All businesses face risks, particularly at some specific times. Risk mitigation can help protect your business by reducing the chances of the risk occurring, and also shielding it from the impact, should the risk actually occur. Below, we will describe in detail four strategies that you can apply to protect your company and team from potential risks.
Think about the last time you went for a walk. Surely, before you have found out what the weather was like, right? And based on what the weather app showed you, you will have decided how to dress and what to bring. If it seemed to be cold, you will have put on a coat or a light sweater. If the app predicted rain, you will have assessed the chances of a downpour and decided whether or not to bring an umbrella.
That is risk mitigation. You determine what the potential risks are (such as being cold or getting wet), assess the chances of that happening, and take steps to reduce the risk.
Of course, risk mitigation is much more than a strategy to stay dry on rainy days. In business, it can help you avoid the negative consequences of other major unexpected risks, such as economic losses. Let’s take a look at four strategies you can apply to mitigate risk to your business and your team.
What is risk mitigation?
Risk mitigation is the process of reducing potential threats or risks to which a business or project is exposed. Part of a much broader risk management strategy, mitigation is about identifying risks and developing a plan to manage or eliminate them; so that you can move forward with confidence, no matter how difficult what needs to be solved.
The objective of risk mitigation is to reduce the possibility of a risky event occurring for the project or business. And also, establish the necessary strategies to monitor and respond to potential threats in case they become concrete events. Risk mitigation is a very important part of business strategy and is particularly essential when the risks facing the business are external and the team has less control over them, such as changing macroeconomic conditions.
Why risk mitigation is important for business
No matter how well you work with schedules, all businesses must face inherent risks. It is even more frequent at certain times, such as during global crises or when market conditions evolve. Risk mitigation can help you and your team navigate those uncertain waters by reducing unnecessary risks that could interfere with business continuity.
Among the most common business risks are the following:
- Project risks such as scope corruption, lack of clarity in projects, tight deadlines, and resource shortages.
- Financial risks such as lack of financing or a drop in profitability.
- Economic risks such as changing macroeconomic conditions and stock market fluctuations.
- Cybersecurity risks such as data breaches or hackers.
- Reputational risks such as problems with brand management or loss of customer trust.
- Human risks such as employee turnover, talent shortages and hiring freezes.
- Operational risks such as supply chain issues or changes to operating procedures.
In the same way that the consequences of not preparing to face risks in real life can have negative consequences, in business this attitude can lead to obstacles such as the following:
- Projects that exceed budget
- Results of projects that do not meet expectations
- Scarcity of resources that causes exhaustion (burnout) and work overload
- High staff turnover in the team
- Failure to comply with the established deadlines
- Negative impact on the reputation or brand of the business
- Slow to innovations
- Financial losses
These risks and the potential results may sound intimidating. The fact that risks are part of business does not mean that we cannot prepare ourselves to face them. Risk mitigation strategies can help you reduce the chances of business risks occurring and focus on moving the work forward.
How to continuously monitor business risks
Risk mitigation is not static, it is a constantly evolving process. Once you’ve settled on a risk mitigation strategy, you’ll want to continue to monitor risks to ensure they don’t increase the probability or severity of occurrence; and in this way, make sure you have everything ready in case new risks arise.
Here’s how to monitor business risks:
- Start with a well-defined project roadmap so that all team members and other stakeholders agree on the scope and deliverables of the project.
- Prepare regular check-ins to monitor the scope and progress of the project.
- Track project progress and performance in real time with project management software that can track project statuses.
- Monitor cash outflows and expenses for effective cost control.
- Determine the project budget in advance.
- Use time management tools and techniques (such as daily planning templates) to keep work on track.
- Create a plan for resource allocation to reduce related risks.
- Proactively monitor changing business conditions and adapt your business strategy as needed.
- Implement a crisis management plan to respond to business-critical threats.