All businesses face risk, especially in uncertain times. Risk mitigation can help protect your company by reducing the likelihood that risks will occur—and their impact if they do. Here, we walk you through four common risk mitigation strategies you can use to shield your company and your team from potential risk.
Think about the last time you went for a walk. You likely checked the weather first, right? And, based on what the weather app showed you, decided how to dress and what to bring. If it looked cold, you probably put on a jacket or a light sweater. If the app forecasted rain, you might have weighed the odds of a downpour and decided whether or not to bring an umbrella.
That’s risk mitigation. You determined potential risks (like being cold or getting wet), weighed the likelihood that they would happen, and took steps to reduce your risk.
Risk mitigation is more than a strategy for keeping yourself dry on rainy days. In business, it can help you avoid the negative consequences of larger unexpected risks, like financial losses. Let’s take a look at four strategies you can use to mitigate risk for your company and your team.
Risk mitigation is the process of reducing potential threats or risks posed to a business or project. Part of a larger risk management strategy, risk mitigation involves identifying risks and developing a plan to manage or eliminate them—so you can feel confident moving forward, no matter what the ask or the task.
The goal of risk mitigation is to reduce the likelihood of business or project risk, as well as to put strategies in place to monitor and respond to potential threats in the event they happen. Risk mitigation is an important part of any business strategy, and it’s especially important when the business faces outside risks that your team has less control of, like changing macroeconomic conditions.Create a risk management plan template
No matter how well you plan, all businesses face inherent risks. This is even more true during uncertain times, like times of global crises or evolving market conditions. Risk mitigation can help you—and your team—navigate uncertain waters by reducing unnecessary risks to business continuity.
Common risks businesses face include:
Financial risks such as lack of funding or decline in profitability.
Economic risks like changing macroeconomic conditions and stock market fluctuations.
Cybersecurity risks like data leaks and hackers.
Reputation risks like brand management issues or loss of customer trust.
Human risks such as turnover, talent shortages, and hiring freezes.
Operational risks like supply chain risk or changes to operating procedures.
Just like being unprepared for risks in life can have negative consequences—like getting rained on if you leave the house without an umbrella—businesses unprepared for risks can face obstacles, including:
Projects going over budget
Underperforming project outcomes
Impact on business reputation or brand
These risks—and potential outcomes—can sound overwhelming. But just because risk is part of doing business doesn’t mean you can’t prepare for it. Risk mitigation strategies can help you reduce business risk and focus on getting things done.
There are four common types of risk mitigation strategies you can use to protect your business against unwanted risks. The first step in risk mitigation is identifying and assessing the risks your business or project faces. Once you have a better idea of what possible risks you’re dealing with, you can move forward with a risk mitigation plan that will best protect you and your team.
To identify potential risks:
Start early. You should assess project risks during project initiation and project planning. You should continually assess business risk, especially during times of uncertainty or changing economic conditions.
Meet with your team. One of the best ways to identify risks is to meet with the team that’s involved with the project or business impacted by the potential threats. This could mean meeting with your project team, business leaders, and/or stakeholders. Things you may want to consider when gauging project risk include the project timeline, scope, budget, available resources, and additional project constraints. When assessing general business risks, look at factors like market share, competitor performance and strategy, potential legal risks, and current or projected economic conditions (a PEST analysis can help here).
Determine the likelihood of potential risks occurring. Once you have a better idea of the risks facing your business, you can create a risk matrix template. A risk matrix template outlines the overall impact of a risk by looking at the likelihood that the risk might happen—and the severity of the consequences if the risk does occur. That way, you know which risks have the potential to really hurt your business and which might be, well, worth the risk.
Develop a risk mitigation strategy. Now that you know what risks are facing your business and their potential impact, you can develop a risk mitigation strategy that aligns with each risk’s type and potential consequences.
Here are four common risk mitigation strategies:
Risk avoidance is a risk mitigation strategy that focuses on avoiding any action that has the potential to end in unwanted risk. When using this strategy, you simply bypass risk by choosing not to engage in the action that could cause the risk to occur.
When to use risk avoidance: You’ll likely use the risk avoidance strategy if the outcome of a potential threat is high risk, like if the risk occurring would significantly impact the company’s financial standing.
Example: Let’s say your company plans to open a second office. While evaluating specific risks, you realize your original location isn’t generating enough profit to support a second location, meaning you’ll have to secure additional financing. And, if the second location gets delayed or doesn’t become profitable quickly, you could struggle to keep up with the payment plan. Since this could cause a ripple effect across your company—ultimately impacting the company’s ability to perform and be profitable—you might choose to pause the expansion, avoiding the risk entirely.
Risk reduction (also known as risk control) involves taking actions that can help reduce the likelihood of a risk happening or limit the impact of the risk if it does occur. When using the risk reduction strategy, it’s important to define risks at the beginning of the project, as well as proactively track risks during the project, so you can monitor them and act if they do occur.
When to use risk reduction: You might choose to use the risk reduction strategy if you think you can control the potential risks with mitigation actions like process tweaks or updates.
Example: Imagine you’re launching a marketing campaign. At the beginning of the project, you assess project risks and find that the project has the potential to go over schedule. You review the risk and decide that the likelihood of the project running over is low and can be controlled. To reduce the risk likelihood, you start by identifying why the risk might happen, such as underscoped tasks, production delays, unexpected bugs, and resourcing constraints. Then, you implement control methods like using team calendar software to avoid scheduling errors, create a scope management plan, and correctly allocating resources.Read: What is a risk register: a project manager’s guide (and example)
A risk transference strategy involves shifting the consequences of potential risks to a third party. Using this strategy, you protect your business by ensuring that the company won’t be held responsible if the risk occurs.
A common example of risk transference is buying insurance. Your business pays a premium to an insurance company to accept the cost of certain defined risks. If that risk occurs, the insurance company pays the damages, so your company isn’t financially liable. You can also transfer risk through outsourcing or using contractors.
When to use risk transference: Risk transference is a smart risk mitigation strategy when you want to protect your company from potential financial liabilities. It can also be a good strategy to use when the likelihood of a risk occurring is low, but the financial impact the company would incur if the risk occurred is high.
Example: Say your company is launching a new product. Since you currently don’t have the resources required to produce the product in-house—and getting the process set up would cost the company too much upfront—you decide to outsource the production to a third-party contractor. Now, your company will avoid upfront costs, and if the contractor delays or otherwise impacts production, they’ll cover any financial losses your company might incur.
Risk transfer does have downsides, however. Just because you protected your company from the financial liability of the risk doesn’t mean that the business can’t suffer the negative consequences of the risk. For example, if an issue with the contractor delays your product launch, your company won’t be liable for financial losses, but the delayed launch can still impact the business’s brand and reputation—so take these factors into account when considering your risk mitigation strategy.
Just like the name suggests, risk acceptance is the acknowledgment and acceptance of a potential risk. Unlike risk reduction, risk acceptance doesn’t involve any attempt to mitigate risk—instead, it means moving forward as-is with the understanding that the risk might occur. If the impact or likelihood of the risk increases to an unacceptable level, you can shift your risk mitigation strategy accordingly.
When to use risk acceptance: You’ll likely use a risk acceptance strategy when you’ve deemed the risk level of a potential risk acceptable, such as if the potential risk is unlikely to occur, when any negative consequences of the risk are minor, or when the cost of mitigating the risk would be higher than the costs incurred if the risk happened.
Example: Say your flower delivery company has relied on the same florist for roses for five years. In the five years that the florist has supplied roses, they’ve never missed a Valentine’s Day shipment. Valentine’s Day is one of your biggest profitability-drivers, so if the florist was to miss a shipment, it could impact company revenue and reputation. But it’s never happened. Plus, finding another florist and contracting them for a backup supply of flowers would cost the company a good chunk of change and could result in waste. Since the risk that the supplier will miss a shipment is low, your company deems it acceptable and moves forward without taking steps to protect against the risk.
Risk mitigation isn’t static—it’s a constantly evolving process. Once you’ve settled on a risk mitigation strategy, you’ll want to continue monitoring risks to ensure they don’t increase in likelihood or severity and to make sure you’re prepared if new risks pop up.
Here are a few ways you can monitor business risks:
Start with a defined project roadmap to ensure all team members and stakeholders are on the same page regarding project scope and deliverables.
Set up regular check-ins to monitor project scope and progress.
Follow project progress and performance in real-time with project management software that tracks project status.
Monitor spending and expenses for effective cost control.
Define your project budget upfront.
Create a resource allocation plan to reduce resourcing risks.
Proactively monitor changing business conditions and adjust your business strategy as needed.
Put a crisis management plan in place to respond to business-critical threats.
All businesses face risk, and risk is scary—especially in times of change or uncertainty. By using risk mitigation strategies, you can help shield your business and your team from unnecessary risk, reducing uncertainty and moving your business forward.
Reduce project risks with project management software that lets you track progress. See what’s on track and what’s a risk, identify roadblocks at-a-glance, and provide clarity for your whole team—so everyone knows what they’re responsible for and by when.Try Asana for project management