We’re no strangers to assessing risks; it’s part of our survival mechanisms. Limiting risk (also called risk mitigation) impacts whether a business survives as well.
Imagine a scenario where business leaders don’t stop to reflect on past mistakes or constantly dive into new opportunities without considering how it could impact their business. That wouldn’t be sustainable, right?
To effectively reduce risk within an organization, we need to have a a basic understanding of the different types of risk and how to prevent them.
In this article, we’ll cover various types of risks, four risk mitigation strategies, and show you how to build a plan on monday.com Work OS to help you future proof your business. Let’s start with a basic definition.
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 if necessary.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 take a closer look as to 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 as well, such as helping you maintain a good reputation for stability within the industry and keeping internal and external stakeholders happy.
The latter is especially important. In a recent survey, 59% of organizations believe the number and complexity of business risks are only increasing. Another finding: 68% of organizations indicate they have recently experienced an operational surprise due to a risk they did not adequately anticipate.
Those operational surprises can cost time, money, and other valuable resources. If stakeholders feel the risks are too high or handled improperly, that could lead to a shuffle in management. So risk mitigation is important, but before you can develop a plan, you need to know what risks you can face.
What are the types of risk?
You may face different risks than a business in another industry, catering to different clients or customers. But no matter the company or industry, a few common risks include:
- Compliance risk – a risk to a company’s reputation or finances when the company violates external or internal laws, regulations, or standards. Companies may face losing customers or paying a fee due to breaking compliance regulations.
Legal risk – a type of compliance risk that happens when a company breaks the governments rules for companies. When companies face legal risks, they could also get caught 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 a 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.
Once you have an idea of the potential risks, the next step is to assign them a score based on the likelihood and impact of occurrence.
Many companies then use a risk matrix to categorize additional risks. Just keep in mind that these classifications aren’t static and require routine monitoring and revision—a simple task on a Work OS such as monday.com—but more on that later. Let’s take a look at a sample risk matrix:
Many businesses organize matrices by consequences and likelihood, like the one above. Identifying which risks you’ll face is the first step towards preventing them. Generally, there are a few types of risk mitigation strategies you can use to protect your business.
What are the four types of risk mitigation?
There are four common risk mitigation strategies. These typically include avoidance, reduction, transference, and acceptance.
With a risk avoidance strategy, you take measures to avoid the risk from occurring. This may require compromising other resources or strategies to make sure you’re doing everything you can 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, just 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.
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 so it can be completed within budget, such as in the gif below.
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.
There might also be risk transference written into contracts with suppliers, outsourcing partners, or contractors.
If a project is 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 the business 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.
Lastly, we have the 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 extremely small, 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 a few types of 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. That’s what we’ll dive into below.
The following five steps will help you figure out a way forward through your risk mitigation process. Let’s break down the steps.
Before coming up with 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.
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.
The actions you take 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.
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.
Businesses aren’t static and projects frequently change. It’s important to regularly monitor each risk to check its category and mitigation strategy. You can set up times in your weekly meetings or daily stand ups to quickly review risks.
There are also several statistical tools — such as S-curves — that can track project progress and flag any changes in risk profile for key variables such as project cost and duration.
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 important for informed decision-making and regular reporting may surface other risks that hadn’t been identified yet.
The most effective risk mitigation strategies make risk reporting part of the regular business operations, such as weaving reporting into the daily or weekly workflows.
One way to easily implement reporting is with the monday.com Work OS that has built-in reporting capabilities and pre-built risk management templates. But this platform can do much more than show reports.
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.
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 make changes to 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.
Our powerful automations immediately notify risk owners and stakeholders to any changes and enables them to take action. Use the monday.com Workflows Center to create custom recipes that update stakeholders when important dates arrive, notify the right people when a status changes, create dependencies as needed, and much more.
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.
Teams can view the strategy in several different ways as well. From the table view to dashboards, charts, Kanban, and others, it’s easy to get the full picture of events and action items.
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 disrupting your team members.
You can even embed monday.com boards, dashboards, videos, and more directly into your workdoc. As you work, each component will automatically sync and update so nothing falls in the cracks.
Help future-proof your business with monday.com risk mitigation
It’s impossible to remove all business risks. But early risk identification provides the best chance of mitigating them to levels your business can handle.
monday.com enables transparency of business risks, so they’re easy to identify, classify, and act upon. Take the first step towards risk mitigation by downloading our free risk register template.