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What is Risk Mitigation?
Risk mitigation is the process of making changes to reduce risks in the workplace. A risk mitigation team will get together to evaluate the current risks and come up with risk mitigation strategies to minimize the risks associated with each specific project. Whenever you undergo a new project, it is essential that proper actions are taken to avoid, control, or transfer risks that may affect things like product failure or equipment breakdown.
Types Of Risk Mitigation Strategies
There are several mitigation strategies associated with risk minimization. When a production team begins a new project, the risk management team must first carry out a risk assessment to identify and monitor the consequences of potential risks.
Potential risks include factors like product failure, scope creep, and team turnover. There are four key methods to consider when developing risk mitigation strategies:
- Risk Avoidance
- Risk Acceptance
- Risk Reduction / Controlling
- Risk Transfer
Risk mitigation planning typically involves implementing at least one of these methods for each identified risk.
Risk Avoidance
Risk avoidance is a method that actively seeks to avoid the negative consequences of potential risk. If a risk is identified in relation to new business activity, taking action would ultimately involve avoiding the action altogether.
How To Optimize Risk Avoidance
The best way to optimize the avoidance method is to make sure that your employees understand the risks of each project and the consequences of that risk. If your employees understand the projected risks of a new change, they can assess the pros and cons of making the switch and determine whether avoidance is the best option. Part of risk management is knowing when a risk is not worth taking.
Actions Needed:
The obvious action to ensure absolute risk avoidance is to cancel the project entirely. Of course, this has other undesirable consequences and is only really an option if you cannot mitigate risk in the crucial areas. In this case it is also important to consider the cost of inaction.
Another approach is to ensure that projects are only undergone if they follow certain procedures that avoid high-risk situations. For example, if you are considering implementing new technology, the technology should adhere to the same set of rules and regulations that have proven to be successful with existing technology. If the risk with the new technology is too high, it may be best to avoid the risk by sticking with the existing technology, even it does not perform as efficiently. If you want to properly manage risks in your operation, sometimes it is best to avoid making big changes when they don’t make sense.
Risk Acceptance
Risk acceptance as a risk mitigation strategy requires the team to highlight the risks and consequences associated with a new project and then accept the risk. Unlike avoidance strategies, this option is preferable when the risks of embarking on a project are not significant enough to outweigh the benefits of the change. This means that no actions are taken to reduce the risk or risks identified. Instead, the risks are accepted and monitored carefully so the project can go ahead as planned.
How To Optimize Risk Acceptance
Every decision you make in business comes with an element of risk attached. Sometimes, accepting the risk is part of making progress in your company. When the risk is sufficiently low, shipping the product or embarking on a new project is preferable to avoidance.
It must be noted that risk acceptance is not the same as risk ignorance. The risk management team should assess all aspects of the decision before accepting the risk. They should also continue to monitor field performance closely so that if their predictions are incorrect, mitigation of risk is still possible via a new course of action.
Actions Needed:
Risk acceptance strategy requires the project team to identify all possible risks and assess how each risk might impact things like scheduling or product quality. Before making the decision to accept the risks, each team member must be aware of both the risks and possible consequences associated with the project. They must then unanimously agree that the consequences of the identified risks are acceptable.
Risk Reduction / Controlling
Risk reduction is about reducing the probability of an undesirable event occurring. It is also concerned with reducing the severity of the consequences of unwanted risks.
Hazard analysis or FTA allows you to identify and prioritize the risks associated with your project. If you cannot reduce the probability or severity of the risk, you can implement controls to detect the root cause of each risk so action can be taken prior to failure.
How To Optimize Risk Reduction / Controlling
One of the best methods for reducing risk is diversifying your operation. If all of your products are dependent on one operation, equipment failure can impact your whole operation. Diversifying your products and technologies enables your team to mitigate risks.
It’s also important to have plans in place if a failure does occur. Reacting poorly to an operational hiccup can cause a ripple effect of adverse consequences. Implementing a reactive strategy to failure can help control the risk.
Actions Needed:
There are several ways you can go about implementing control methods. For example, quality controlling methods for new products will improve the overall performance within a project. By ensuring every product is up to standard, you reduce the risk of a large-scale hiccup.
Tracking the time it takes teams to complete specific tasks can help reduce the risk of delayed delivery. By taking into account time management strategies among your project team, you can control the risk of failing to meet your project deadline.
Risk Transfer
Risk transferal is a strategy that involves shifting the burden of the risk to another area beyond your company. If your supply vendor fails to deliver your products on time, the burden is on them to help pay for all damages due to failures in their party.
Even though this strategy alleviates some of the financial burden associated with risk, it does not help protect your reputation. At the end of the day, if the customer is not happy with your product, they will blame you and not your vendors.
How To Optimize Risk Transfer
Optimizing this method requires is not about shifting the burden wherever possible. When you pass the burden over to another company, you lose an element of control and become dependent on their operations. If they have a failure on their end, your operation will still be held up and your reputation will still be damaged. You can mitigate this by informing your customers about the other organizations in your operation so they are aware that the responsibility of delivering their product is shared.
Actions Needed:
Purchasing insurance is the standard method for a mitigation plan that relies on transferring the risk to another party. This means that if there is a failure in the operation, you are financially covered.
Transferring the risk also involves setting up detailed contracts with vendors and suppliers. For example, if a machine breaks down because of a fault on the supplier’s end, the contract could require them to cover the cost of production downtime. This shifts the risk away from your company and onto the supplier.