Risk Mitigation Strategies in 2024

June 2017. One of the world’s largest container shipping companies, Maersk, was hit by malware that made 1200 applications inaccessible, destroyed 49000 laptops, and impacted 3500 servers. The shipping line was at a standstill.

This was short-lived, however. They started taking bookings online within a week. And within two, every global application was restored. This was considered an excellent response because Maersk worked tirelessly to implement their risk mitigation strategies without delay.

The business landscape today is increasingly complex and there’s huge exposure to a number of risks like malware attacks, natural disasters, security breaches, etc. Having a strong risk mitigation strategy in place can go a long way in preparing your organization against such incidents.

In this blog, we cover various kinds of risks that can occur and how your risk mitigation strategies can help you overcome them.

What are Risk Mitigation Strategies?

Risk mitigation strategies are action plans to minimize, eradicate or control the impact of risks that organizations may face. Different risks call for different response mechanisms and the speed at which organizations respond can go a long way in better decision-making and better risk mitigation.

Risk mitigation strategies can vary depending on the complexity of risks and the nature of the organization. However, there are ways organizations can avoid risk activities, transfer risks, reduce exposure, and develop a strong recovery plan.

What are The Types of Risks that you may face in 2023?

There have been fluctuations in the global economy. Data security is becoming a significant threat to organizations. Climate changes are impacting the world. In 2023, both individuals and organizations are exposed to a number of such risks. 

These risks can be categorized into 7 types:

Market risks

Any volatility in market conditions such as changes in interest rates, market demand, technological breakthroughs, etc. can bring market risks. So if an increase in the market rate of interest impacts your borrowing costs or the entry of a new competitor affects your sales, it is a market risk.

Regulatory and compliance risks

Regulatory and compliance risks refer to any issues that the organization faces due to violations of regulatory laws or compliance failures. These can be legal proceedings, financial damages, cancellation of certification, business disruptions, negative publicity, etc.

Financial risks

The risks of financial losses because of the impact on your investments, income, expenditure, or credit are known as financial risks. There can be various reasons for such risks. A failure on the part of a borrower to repay debt can for example, bring credit risk, while improper management can bring liquidity issues. 

Operational risks

Operational risks are associated with hindrances in day-to-day activities of the organization. A human error leading to a data breach can pose a business continuity risk. Similarly, system or process failures, regulatory infringements, some external events etc. can bring operational risks for an organization.

Cybersecurity risks

Risks that affect the confidentiality, integrity and availability of information assets of the organization are cybersecurity risks. Social engineering, malware, password attacks etc are some examples. Cybersecurity risks can result in financial losses, regulatory issues, theft of information security etc.

Reputational risks

Risks that can tarnish your brand image and pose a threat to its reputation are categorized as reputational risks. An ethical or compliance lapse may put you in negative stories or an employee behaviour such as harassment can put a dent in your public perception. 

Environmental risks

Any unanticipated environmental changes like pollution, calamities, land use patterns, etc. that can impact the environment and in turn bring operational hiccups for your organization are environmental risks. Any resource depletion for example, can affect the dependent supply chain.

Top Four Risk Mitigation Strategies

Risk mitigation has a definitive objective—to protect the company and its stakeholders from the various types of risk while preventing financial losses, ensuring minimal operational disruption, and protecting the organization’s reputation. The strategies adopted hinge on the nature and severity of risk and the complexity of the organization. 

Here are the top 4 Risk mitigation strategies:

• Risk avoidance
• Risk transfer
• Risk reduction
• Risk acceptance

1. Risk avoidance

Risk avoidance strategy calls for the elimination of activities or withdrawal from situations that pose a risk to the organization. Any business project that has a high probability of bringing along negative consequences such as legal, financial, or operational trouble must be avoided.

However, this strategy only applies if the severity of the potential risk is too high. Ceasing an activity is an easy solution but the business may miss out on big business opportunities.

2. Risk transfer

Risk transfer is the strategy of passing on the risk to a third party through contracts, insurance, or any other transfer arrangement.

Signing a contract with the third-party or purchasing an insurance policy can help shift the financial burden of a potential risk. But it can be expensive and the risk coverage may not include complete coverage.

3. Risk reduction

Risk reduction is the strategy of controlling or lessening the probability of risk occurrence or its impact. This involves implementing various mitigation controls to minimize the likelihood of risk or to protect the organization from its impacts.

The strategy helps in safeguarding the organization from financial, market, and reputational risks etc. and building organizational strength against such risks. It can however be heavy on the company’s pocket and difficult to monitor. If the risk still occurs, it can be hard to analyze how effective the measures were and how much risk was reduced.

4. Risk acceptance

Risk acceptance is when the organization chooses to bear the impact of a potential risk that comes from a decision, activity, or project. It is a deliberate act where the key stakeholders decide to proceed with a risky endeavour, resisting the urge to avoid mitigation.

Often, the decision for risk acceptance is taken when the cost of reduction, avoidance, or transfer is too high or when the outcomes the risk brings can bring about positive change. 

Also check out these top risk assessment tools

Risk Mitigation Strategy Examples

Examples are a great way to understand what each strategy brings along. Here, look at some risk mitigation strategy cases:

How to avoid risk?

A highly volatile investment that carries along the risk of huge losses may be avoided and the organization may choose to invest in a low-risk investment like bonds or real estate.

Entering a new market may bring a lot of regulatory and legal risks. So, the company may cancel the business move to avoid the consequences.

Similarly, blocking risky websites for avoiding cybersecurity risks is another example.

Transfer risk when you can

Getting insurance for machinery is an example of risk transfer. In this case, any damages or loss to machinery will be covered by the insurance company in exchange for the premium paid.

Outsourcing is a great way of transferring risks to third parties. By outsourcing a service, say IT functions or security, the risks associated with cyber attacks or infrastructure failure are assumed by the vendor.

Control or reduce risks

Employing safety protocols and controls for employees to reduce chances of injury and training employees to avoid human errors is a risk reduction strategy.

Similarly, if an organization includes an indemnification clause in an agreement with a third-party contractor, then, in case of non-performance of obligations by the contractor, the organization will be compensated for the loss. This is risk reduction.

When to accept risks?

When a business chooses to diversify its operations and enter a new product line, there’s an acknowledgment of the risk of slow sales initially. This is risk acceptance.

Likewise, switching technology for production will pose a risk of resistance from the workforce and underutilization of capacity in the training period. When a business makes such a strategic move, these kinds of risks are accepted.

Final Thoughts

Risks are inevitable but not having risk mitigation strategies in place can slow down the speed of responses to risks. Risks are also interrelated. One cyber security breach can bring along financial, reputational, operational, legal and other compliance risks. Having a detailed risk mitigation strategy helps you identify the potential threats, assess the degree of impact, and lay down a strong action plan for the same. 

Sprinto helps you understand and identify risks at an entity and organization level. With automated checks and provision for edge cases right at the start, Sprinto helps organizations build better cybersecurity preparedness and risk management. Want to ace security and compliance? Speak to our experts today.

FAQs

What is risk mitigation under compliance?

Risk mitigation under compliance involves implementing processes to identify and manage compliance-related risks. Compliance risks here refer to fines, penalties, lawsuits, reputational damages, productivity losses, or any other disruptions on regulatory adherence failure.

What steps can you take to mitigate risks?

Risk mitigation begins with identifying the potential risks associated with a decision, activity or project. Next, the likelihood, severity and impact of each risk are assessed. A risk management plan is then developed for guiding mitigation implementation. Once the risk mitigation strategies are executed, there’s monitoring and improvement.

Why is risk mitigation important?

Risk mitigation is important to protect the organization from financial losses, reputational damages, continuity risks, compliance risks, etc. It is also important to keep the confidence of customers, stakeholders, and investors intact.