ignore the risks.

The fact is, all funders understand that risks exist in every business. This is just a fact of running a business. There are risks that exist with your products, customers, suppliers, and your team. From a funder’s perspective, it is important to understand the nature and size of risks that exist.

• There are two main reasons why funders want to understand business risks:

Firstly, they want to understand whether or not the key risks in your business are so fundamental to the investment proposition that it would prevent them from funding you.

Some businesses are not at  the right stage to receive external funding  and placate funder concerns. These businesses are best off dealing with key risk factors prior to seeking funding.

The second reason why lenders and investors want to understand the risk in your business is so that they can structure a funding package that works best overall, despite the risk.

In my experience, this is an opportunity that many business owners are wasting, as they are not giving funders an opportunity to structure deals suitable for them.

Here’s an example:

Assume your business is  seeking equity funding,  but has a key management role that needs to be filled. This could be a key business risk for a funder.

Highlighting this risk shows that you are aware of the appointment need, and are putting plans in place to help with this key recruit. An investor may reasonably decide to proceed with funding, but the funding will be released in stages. Some will be released immediately and the remainder will be after the key position has been filled.

The benefit of highlighting your risks is that it demonstrates to investors that you understand the danger the risks pose to your company, and are aware that it needs to be dealt with. This allows for a frank discussion to take place, which is more difficult to do if you don’t acknowledge this as a problem in the first place.

Ultimately, the starting point for most funders is that they  want  to invest in you, and  want  to validate their initial interest in you.

Highlighting your business risks will allow the funder to get to the nub of the problem, and give them a better idea of how they may structure their investment in order to make it work for both parties. If they are unsure of the risks or cannot get clear explanations from the team, it is unlikely they will be forthcoming when it comes to finding ways to make a potential deal work.

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• The right way to address business risks:

The main reason many business owners don’t talk about business risks with potential funders is because they don’t want to highlight the weaknesses in their business.

This is a fair concern to have. However, there is a right way to address business risk with funders, without turning lenders and investors off.

The solution is to focus on how you  mitigate the risks.  

In other words, what are the steps you are taking in your business as a direct reaction to the risks that you have identified? This is very powerful in easing funder fears, and in positioning you as someone who has a handle on their business.

For example, if a business risk you had identified was a high level of customer concentration, then a suitable mitigation plan would be to market your products or services targeting new clients, as opposed to focusing all efforts on one client.

Having net profit margins that are lower than average for your market would raise eyebrows and be considered a risk. In this instance, you could demonstrate to funders the steps you are putting in place over a period of time to help increase those margins to at least market norms for your niche.

The process of highlighting risks—and, more importantly, outlining key mitigating actions—not only demonstrates honesty, but also a leadership quality in solving the problems in your business. Lenders and investors want to see both traits.

• The impact on your credibility:

Any lender or investor  backs the leadership team  of a business first, and the business itself second.

This is because they realize that it is you, the management team, who will ultimately deliver value and grow the business for the benefit for all. As such, it is imperative that they have the right impression about you.

The consequence of highlighting business risks in your business plan with mitigations is that it provides funders a real insight into you as a business leader. It demonstrates that not only do you have an understanding of their need to understand risk in your business, but you also appreciate that minimizing that risk is your job.

This will have a massive impact on your credibility as a business owner and management team. This impact is more acute when compared to the hundreds of businesses they will meet that omit discussing the risks in their business.

The fact is, funders have seen enough businesses and business plans in all sectors to instinctively know what risks to expect. It’s just more telling if they hear it from you first.

• What does this mean for you going forward?

Funders rely on you to deliver on your inherent promise to add value to your business for all stakeholders. The weight of this promise becomes much stronger if they can believe in the character of the team, and that comes from your credibility.

A business plan that discusses business risks and mitigations is a much more complete plan, and will increase your chances of securing funding.

Not only that, but highlighting the risks your business faces also has a long-term impact on your character and credibility as a business leader.

Tallat Mahmood is founder of The Smart Business Plan Academy, his flagship online course on building powerful business plans for small and medium-sized businesses to help them grow and raise capital. Tallat has worked for over 10 years as a small and medium-sized business advisor and investor, and in this period has helped dozens of businesses raise hundreds of millions of dollars for growth. He has also worked as an investor and sat on boards of companies.

Table of Contents

• Why a funder needs to understand your business’s risks:

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How to Perform Business Risk Mitigation: Strategies, Types, and Best Practices

By Kate Eby | March 23, 2023

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Successful companies are always identifying, lessening, and eliminating business risks. We’ve gathered tips from industry experts on how they do this. We also provide risk assessment templates and step-by-step guidance on business risk mitigation.

Included on this page, you’ll find the main ways companies should respond to risks , best practices for business risk mitigation , a step-by-step process for performing good risk mitigation, and templates that can help guide you in assessing and dealing with business risks.

What Is Risk Mitigation?

Risks can pose a threat to a project or a business. Risk mitigation is the process of eliminating or lessening the impact of those risks. Teams can use risk mitigation in several ways to help protect a business.

Project leaders might use project risk management and mitigation to ensure the success of a specific project. Business leaders might use business risk mitigation — sometimes as part of overall enterprise risk management or enterprise risk assessment — to protect the long-term health of a company.

Why Is Risk Mitigation Important?

Risk mitigation is important because risks sometimes turn into realities. If your project team or business leaders haven’t figured out ways to deal with and lessen those risks, they can have a hugely negative impact on a project or business.

“Business risk mitigation is important because it helps organizations to identify and address potential risks that could impact their operations, reputation, or bottom line,” says Andrew Lokenauth, a former finance executive with Goldman Sachs and JP Morgan, an adjunct professor at the University of San Francisco School of Management, and the founder of Fluent in Finance . “By proactively managing risks, organizations can minimize disruptions and protect their assets, stakeholders, and long-term viability.”

Here are some of the top reasons that business risk mitigation is important:

• Maintain the Existence and Profitability of a Business: Some risks can torpedo the very existence of a business — especially if they happen when the business hasn’t prepared for them. Business leaders must identify and assess risks and figure out ways to lessen or eliminate high-priority risks.
• Maintain a Business Reputation for Stability: Some risks, when they happen, can  damage a company’s customer relationships. Business leaders want customers to be able to trust the stability of a business. Preparing for risks helps ensure that stability. 
• Keep Internal and External Stakeholders Happy: Both employees and external stakeholders want a business to succeed and be prepared for negative risks. Making sure your team performs good risk management — including risk mitigation — will give internal and external stakeholders confidence that the business is ready for any negative events.

• Keep Your Staff and Others Safe: The mitigation measures you need for weather events will also protect the safety of your staff and others. Mitigation measures against problems such as fire damage can also protect staff and customers. 
• Avoid Negative Societal and Economic Impacts: In some cases, risks to your organization can have large societal and economic impacts. Examples include risks to the operations of utilities, government agencies, or internet companies. Perform solid risk mitigation to prevent these negative risks or lessen their impact.
• Know That No One Else Will Do It for You: Many people believe that certain risks just won’t happen or that some government agency or other group is monitoring the situation and will assist if there is a problem. That is often not true. “This is typical of most Americans — not even just business heads or business leaders — that you don’t think it’s gonna happen to you,” says Andresen. “You think if it does happen, it's not going to be that bad, and that you're going to get help from somewhere else. And all of those things are patently false.”

What Are the Types of Risk Mitigation?

When people talk about the types of risk mitigation, what they’re often referring to are types of risk responses or risk response strategies. Risk mitigation is one possible risk response, but it is not the only one.

Another important thing to remember is that not all risks are negative. There are positive risks — or opportunities — that can happen for your business as well. Experts have outlined five primary ways to respond to negative risks and five primary ways to respond to positive risks, both of which are important to the long-term health of a company.

These are the five primary risk response strategies for dealing with negative risks:

• Mitigate: Risk mitigation involves taking steps to reduce the likelihood or impact of a risk. 
• Transfer: Leaders can choose to transfer a risk to another entity. Buying insurance is a good example of transferring risk. You still take steps to prevent fires at your property, but when you buy fire insurance, the insurance company assumes much of the financial risk if a fire happens.
• Accept: In some cases, it is simply not possible or economically feasible to avoid or mitigate risk. Leaders might choose to accept certain risks that are too costly to try to affect or that are unlikely to happen.“It may not be possible or practical to avoid or reduce a risk,” Lokenauth says. “In these cases, organizations may choose to accept the risk and manage it as it arises.”
• Escalate: In project risk management — though not often in business risk mitigation — leaders choose to escalate certain risks. This response involves providing information on the risk to top organizational leadership, so they can make a decision. This is usually the response to a significant risk that would require significant costs to mitigate.

These are the five primary risk response strategies for positive risks:

• Share:   If your company chooses to share a positive risk, that means it will work with another company or entity to take advantage of an opportunity. Sharing positive risk can increase the likelihood and impact of opportunities. However, they also require that the company split the resulting benefits. 
• Exploit: When a company chooses to exploit a positive risk, it devotes special attention and resources to making sure an event happens.
• Enhance:  Companies can enhance positive risks by improving the likelihood that it will happen. This is different from exploiting a risk, because the possibility still exists that the opportunity will never arise. 
• Accept: If your company understands that a positive risk might happen, it might prepare to act on it without investing resources to try to increase the chances that it will happen.
• Escalate: As with escalating negative risks, your team can escalate positive risks to company leadership to make decisions about which strategy to implement. This is common when teams identify opportunities that could have enormous benefit to the company but might take a large investment to enhance or exploit.

You can learn much more about risk assessments, and the primary ways that project managers and organizations can respond to both negative and positive risks, in this essential guide to project risk assessments .

Risk Mitigation Strategies

Businesses use a number of strategies to help them respond to business risks. These can include overall risk and contingency planning, as well as tactical moves, such as hiring a risk manager or outside risk management consultant.

Here are some overall risk response strategies teams can use:

• Risk Management Planning: Teams will very often produce a risk management plan for individual projects, but they can also create a risk management plan for an entire enterprise. This plan should describe how your team plans to identify, assess, respond to, and mitigate risks to the organization. You can learn much more about risk management plans and planning and can download risk management plan templates .
• Contingency Planning: Contingency planning is usually a part of project risk management, but teams can create contingency plans for their entire organization. Contingency plans include specific actions your team will take if a risk actually happens. The contingency plan might include extra funds or extra staff to respond to a risk.
• Business Continuity Planning: Business continuity planning is the most common risk response strategy that organizations use to deal with risks to the entire enterprise. For specific projects, organizations will more often use strategies such as contingency planning and project risk management planning. The goals of business continuity planning are to identify important risks to the organization and make plans for what the organization will do to lessen or eliminate those risks.

You can learn much more about business continuity plans . You can also download business continuity plan templates .

• Setting Aside Contingency Reserves: These are funds an organization sets aside to help it deal with and mitigate important risks if they happen.
• Employing a Risk Manager: Many organizations choose to employ a full-time risk manager to oversee the organization’s entire risk management program. This role may involve helping with project risk management, or overseeing the more general management of risk and compliance across an organization.
• Contracting with Outside Consultancies: Many organizations contract with outside risk experts to help with risk assessments and business continuity planning.
• Employee Training: Forward-thinking organizations also conduct employee training and drills to bolster their contingency and risk mitigation plans. The training helps employees understand what they should be doing if a risk happens. You can learn more about such training and drills as part of contingency plans. 
• Product Testing: For software and technology companies especially, it’s important to do product testing throughout the development of a product. That testing will lower the risk that your organization will have to spend extra money to fix problems or to repeat development work.
• Following Information Security Best Practices: Information security issues are a huge risk for many organizations. Most organizations understand the importance of good information security practices, such as implementing strict password policies and two-factor authentication requirements.

Risk Mitigation Best Practices

Experts recommend following certain best practices for business risk mitigation. Some best practices include being proactive in identifying and assessing risks and making management policies clear to all stakeholders.

Here are some important best practices for business risk mitigation:

• Create a Strong Culture of Risk Management: It’s important that your organization and its leaders understand the importance of investing in solid risk management. Avoid the temptation to believe that risk management is not important or necessary. “Humans want to avoid risks, so we want to even avoid the discussion of risks,” Contreras says. “Good risk management forces you to have those discussions. You have to face them and look them in the eye, then make some decisions on how you're going to handle them. Don't let it fall by the wayside.”
• Involve Stakeholders: Make sure you communicate with and involve stakeholders in your risk management work. That means asking for their input as you identify and assess risks.
• Create a Clear and Transparent Risk Management Framework and Policy: Your organization should outline the basics of its risk management program in a risk management policy. Everyone in your organization should have access to and understand that policy. “A risk management policy should outline the organization's approach to risk management, including the roles and responsibilities of different stakeholders; the processes for identifying, analyzing, and responding to risks; and the methods for monitoring and reviewing the effectiveness of risk management efforts,” Lokenauth says.
• Be Proactive: It is vital for any organization to be proactive and aggressive in identifying and planning for risks. Lokenauth recalls a time when he worked for a large company in New York that wasn’t prepared for all risks. When Hurricane Sandy hit in October 2012, the firm had no place for its employees to work. “We were home for a week or two getting paid, and we weren't doing any work,” he says. “Things weren't getting done. It took them about a week or two to send us laptops. And then it took another week to try to figure out where to put us, to rent some space in Jersey City. If they had a plan in place for a thing like that, it would have been better. “It's important to be proactive about identifying and addressing potential risks rather than waiting for them to occur,” he says. Contreras adds that a business leader’s perspectives on risks can affect how an entire company approaches risk — either to the company’s benefit or to their detriment. “Small and medium-sized businesses are usually led by one big leader,” he says. “That leader’s perspective can really sway the business — and maybe not in a good way. The leader might be super optimistic, always thinking, ‘Yeah, we can do this.’ But the leadership team really needs to look at things and ask, ‘What if it doesn’t go?’ What would be the downside here? What are the things that can go wrong?’ So you want to get people in a room and start thinking negatively. ‘What are the things that can go wrong? And what can we do about them? What can we do to mitigate them?’”
• Be Comprehensive: It’s important that your organization thinks about risks in all areas. Avoid focusing only on what leaders think might be the most obvious areas for risk. “It's important to develop a comprehensive risk management plan rather than focusing on individual risks in isolation,” Lokenauth says.

• Conduct Employee Training or Drills: Risk mitigation isn’t finished once a company writes a contingency plan. Leaders must also train employees to perform the actions outlined in the plan. They must also determine whether that contingency plan is going to be effective by performing drills. You can learn more about training and drills in contingency planning.
• Continuously Monitor Possible Risks: Too many organizations perform one risk assessment, then believe they are finished — sometimes for a year or two or more, experts say. However, risks are constantly changing, and organizations need to continually identify and assess new risks to avoid costly oversights. That means requiring routine risk assessments and creating a culture that is always monitoring and addressing new risks. “You want to establish policies on how you identify and monitor risks, and you want to monitor them every month,” Lokenauth says. That can be as simple as making sure your risk department works through a monthly checklist of risks that you are tracking and what’s happening with them. It also means watching for new risks or for changing circumstances around current risks, experts say.
• Make Changes Where Needed: When your organization’s continual assessment shows that a new risk has arisen, or that an older risk is changing, it must make changes in its risk response plan. “If you grow as a company, you now have a different footprint in which you need to assess your risk,” Andresen says. “If you shrink — again, you have a different footprint. You might not need the same control measures or countermeasures, and you can put that money somewhere else.”
• Communicate Your Risk Management Plans: It’s vital that your organization communicates often and effectively with organization leaders, employees, and other stakeholders about the organization’s risk management work.

What Is the Risk Mitigation Process?

Experts sometimes use the term risk mitigation process to describe how organizations identify, assess, and prepare to lessen or mitigate risks. More often, experts use the term risk management to describe that work.

Here are the seven basic steps of the risk management process:

• Identify All Possible Risks: Gather a team or multiple teams to offer input on all possible risks to your organization. You might do this through formal meetings or gather input in other ways. “The first thing you would do is have every department do their risk analysis — but not in a silo,” Andresen says. “You do want them talking to each other. Because you’ll get some people being inspired by the others. You’ll get others validating the risk of others. And you get a whole operating picture of the entire company: ‘Where are we weak? Where are we strong?’” Lokenauth suggests using such options as “brainstorming sessions, risk assessments, or reviewing industry data” to identify risks. Ask everyone involved — internally and externally — to think broadly about all possible risks. Your team can use a questionnaire to assess potential risks to your organization and analyze its risk culture.
• Analyze Risk Probability and Impact: After your team identifies all risks, it will need to assess each risk’s probability and the potential impact on your business. “You have to figure out what exactly is the most vital piece of your ability to conduct your business, then figure out the risks to that,” Andresen says. “Then you have to look at internal and external risks. What are the internal risks that you can encounter? And what are your external risks that you could potentially encounter? How do you want to solve for them? ”Contreras notes that your team can also assess the top risks for various departments within your organization, along with various kinds of risks. “If, say, it's a supplier risk, what are the top three suppliers that we should be concerned about?” he says. “And what are the top three infrastructure risks? What are the top three HR staffing risks that we have?”
• Prioritize Risks: Once your team has studied and assessed the probability and potential impact of each risk, it must then prioritize which risks are most important to address. “As the likelihood becomes very high — let's say over 50 percent — then you decide, ‘OK, we need to do something to mitigate that,’” Contreras says. “Then the second determination would be: ‘What's the cost?’ If it’s high likelihood and high dollars, those are the ones you do want to focus on — the more likely it is to happen and the more obvious the cost impact.” For example, a risk that could cost your organization millions of dollars will take priority over a risk that would cost them thousands at most. Similarly, a risk that is almost certain to happen will take priority over a risk that has almost no chance of happening.
• Create Response Plans: Create plans to deal with or lessen the effects of the most important risks. Your organization likely won’t have the resources to mitigate every risk your company identifies. That’s why you prioritize the most important risks to face. “The next step is to develop responses to address the important risks,” Lokenauth says. “This may involve implementing controls or safeguards to prevent the risk from occurring, transferring the risk to a third party, or accepting the risk and managing it as it arises.” Lokenauth adds that your team should consider the costs to your organization of mitigating even the high-priority risks. If mitigating a high-priority risk will be prohibitively expensive, an organization might decide to simply accept that risk, while mitigating lower-priority risks.
• Track and Monitor Risks: Remember that business risk mitigation is an ongoing, evolving process. Continually track risks and potential changes in risk probability or impact. Contreras suggests that risk teams hold regular meetings to assess and monitor risks. “You probably should make it monthly — where you revisit the risks, and you're either changing the probability, or you're taking some out because they didn't happen, or some of them occurred,” he says. “Now, it becomes not a risk, but an issue — a problem that you have to begin to solve.”
• Monitor Mitigation Measures: Your organization should also monitor its mitigation measures. Monitor how and whether your teams are implementing risk mitigation measures. In addition, monitor how the mitigation measures are working and what risks have already occurred.
• Report to Organization Leaders: Regularly report to organizational leaders about ongoing risks and mitigation measures.

Example Risk Response Plan

Download a Sample Business Risk Response Plan for  Excel | Microsoft Word

Download this completed example business risk response plan that can help your team understand how to write a risk response plan for your organization. This plan includes sample data, with components such as include risk, risk severity, description of mitigation plans for that risk, and if and how those mitigation plans are working. Use this template as a starting point, and customize it to create your own business risk response plan.

Risk Mitigation by Departments and Broad Areas

Teams can assess business risks by department, such as operations or sales. They can also assess them by broad categories, such as technical risks or compliance risks. This will help organizations avoid costly oversights during risk mitigation.

Organizations might assess risk in various departments, such as the following:

• Human Resources

They might also assess risks in broader, thematic areas. Those areas might include:

• Compliance Risks: There can be risks in areas where laws or government rules require certain actions and issue penalties for noncompliance.
• Management Risks: There can be risks surrounding a company’s management, such as a key leader leaving the company.
• Operational Risks: Risks can arise based on the operational structure of your organization, such as how it sources materials or hires staff members.
• Overall Costs Risks: Some risks threaten to significantly increase your company’s costs to operate.
• Reputational Risks: Some risks relate to your company’s image and reputation among customers or clients.
• Resources Risks: There can be risks to the resources your company needs to operate.
• Strategic Risks: Some risks involve a company’s overall business strategy.
• Technical Risks: There can be risks related to technology your company is using or producing.

Your team might also consider doing what is called a PESTLE analysis . In this analysis, your team considers the overall business environment and potential risk in six areas: political, economic, social, technological, environmental, and legal. 

Tip: You might see this type of analysis written as a PESTEL analysis . Both acronyms indicate the same six areas but are written in a different order.

PESTLE Analysis Template

Download a PESTLE Analysis Template Excel | Microsoft Word

Download this template to help guide you through a PESTLE analysis. This analysis helps your team focus on and think about risks to the business in six broad areas. Use the empty columns to list potential risks to your organization in each category and summarize your risk mitigation plan.

Risk Mitigation Tools

A variety of tools are available to help your team assess and mitigate risks. These include risk management plans and assessments. Many companies also use risk assessment frameworks (RAFs), which specifically measure IT risks.

These are some tools that can help all companies with risk management and risk mitigation:

• Risk Assessment Matrix: A risk assessment matrix can help your team calibrate risks based on probability and likelihood.
• SWOT Analysis: A SWOT analysis can help your team analyze threats to your organization, along with strengths, weaknesses, and opportunities.
• Root Cause Analysis: A root cause analysis can help your team determine the root cause of an issue or problem affecting your company. 
• Business Impact Analysis: A business impact analysis is a process that teams work through to assess the possible effects of major interruptions to an organization’s operations. Most often, these potential interruptions are events such as natural disasters, major accidents, or other emergencies.

These are some common RAFs that IT experts use:

• Factor Analysis of Information Risk (FAIR)
• Committee of Sponsoring Organizations of the Treadway Commission (COSA) Risk Management Framework
• Control Objectives for Information Technologies (COBIT) from the Information Systems Audit and Control Association
• Operationally Critical Threat, Asset, and Vulnerability Evaluation (OCTAVE) Framework from Carnegie Mellon University
• Risk Management Framework from the National Institute of Standards and Technology (NIST)
• Threat Agent Risk Assessment (TARA), created by Intel

Risk Mitigation vs. Contingency

A risk mitigation plan might include a contingency reserve or contingency. While the risk mitigation plan includes many elements, the contingency is simply a reserve of funds, time, or other resources that can help mitigate certain risks.

Risk Mitigation vs. Risk Management

Risk mitigation is one part of the entire risk management process. When your organization performs risk management, it will perform risk assessments that might call for risk mitigation.

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How Risk Management’s Meaning Shapes Business Strategy and Mitigation Plans

Last Updated on September 19, 2024 by Tanya Janse van Rensburg

Risk is part of every business. Unexpected challenges can arise whether running a small store or managing a large corporation.

The way a company handles these risks can make or break its success. That's where risk management comes in.

By planning for the worst and hoping for the best, businesses can prepare for problems before they happen.

This proactive approach helps avoid unnecessary surprises and ensures a smooth operation.

This article introduces the definition of risk management , how it shapes company strategies, and how it improves companies' plans for potential issues.

Concept of Risk in Business Strategy

Risk can include anything from market changes to natural disasters. Businesses must always be ready to face these uncertainties.

Identifying what could go wrong is the first step toward handling them. While risk is sometimes adverse, it can also offer growth opportunities.

By viewing risks as chances for improvement, companies can adapt and find new paths forward.

Its Importance in Decision-Making

Intelligent decision-making requires a clear understanding of potential risks. With it, companies might make better choices.

Risk management gives businesses insight into how to choose wisely.

For example, before launching a new product, a company might evaluate market conditions to avoid a flop.

By identifying potential challenges early on, businesses can adjust their plans to increase success.

Steps Involved in the Process

Risk management involves several key steps:

• Identify the risks. This includes everything that could go wrong in daily operations or long-term plans.
• Assess these risks by figuring out how likely they will happen and how serious they might be.
• Develop plans to reduce or avoid these risks.
• Keep an eye on risks and adjust as needed.

It’s a continuous process that ensures companies stay prepared for the unexpected.

Risk Identification and Its Role

Identifying risks early on allows businesses to include them in their strategy.

If a company plans to expand, for example, it needs to consider risks like new competition or changes in the market.

By identifying these risks, businesses can prepare. They might decide to adjust their strategy or develop backup plans.

The earlier risks are identified, the easier it becomes to handle them effectively.

Risk Analysis for Informed Business Decisions

Once risks are identified, businesses need to analyze them.

This means looking at how likely they are to happen and what the impact might be.

For example, a company might decide a risk is worth taking because the potential rewards outweigh the possible harm.

On the other hand, they might avoid specific actions if the risks seem too high.

Risk Evaluation and Prioritization

Not all risks are equal. Some are more urgent than others.

Risk evaluation helps businesses understand which risks require immediate attention and which can be addressed later.

By prioritizing risks, companies can focus their efforts where needed most.

This ensures that the most dangerous risks are handled first while lower-level risks are still kept in check.

Developing Effective Strategies

Mitigation means finding ways to reduce the impact of risks.

Businesses need solid plans for reducing risks and their consequences.

For example, if a company worries about supply chain disruptions, it might develop relationships with multiple suppliers.

This way, if one supplier fails, it has a backup. Developing effective mitigation strategies ensures that risks don’t cause long-term harm.

Continuous Risk Monitoring and Adjustment 

Risks can change over time. A risk that seems small today might become a significant concern tomorrow.

Continuous monitoring allows businesses to adjust their strategies as new risks arise.

Companies can stay ahead of the curve by monitoring changes in the market, technology, or customer needs closely.

Monitoring also ensures that companies are always prepared to face new challenges.

The Role of Stakeholders

Stakeholders, such as employees, investors, and customers, are essential in risk management.

They are people or groups affected by the business, and it’s important to consider their views when identifying and managing risks.

Businesses can gain valuable insights and make better decisions by including stakeholders in the process.

Stakeholders can also help spread awareness about potential risks.

Embedding Risk Culture

A strong risk culture means everyone in the organization knows risks and their importance.

Employees at all levels should understand how to identify and report risks.

This culture ensures that everyone takes responsibility for managing risks.

When risk management becomes part of the company’s DNA, it leads to better decision-making and fewer surprises.

Ensuring Effective Communication in

Clear communication is essential in managing risks.

If employees, managers, and stakeholders are not on the same page, risks can quickly spiral out of control.

Companies can ensure a smooth response when issues arise by informing everyone about potential risks and mitigation plans.

Communication also helps build trust within the organization, as everyone knows what to expect.

Utilizing Frameworks for Strategy Development

Risk management frameworks offer a structured approach to handling risks.

These frameworks outline the steps for identifying, analyzing, and mitigating risks.

By using a standardized framework, businesses can ensure consistency in their approach.

This makes it easier to handle risks across different departments or teams.

A well-implemented framework also speeds up the decision-making process by providing clear guidelines.

Best Practices for Mitigating Financial and Operational Risks

Financial and operational risks are common in business. Mitigating these risks requires careful planning.

For financial risks, companies can develop contingency plans or invest in insurance.

For operational risks, businesses might focus on improving internal processes.

By following best practices, companies can reduce the chances of financial loss or operational breakdowns.

How it Influences Long-term Business Resilience

Long-term resilience comes from the ability to handle risks effectively.

Companies that manage risks well are better equipped to survive unexpected challenges.

Over time, this resilience leads to growth and stability.

Risk management helps businesses stay flexible and ready to adapt to changing environments, ensuring long-term success.

How Platforms Enhance Mitigation and Strategy Execution

Risk management platforms offer tools that simplify tracking, assessing, and mitigating risks.

These platforms provide real-time data, allowing businesses to respond quickly to new threats.

With automated systems, companies can monitor risks continuously without manual input.

Platforms also allow for better collaboration by keeping everyone in the organization informed about risks and how to handle them.

By understanding risk management and its associated potential risks, companies can make better decisions, stay competitive, and avoid major setbacks.

A proactive approach to managing risks ensures companies are always ready for the unexpected.

In the end, strong risk management leads to long-term success, keeping companies on track no matter what challenges arise.

Effective risk management is crucial for businesses of all sizes.

By proactively identifying, analyzing, and mitigating risks, companies can make informed decisions, develop robust strategies, and ensure long-term success .

Businesses must embed a strong risk culture, prioritize continuous risk monitoring, and maintain open and transparent communication with stakeholders.

With a comprehensive understanding of risk management, businesses can confidently navigate uncertainties and adapt to ever-changing market conditions, ultimately positioning themselves for sustainable growth and resilience.

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Why Your Business Needs a Risk Management Plan

Understand the basics of risk management planning and discover how essential it is for your business to have one.

What is a Risk Management Plan?

A risk management plan is a systematic and structured plan to identify, analyze, assess, measure, and monitor risks and threats to an organization. It serves as an important tool for managing the risks that affect the running of an organization.

Simply put, a risk management plan is a comprehensive strategy that identifies and analyzes potential risks to a business or organization and devises solutions to minimize or avoid them, maximizing the probability of success or reaching organizational goals.

How Do You Plan for a Risk Management Plan?

Creating a risk management plan can seem daunting, but it’s important to have one in place to help protect your business from risks. Here are the basic steps you need to take to create a risk management plan:

Step 1: Develop a solid risk culture

An essential component of any successful risk management plan is the establishment of strong risk culture. Risk culture is commonly known as the shared values, beliefs, and attitudes toward the handling of risks throughout the organization.

It is the responsibility of senior management and the board of directors to create the company culture and set the tone from the top-down and communicated throughout the organization.

Step 2: Engage key stakeholders

Stakeholders emerged from various functions inside and outside of your organization. They could be employees, customers, vendors, etc. In order to plan risk management properly, it is important to engage with them every step of the way. This is because stakeholders provide you with a detailed representation of all facets of your business along with corresponding risks.

Step 3: Create appropriate risk management policies

A clear policy with delineated roles, responsibilities, and templates is essential for an effective risk management strategy. This will help you identify all risks that could potentially affect your business, evaluate the impact of those risks, and develop plans to mitigate them.

Step 4: Communicate

Communication is one of the most important aspects of risk management planning. It is critical for an effective risk management plan to have a good understanding of how communication works and how it can help you to manage risk.

Step 5: Implement transparent monitoring

By implementing transparent risk monitoring processes, we can be sure that all risk mitigation endeavors are effective. A risk management plan is an always-changing and essential process. With these best practices, you should be able to create a strategy for your organization.

5 Steps in a Risk Management Process

To make an effective risk management plan, it is essential to know the process of risk management as it is a systematic process used by a company in managing risks.

• Risk Identification – Risk Identification is the process of determining which risks could potentially affect the organization. It involves brainstorming, reviewing past events, and analyzing current trends.
• Risk Analysis – Risk Analysis is the process of determining the probability that a particular risk will occur and the potential impact it could have on the organization. This step also involves prioritizing risks in order of importance.
• Risk Control – Risk Control is the process of implementing measures to reduce or eliminate the risks identified in the previous two steps. This may involve changing processes or procedures, investing in new technology, or increasing insurance coverage.
• Risk Financing – Risk Financing is the process of setting aside funds to cover the costs associated with a potential risk. This may involve purchasing insurance, establishing a reserve fund, or self-insuring.
• Claims Management – Claims Management is the process of dealing with actual or potential claims arising from a risk event. This includes investigating claims, negotiating settlements, and paying out benefits.

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How to Create a Risk Management Plan

Now that you understand the basics of a risk management plan, it’s time to talk about how to create one. This is important, as it will ensure that your plan is effective and can be used to identify and mitigate any risks that may occur.

There are a few key steps to writing a risk management plan:

• Assess your risks – The first step is to list and assess all of the risks that your business may face. This includes anything from natural disasters to cyberattacks.
• Mitigate your risks – Once you have identified the risks, you need to come up with ways to mitigate them. This could include developing contingency plans , increasing security measures, or purchasing insurance policies.
• Review and update – It’s important to review and update your risk management plan regularly, as new risks may emerge and old risks may change.

By following these steps, you can create a risk management plan that will help protect your business from any potential dangers.

Create Your Risk Management Plan with SafetyCulture (formerly iAuditor)

Why use safetyculture.

SafetyCulture can help you create a risk management plan specific to your organization. It features an audit tool that can be used to identify potential risks, as well as thousands of customized templates and forms to help you document and track your risk management activities.

SafetyCulture provides a mobile application to access and store your risk management plan, automatically generate reports after an inspection, and share those reports with the appropriate people. Having SafetyCulture as part of your digital risk management process creates data sets that better inform your decisions and encourage compliance within your organization.

Risk Management Plan Template

This free risk management plan template lets you identify the risks, record the risks’ impact on a project, assess the likelihood, seriousness and grade. Also, specify planned mitigation strategies and assign corrective actions needed to responsible individuals. Breakdown costs and set the timeline of mitigation actions.

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How a great business plan will maximize your risk of failure

The business plan is a great execution tool. Yet, requiring a business plan during the early stages of idea development might maximize the risk of failure. Large organizations in particular still require business plans. That is an error. In this post we outline three reasons why companies should drop business plans in favor of a more rapid and iterative approach.

While business plans are less and less common in the startup world, they persist in large corporations. In large companies it’s not uncommon that a team of several people spends a couple of weeks developing a business plan. They will first spend time on market research. Then they will craft a detailed plan with an impressive financial spreadsheet looking 3-5 years ahead. Finally, all of this will be summarized in a beautiful slide deck to convince top leadership or investors of the brilliance of the idea.

Great business plans can look so good and have such convincing arguments that it becomes hard to doubt them. Unfortunately this false illusion of security may also maximize the risk of failure (or waste time and money at the very least). No company wants that. Let’s look at three reasons why requiring business plans is a bad idea.

1) Getting too granular too early = you risk wasting time

One of the dangers of writing a business plan is to spend too much time refining an idea before it is really proven. Unfortunately, “no business plan (however smart it looks) survives first contact with customers”, as Steve Blank the initiator of the Lean Startup movement likes to say.

Rather than refining an idea at the early stages, you should test it immediately and evolve it based on market feedback. Otherwise you risk wasting time working on refining an idea that nobody cares about. The problem is that you’ll only realize that much, much later. 

TIP: Keep your early ideas very rough (e.g. on one page with the Business Model and/or Value Proposition Canvas) and immediately test them. Gradually refine your ideas with increasing  evidence.

2) Selling an idea & plan to leadership or investors  = You risk getting locked-in

Where it starts getting dangerous is when a team sells their top leadership or investors a polished and refined business plan - before rigorously testing the underlying business model and value proposition(s) in the market.

When leadership or investors buy and finance a plan they expect that success is a mere execution problem. They expect that beautiful and detailed spreadsheet in the business plan to materialize exactly how you projected it. In other words, you just got locked into a plan that was entirely made up. You are forced to execute an idea that is yet to be proven. If you want to change direction later on, it will be difficult to convince leadership because you sold them something else.

TIP: Don't sell leadership a polished and refined business plan. Sell them an opportunity and a rigorous process that will turn your idea into an executable business model by producing market evidence. Show them how this approach will minimize the risk of failure, as opposed to a business plan which maximizes the risk of getting locked into one direction that is yet to be proven.

3) Hiring based on an idea & plan = you risk premature scaling

The biggest risk of business plans is that they may lead to premature scaling. This happens when you hire people and spend money on key resources based on a plan rather than market evidence. In other words, you get into "execution mode" before you fully finished the "search" for the right business model and value proposition(s). We wrote about this in a recent post on how Great Execution of Bad Ideas Kills Businesses . 

This type of premature scaling of great looking business plans can lead to enormous financial losses. My "favorite" examples are Flo TV by Qualcomm ($1+ billion loss) or  Better Place , a startup that aimed at getting people to use electric vehicles ($850 million loss).

TIP: Don't invest in execution until you have strong evidence that your idea will work. Otherwise you risk premature scaling and running out of money.

Burn your business plan before it burns you

At Strategyzer, we are no enemies of business plans if they are used purely for execution purposes. Unfortunately we've seen too much damage from business plans used during the early stages of idea development - particularly at large organizations.

There is no place for a business plan when you are still searching for the right business model and value proposition for your idea. It's simply the wrong tool for the task and it might even lead to maximizing your risk of failure.

Business plans should be replaced by a more dynamic approach until you have sufficient evidence that your idea will work. Only then should you consider crafting a business plan. Until then, we suggest you burn your business plan before it burns you.  

Does your organization still require business plans? What's the impact?

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Identifying Risks

Physical risks, location risks, human risks, technology risks, strategic risks, making a risk assessment, insuring against risks, risk prevention, the bottom line.

• Business Essentials

Identifying and Managing Business Risks

Running a business comes with many types of risk. Some of these potential hazards can destroy a business, while others can cause serious damage that is costly and time-consuming to repair. Despite the risks implicit in doing business, CEOs and risk management officers can anticipate and prepare, regardless of the size of their business.

Key Takeaways

• Some risks have the potential to destroy a business or at least cause serious damage that can be costly to repair.
• Organizations should identify which risks pose a threat to their operations.
• Potential threats include location hazards such as fires and storm damage, a l cohol and drug abuse among personnel, technology risks such as power outages, and strategic risks such as investment in research and development.
• A risk management consultant can recommend a strategy including staff training, safety checks, equipment and space maintenance, and necessary insurance policies.

If and when a risk becomes a reality, a well-prepared business can minimize the impact on earnings, lost time and productivity, and negative impact on customers. For startups and established businesses, the ability to identify risks is a key part of strategic business planning . Risks are identified through a number of ways. Strategies to identify these risks rely on comprehensively analyzing a company's specific business activities. Most organizations face preventable, strategic and external threats that can be managed through acceptance, transfer, reduction, or elimination.

A risk management consultant can help a business determine which risks should be covered by insurance.

Below are the main types of risks that companies face:

Building risks are the most common type of physical risk. Think fires or explosions. To manage building risk, and the risk to employees, it is important that organizations do the following:

• Make sure all employees know the exact street address of the building to give to a 911 operator in case of emergency.
• Make sure all employees know the location of all exits.
• Install fire alarms and smoke detectors.
• Install a sprinkler system to provide additional protection to the physical plant, equipment, documents and, of course, personnel.
• Inform all employees that in the event of emergency their personal safety takes priority over everything else. Employees should be instructed to leave the building and abandon all work-associated documents, equipment and/or products.

Hazardous material risk is present where spills or accidents are possible. The risk from hazardous materials can include:

• Toxic fumes
• Toxic dust or filings
• Poisonous liquids or waste

Fire department hazardous material units are prepared to handle these types of disasters. People who work with these materials, however, should be properly equipped and trained to handle them safely.

Organizations should create a plan to handle the immediate effects of these risks. Government agencies and local fire departments provide information to prevent these accidents. Such agencies can also provide advice on how to control them and minimize their damage if they occur.

Among the location hazards facing a business are nearby fires, storm damage, floods, hurricanes or tornados, earthquakes, and other natural disasters. Employees should be familiar with the streets leading in and out of the neighborhood on all sides of the place of business. Individuals should keep sufficient fuel in their vehicles to drive out of and away from the area. Liability or property and casualty insurance are often used to transfer the financial burden of location risks to a third-party or a business insurance company.

There are other business risks associated with location that are not directly related to hazards, such as city planning. For example, a gas station exists on a major road, and as a result of its location, it receives plenty of business. City planning can eventually restructure the area around the gas station. The city may close the road the gas station is on, build other infrastructure that would make the gas station inaccessible, or overall just not take the gas station into consideration with any redevelopment. This would leave the gas station with no traffic to serve.

Alcohol and drug abuse are major risks to personnel in the workforce. Employees suffering from alcohol or drug abuse should be urged to seek treatment, counseling, and rehabilitation if necessary. Some insurance policies may provide partial coverage for the cost of treatment.

Protection against embezzlement , theft and fraud may be difficult, but these are common crimes in the workplace. A system of double-signature requirements for checks, invoices, and payables verification can help prevent embezzlement and fraud. Stringent accounting procedures may discover embezzlement or fraud. A thorough background check before hiring personnel can uncover previous offenses in an applicant's past. While this may not be grounds for refusing to hire an applicant, it would help HR to avoid placing a new hire in a critical position where the employee is open to temptation.

Illness or injury among the workforce is a potential problem. To prevent loss of productivity, assign and train backup personnel to handle the work of critical employees when they are absent due to a health-related concern. Other human-related risks under public attention could be associated with their behaviors and values. Misbehavior of management related to bias, racism, sexism, harassment, corruption, discrimination, pollutive actions, and carelessness about the environment are all actions that represent risk for the companies where these managers work.

A power outage is perhaps the most common technology risk. Auxiliary gas-driven power generators are a reliable back-up system to provide electricity for lighting and other functions. Manufacturing plants use several large auxiliary generators to keep a factory operational until utility power is restored.

Computers may be kept up and running with high-performance back-up batteries. Power surges may occur during a lightning storm (or randomly), so organizations should furnish critical business systems with surge-protection devices to avoid the loss of documents and the destruction of equipment.

Cloud storage is another source of risks nowadays. The process involves backing up data with Amazon Web Services, for example, using Azure, IBM, and Oracle, for instance. This is a huge undertaking that should be considered given the reliance on cloud-based data to run most businesses now. It is important to establish both offline and online data backup systems to protect critical documents.

Although telephone and communications failure are relatively uncommon, risk managers may consider providing emergency-use company cell phones to personnel whose use of the phone or internet is critical to their business.

Strategy risks are not altogether undesirable. Financial institutions such as banks or credit unions take on strategy risk when lending to consumers, while pharmaceutical companies are exposed to strategy risk through  research and development  for a new drug. Each of these strategy-related risks is inherent in an organization's business objectives. When structured efficiently, the acceptance of strategy risks can create highly profitable operations.

Companies exposed to substantial strategy risk can mitigate the potential for negative consequences by creating and maintaining infrastructures that support high-risk projects. A system established to control the financial hardship that occurs when a risky venture fails often includes diversification of current projects, healthy cash flow, or the ability to finance new projects in an affordable way, and a comprehensive process to review and analyze potential ventures based on future return on investment .

After the risks have been identified , they must be prioritized in accordance with an assessment of their probability. The first step is to establish a probability scale for the purposes of risk assessment .

For example, risks may:

• Be very likely to occur
• Have some chance of occurring
• Have a small chance of occurring
• Have very little chance of occurring

Other risks must be prioritized and managed in accordance with their likelihood of occurring. Actuarial tables —statistical analysis of the probability of any risk occurring and the potential financial damage ensuing from the occurrence of those risks—may be accessed online and can provide guidance in prioritizing risk.

Insurance is a principle safeguard in managing risk, and many risks are insurable. Fire insurance is a necessity for any business that occupies a physical space, whether owned outright or rented, and should be a top priority. Product liability insurance, as an obvious example, is not necessary for a service business.

Some risks are an inarguably high priority, for example, the risk of fraud or embezzlement where employees handle money or perform accounting duties in accounts payable and receivable. Specialized insurance companies will underwrite a cash bond to provide financial coverage in the event of embezzlement, theft or fraud.

When insuring against potential risks, never assume a best-case scenario. Even if employees have worked for years with no problems and their service has been exemplary, insurance against employee error may be a necessity. The extent of insurance coverage against injury will depend on the nature of your business. A heavy manufacturing plant will, of course, require more extensive coverage for employees. Product liability insurance is also a necessity in this context.

If a business relies heavily on computerized data—customer lists and accounting data, for example—exterior backup and insurance coverage is necessary. Finally, hiring a risk management consultant may be a prudent step in the prevention and management of risks.

The best risk insurance is prevention. Preventing the many risks from occurring in your business is best achieved through employee training, background checks, safety checks, equipment maintenance and maintenance of the physical premises. A single, accountable staff member with managerial authority should be appointed to handle risk management responsibilities. A risk management committee may also be formed with members assigned specific tasks with a requirement to report to the risk manager.

The risk manager, in conjunction with a committee, should formulate plans for emergency situations such as:

• Hazardous materials accidents or the occurrence of other emergencies

Employees must know what to do and where to exit the building or office space in an emergency. A plan for the safety inspection of the physical premises and equipment should be developed and implemented regularly including the training and education of personnel when necessary. A periodic, stringent review of all potential risks should be conducted. Any problems should be immediately addressed. Insurance coverage should also be periodically reviewed and upgraded or downgraded as needed.

Prevention is the best insurance against risk. Employee training, background checks, safety checks, equipment maintenance, and maintenance of physical premises are all crucial risk management strategies for any business.

While business risks abound and their consequences can be destructive, there are ways and means to ensure against them, to prevent them, and to minimize their damage, if and when they occur. Finally, hiring a risk management consultant may be a worthwhile step in the prevention and management of risks.

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How to Reduce Business Risk: Eight Simple Ways

• March 27, 2022

Mia Johnson

• Business & Environmental Policy

No one wants to take unnecessary risks with their business . Unfortunately, there are many risks that are unavoidable. However, there are also steps that you can take to reduce the risk associated with your business. In this blog post, we will outline eight simple ways to reduce the risk for your business. By following these tips, you can rest assured knowing that you have done everything possible to protect your investment!

1. Have a Plan

2. know your industry, 3. diversify your business, 4. have a contingency plan, 5. use tools to identify risks, 6. limit your liability, 7. insure your business, 8. invest in training.

One of the most important things you can do to reduce business risk is to have a solid business plan. This plan should include a detailed analysis of the risks associated with your business, as well as how you plan to mitigate these risks. Without a solid plan in place, it is easy to become overwhelmed by risk and make poor decisions.

Make sure that you update your business plan on a regular basis, as things can change quickly in the world of business. As your business grows, the risk factors will change as well.

Another way to reduce business risk is to have a thorough understanding of your industry. You should know the ins and outs of your business, as well as the competitive landscape. This knowledge will help you make informed decisions about your business and avoid costly mistakes.

It is also important to stay up-to-date on industry news and trends. By knowing what is happening in your industry, you can make sure that your business is prepared for any changes that may occur.

Diversifying your business is a great way to reduce risk. By having multiple streams of income, you can protect yourself from the financial implications of one stream drying up. This diversification can come in many forms, such as offering different products or services or expanding into new markets.

No matter what form it takes, diversification is a key part of any risk reduction strategy.

Another important tip for reducing business risk is to have a contingency plan in place. This plan should outline what you will do in the event of an unforeseen circumstance, such as a natural disaster or the loss of a key customer. By having a contingency plan, you can minimize the damage caused by these events and get your business back on track as quickly as possible.

A well-crafted contingency plan can be the difference between a small setback and a major crisis. Make sure to test your contingency plan on a regular basis to ensure that it is still effective.

There are many risk assessment tools available online, such as the ServiceNow risk assessment  tool. These tools can help you identify and quantify the risks associated with your business. This information is invaluable when it comes to making informed decisions about your business.

Make sure to use a variety of risk assessment tools, as each one will provide different insights. By using multiple tools, you can get a well-rounded view of the risks facing your business.

One way to reduce business risk is to limit your liability. This can be done by incorporating your business or setting up a limited liability partnership. These structures will protect your personal assets in the event that your business is sued.

It is important to consult with a legal advisor before taking any action to limit your liability. They will be able to advise you on the best course of action for your specific business.

Another way to reduce business risk is to insure your business. This will protect you in the event of a catastrophe, such as a fire or theft. By having insurance, you can rest assured knowing that your business is protected against unforeseen events.

It is important to shop around for the best insurance policy for your business. There are many options available, so you should find one that fits your needs and budget.

Investing in training is another way to reduce business risk. This training can help your employees learn new skills and stay up-to-date on the latest trends. By having a well-trained staff, you can minimize the impact of an unexpected event.

Make sure that the training you invest in is relevant to your industry. There is no point in training your employees on something they will never use. Choose a training program that will benefit your business and your employees.

By following these eight simple tips, you can reduce the risk associated with your business. By doing your research and making informed decisions, you can protect your business from costly mistakes. These tips will help you get started on the path to risk-free business success!

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Tak’s 10 Tips: How to Reduce Business Risk

Have you ever wondered how successful businesses reduce risk? 

As business owners, we face a number of known and unknown risks that could derail our growth. 

Having a business plan, watching your cash flow and getting the right types of insurance in place are all important ways to reduce business risk. There are also numerous legal pitfalls to be aware of.

I’ve created a list of 10 common risks that can hurt businesses of any size. 

1. Create a business plan

A business plan details how your business will run and provides you with a framework for growth.

While it doesn't have to be set in stone, it's a good idea to outline how your business will develop. This helps to inform your strategy.

You might look at the first six months to a year or you may be looking at a five year plan. You may even be setting the objective of getting the business ready for sale. 

The plan should detail how you intend to make money and grow the revenue of your business including all the various strands of your strategy such as sales, marketing, pricing, operations and suppliers.

The plan can also help you detail particular milestones, making informed decisions about the next steps; for example, do you need business loans or do you have any staffing requirements?

Are you looking to secure funding for your business or bring in experienced business partners? Having a clear plan will increase the confidence of anybody coming into the business.

The type of business plan you create depends on the type of business. For lean startups a common business plan might cover the following areas:

• Identifying what the objective of your business is
• Understanding your target market and why they should care
• Understand the competition and what you can do better
• Identify your financial goals
• Determine the structure of your business
• Outline your plan for marketing and sales

The above are just some of the things that can help you to plan in advance and understand potential risks.

2.Watch Your Cash Flow

Watching your cash flow and funding during the early stages of your business can help you avoid one of the most common risks; running out of money.

60% of new businesses are likely to go bust in the first 3 years .

You may need to pay suppliers, staff, for systems and equipment and even things like research and development. All of this requires cashflow. 

Understanding the cash flow of your business can help you make better decisions and reduce risk when it comes to spending money. 

It can also impact relationships with suppliers if you are not able to pay them promptly.

If you are looking to attract investors, having a clear understanding of your cash flow requirements and documenting it clearly can increase your chances of getting funding, as you'll be able to clearly state your expenses, your revenue and your financial targets.

3. Insurance against things going wrong

Insurance helps protect small businesses by taking on some of the financial burden if things go wrong. 

From defective stock and workplace injury to business interruption and cover for your commercial property. The right insurance can cover you against unforeseen circumstances. 

Common types of insurance include:

• Professional indemnity insurance - can help protect you against financial claims made by clients who have suffered loss further to using your products or services.
• Public liability insurance - can protect you against claims from members of the public who may have been injured whilst on your premises or as a result of your business activities.
• Employer’s liability insurance - can protect you against compensation claims if employees injure themselves or become ill whilst under your employment.
• Business interruption insurance - can cover you against any unforeseen crisis that results in you losing profit (like a global pandemic).

It's a good idea to seek independent advice on what types of insurance your business will need.

4. Contracts with partners, suppliers and employees

Contracts help you to limit the liability your company could face with clear terms and conditions between you and suppliers as well as clients and employees. 

Further down the line, you may face claims for damages or disputes with suppliers and employees. Having the right contracts in place can help you reduce the risk and potential damages caused. 

Employment contracts help you build the right culture for your business and provide security for employees as well as setting out what you expect them to contribute.

While B2B contracts do not remove all of the risk involved in dealing with other businesses and suppliers, they can offer you significant protection further down the line against any claims that you have not fulfilled your obligations.

B2B contracts can also protect your interests, creating clarity between all parties involved.

A commercial solicitor can advise you on the different types of contracts that your business might need, including business to business contracts and the best cause of action when a contract is not fulfilled.

5. Business Structure

If you don't apply the right structure to your business when it's formed, then you could face potential risks further down the line. The company structure determines how the business will be run and this can inform a number of agreements you might need, such as founders agreements, articles of association and shareholders agreements.

Such agreements determine how the business will be run and who has what power when it comes to making important decisions.

You need to establish whether you are a sole trader, partnership, limited company or limited liability company.

6. Protect Your Intellectual property

Be careful who you share sensitive information about your business with.

Tech startups are sometimes so keen to secure funding that they risk sharing information with the wrong people and at the wrong time.

Without a patent or the right contracts in place they could find that there are no copyrights, leaving other parties free to pick up an idea and run with it. 

This could mean bigger businesses with deeper pockets could quickly surpass your business growth, using an idea that you thought was yours.

7. Reduce the impact of co-founder and boardroom disputes

Full of enthusiasm at starting a new business with another co-founder or co-founders, it’s easy to start issuing shares to everybody involved. 

This could lead to complications further down the line, when a disproportionate amount of shares belong to those who have not invested as much time, effort or expertise into the business as other founders or board members.

A commercial solicitor can help you to manage relationships with other partners by having comprehensive shareholders agreement and articles of association in place.

This will ensure that you are aware of how to handle things like ownership changes and the issuing of shares in future.

8. Protect confidential information

GDPR laws still apply. You need to be careful about how you handle customer data and how you tell customers you will be communicating with them. Not handling data correctly can result in hefty fines, not to mention damage to your reputation.

It's not just customer data that you need to consider. You need to think about how you handle employee information from email communications to personal data. This becomes particularly important if you ever face an employment tribunal.

Confidential information belonging to your business could be protected by NDAs (non-disclosure agreements).

You should also be aware of the limitations of non-disclosure agreements, for example it is often difficult to prove a breach of confidentiality.

You should do everything you can to only disclose information that is absolutely necessary and limit the number of individuals who receive this information.

9. Employees

Hiring employees can be a risky process. How much do you pay them? What procedures do you have in place? and most importantly of all, how do you find and keep great employees?

You need to keep employees happy to ensure they don't go elsewhere. It's bad enough losing good employees, but it can be particularly painful when they leave for a competitor who offered them better terms.

As business owners, not only do we need to decide how to pay employees and how much, but we may even decide to give them some equity in the business. 

You’ll need to have appropriate employee contracts in place to protect you and your employees as well as fostering the right culture in your business. 

10. Get help early on

Accountants, HR professionals, business advisors and of course commercial legal advice can all be valuable assets throughout the life of your business.

You can waste valuable time and money trying to understand the various legal pitfalls that take many startups and established businesses by surprise.

You should be aware of the legal services that startups and small businesses need to help them reduce risk and thrive, from setting up and structuring your business correctly, to b2b contracts and seed funding. 

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