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Risk Mitigation

Risk Mitigation

Posted by Ncontracts on Nov 12, 2018 2:15:00 AM

Risk mitigation refers to defined strategies to minimize or avoid exposure to loss. Mitigation means reducing the seriousness or severity of the loss. The loss involved is usually either directly or indirectly a financial loss.

An example of an indirect financial loss is a reputation risk that could cause a company to lose business and suffer financially. A lawsuit that results in a judgment against the company would be a more direct financial loss.

Strategies for mitigating risk include: accepting the risk, avoiding the risk, limiting the risk, and transferring the risk to another company. If the company decides to accept a risk, it takes its chances. Acceptance is usually the choice when the risk is only slight or the cost of mitigating it is too high.

Avoiding risks would be the ideal risk mitigation strategy if not for its cost. However, avoidance is sometimes worth its expenses, especially if the risk could cause the business to fail. In most cases, companies try to limit their risks. For example, a company might reduce the risk of cyber attacks with firewalls and other security systems for their computers. These measures are called controls. Controls include all the systems, procedures, processes and policies put in place to protect the bank’s assets, control risks, and align with the bank’s strategic plans. 

Risk transference means putting the risk in the hands of another company. Transference may be the best option for specific operations that are not a part of certain companies’ primary services.  However, transference is not a viable option in the banking industry. The reason is that regulators do not differentiate between the financial institution and the vendors they use for outsourced functions. The bank is always ultimately responsible for the actions of the vendor. 

A risk mitigation plan may include any or all of these strategies, each used for different types of risks. Every company needs to have a risk mitigation plan in place and update it as needed. Risk mitigation is essential for keeping a company in business and allowing it to thrive.

Learn more about healthcare risk management and risk management.

 

Related: Creating Reliable Risk Assessments

Topics: Risk Management, Risk & Compliance, Integrated Risk Blog, Cluster: Risk Management

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