The Ultimate Risk Mitigation Guide:

4 Foundational Steps for a Comprehensive Risk Management Plan

What is risk management and why is it important?

Risk management is identifying, assessing, and prioritizing risks that can impact a business, and then mitigating or planning for those risks. It’s important because it helps reduce uncertainty, and allows business owners to make informed decisions to protect themselves against potential losses.

What is the goal of risk mitigation?

Risk mitigation aims to reduce the likelihood and impact of risk. Businesses mitigate risk by using measures that prevent, minimize, or transfer risks, based on their potential severity and the resources available to address them.

Why do we mitigate risk? While it’s impossible to avoid every risk, strategic planning can help reduce the likelihood of an undesirable event, and minimize its impact on the business if it does occur.

Your risk mitigation strategy should be as unique as your business. At POWERS, we take every client through a consultative risk management process to build a plan tailored to their industry and business goals.

These are the four foundational steps we use.

1. Identify and assess risks

Now that you’re familiar with the most common types of risks, your first step is to figure out which of them apply to your company.

The best method for thorough and efficient risk identification is to get all stakeholders in a room together and brainstorm. Getting a variety of perspectives will help you perform a well-rounded risk assessment.

If you identified a large number of potential risks, don’t panic. All risks are not created equal. Your goal is to devote the most resources to controlling the most important risks.

There are two factors that determine a risk’s importance: probability and severity. Look at the list of risks you identified and answer two questions for each of them:

• Probability: What is the likelihood that this risk will happen?
• Severity: What are the potential costs if it does?

A risk assessment framework will help you prioritize the risks and decide how you will respond to them. This kind of quantitative risk analysis can also be visualized using a quadrant.

An outside perspective can be very valuable for this step. We do a full exposure analysis with all our POWERS clients to uncover and assess your exposures, both common and uncommon.

2. Decide how to approach each risk

Once you’ve prioritized your top risks, designate one “risk owner” for each. This is a simple but crucial step to make sure the appropriate action is taken.

The risk owner should be someone who:

• Works in the area impacted by the risk
• Has the authority to address the risk

Of course, the risk owner can team up with others in the company to tackle the risk, but they’re the one accountable for it at the end of the day.

The risk owners now have the responsibility of leading the company’s approach to each risk. You have four options:

1. Avoid the risk altogether. Sometimes, the best decision is to avoid a risk with high probability and severity. Risk avoidance might seem like a no-brainer, but it’s often unrealistic for most risks.
2. Transfer the risk to another party. Any work that involves contracts is an opportunity for risk transfer. For example, you can require a subrogation waiver on a subcontractor’s insurance policy. Insurance itself is also a form of risk transference.
3. Mitigate and minimize the risk as best you can. This is likely the approach your company will take with most risks. Risk mitigation inherently involves trade-offs. Your job is to compare the cost of control measures to the probability and severity of the risk.
4. Accept the risk and its implications. No business is risk-free. Some risks are simply a cost of doing business. For risks that are low probability and low severity, risk acceptance is a reasonable approach. The resources to mitigate, transfer, or avoid the risk are just not worth it.

The way you approach a risk can make a big difference in its potential impact on your business. A solid risk management plan can prevent incidents from happening in your workplace. It also helps you foster goodwill with your insurance carrier by showing that you’re proactive about controlling risk.

This is where having a specialized partner really adds value to your risk mitigation planning. For example, all POWERS clients benefit from these consultative services to mitigate risk:

3. Plan to respond to risk events

One of the most important parts of the risk management process is being prepared to act if a risk event does occur. Unless you’ve chosen to completely avoid a risk, there’s a chance it could happen. For example, no one can prevent natural disasters – the best we can do is be prepared.

Your risk response plan could be as simple as “file an insurance claim.” But the higher priority the risk, the more detailed your response plan should be. If an event has the potential to disrupt business operations in a huge way, you need thorough business continuity and disaster recovery plans.

It’s crucial to document these plans ahead of time and use them to train the relevant employees. Because when minutes matter, you won’t have time to deliberate a response.

4. Monitor risks

The risks you face tomorrow might not be the same as those you face today. Doing a risk assessment once and letting the report collect dust will not help you protect your business in any tangible way.

It’s vital to monitor your company’s risk profile as it evolves and make sure your responses are still appropriate. Repeat the steps of this risk management plan regularly and keep a pulse on external risk factors.

If you don’t have a dedicated risk manager internally (or even if you do), this can be a tall order. But without an intentional and consistent process, you could face the unexpected consequences of a risk event. Working with a third-party risk management partner can help you identify and respond to new risks.