Risk Mitigation

Risk Mitigation is the process of reducing the impact of a risk or the likelihood of a risk being realized. stakeholdermap.com
risk mitigation

Once risks are identified and assessed you need to decide what to do about them. There are several recognized ways to mitigate risk. Some mitigating actions reduce the likelihood of the risk occurring and others reduce the impact.

On occasion it can be justifiable to delay action on a risk or restructure a project in such a way so that if a risk occurs it will be later in the timeline. This can buy time to look at true mitigating actions. The table below lists typical risk mitigation approaches, with a description of the mitigation and an example.

The responses listed below are a little different from the suggestions made by Prince2, read more on Prince2 risk responses.

What are the ways that you can mitigate risk?

Mitigation strategy

Description

Accept the risk

accept the risk - risk mitigation strategy

Accept the Risk - The is risk accepted because it has a low impact or low likelihood of occuring. stakeholdermap.com
For example, if the risk were to occur it could be managed using well known and repeatable actions, or the risk has such a low probability of occuring that it is a risk worth taking.

All projects will have risks that are so small in terms of impact or likelihood of occurance that they are accepted without discussion.

Examples of this mitigation strategy

  • Allowing company executives to travel by air or train.
  • Using a script to upload data, because it is much faster than manual data entry, even though manual data entry might be safer.
  • Going ahead with an event despite the risk of rain.
  • Deciding to take part in a risky activity, which while well managed and supervised is still risky (e.g. motor racing).

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Avoid the risk

one risk mitigation strategy is to simply Avoid the Risk
Avoid the risk - The risk is avoided entirely, perhaps by taking a different approach or by abandoning a course of action. stakeholdermap.com
As Lock points out this requires the abandonment of all possible causes so could mean cancelling a project, or taking a radically different approach (Lock, 2007).

Real-world example of Avoiding a Risk

The pharmacetical company Novartis abandoned an R&D project due to risks around finding a cost effective synthesis route. Later Speedel, who had a more flexiblity in selecting a partner for solving synthesis problems took on the project (Ron Baus, p.pg. 154, 2015)

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Hedge the risk

a risk can be offset by taking an opposite position - known as hedging the risk

Hedge the Risk - Used to manage financial risk. The risk is offset or limited by taking an opposite position in two markets. stakeholdermap.com

Example of Hedging a risk

A US company exporting to Europe takes out a Currency Forward Contract with a bank, this is an agreement to exchange an amount of dollars for Euros on a future date. It effectively allows the company to make a sale at the current exchange rate, so they don't lose out due to currency fluctuations.

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Provide a risk buffer

using a buffer to mitigate risk
Risk Buffer - The impact of a risk is reduced by the provision of buffer. The obvious example is a contingency budget set aside to cover risks, but buffer could also be additional resources, or time built into a project. stakeholdermap.com

Example of using a Risk Buffer

A manufacturer keeps a buffer of raw materials inventory in case a supplier is unable to deliver a raw material shipment on time.

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Share the risk

sharing the risk as a way to mitigate risk
Share the Risk - The risk impact or liability is shared among departments, partners or companies. stakeholdermap.com

Real-word example of sharing risk

In 2010, Corelio and Concentra, two media companies, created Coldset Printing Partners, a joint venture (JV) for their newspaper printing assets. This enabled them to reduce risks around capacity and to reduce the risk of price fluctuations. (Hbr, 2016).

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Find options or alternatives

using options and alternatives in Risk Mitigation
Find options or alternatives - The risk is mitigated by identifying alternatives or options, sometimes researching or building alternative solutions in parallel. stakeholdermap.com
For example power stations that have the option of switching between gas or oil mitigating the risk of increases in cost of one or other fuel.

Example of using 'alternatives' to mitigate risk


Software as a Service (SaaS) providers mitigate the risk of data loss or downtime by standing up two data centres a primary DC and a back up or failover DC.

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Transfer the risk

Transfer the Risk
Transfer the risk - Some or all aspects of a risk are transferred to a another party via insurance or via contractual obligations.stakeholdermap.com
Car owners transfer all or part of the risk of a car accident to an insurer and some construction contracts transfer risk to contractors rather than clients. As with car insurance in the UK some risks must be insured to meet a statutory or contractual requirement, for example employers liability insurance.

Risks may also be transferred via an indemnity clause in a contract also known as a hold-harmless or save-harmless clause.

Examples of transfering risk

Employers liability insurance is a common example of risk transfer. In the US Environmental Liability Transfer Inc. offer what they term as "walk away" transfer of environmental liabilities. ELT removes environmental liabilities from a companies balance sheet and assumes all obligations.

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Defer decision

Delay Decisions to mitigate risk
Defer decisions that will 'lock in' a risk. For example delaying a decision on a particular approach in order to gather more data. stakeholdermap.com

Example of defering a decision to mitigate risk

Deciding to delay the selection of a software solution in order to configure a proof of concept illustrating how the software could meet key business requirements.

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Limit or reduce the risk

Limiting a risk
Limit or reduce the risk - Safeguards are put in place to limit or reduce the potential impact of a risk or the likelihood of the risk occuring. stakeholdermap.com

Example of actions taken to limit or reduce a risk

  • Authorising project expenditure by phase for example authorising expenditure on a feasibility phase rather than on the whole project.
  • Backing up databases.
  • Failover and redundancy processes in data centres.

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Create a Plan B or a contingency

risk mitigation - having a Plan B or contingency

Risk Contingency - A plan is put in place which will be deployed should the risk occur. stakeholdermap.com
This risk mitigation strategy is similar to Limit the risk and Options.

Risk Contingency example
The Centre Court Roof at the Wimbledon Tennis Championships allows for play to continue regardless of the British weather, and a project is currently underway to add a retractable roof to No.1 Court.

    Effect on risk:
  • Action on likelihood
  • Action on impact
  • Action on proximity

Risk Mitigation - references and further reading

allBusiness. Tice, C. 2017. How to Use Currency Hedging to Protect Your Import or Export Business [online] Accessible at: https://www.allbusiness.com/how-to-use-currency-hedging-to-protect-your-import-or-export-business-15051093-1.html [Accessed 07 May 2017].

Basu, R. Managing Projects in Research and Development. Abingdon: Routledge.

CNA. 2016. Risk Transfer: A Strategy to Help Protect Your Business [online] Accessible at: https://www.cna.com/web/wcm/connect/b7bacbf0-b432-4e0c-97fa-ce8730b329d5/RC_Guide_RiskTransferStrategytoHelpProtectYou+Business_CNA.pdf?MOD=AJPERES [Accessed 07 May 2017].

HBR, Joint Ventures reduce risk in Capital Projects [online] Accessible at: https://hbr.org/2016/04/joint-ventures-reduce-the-risk-of-major-capital-investments [Accessed 07 May 2017].

Dennis Lock, 2007. Project Management , 9th ed. Aldershot:Gower Publishing Limited. Latest edition Project Management from Amazon.

National Research Council. 2005. The Owner's Role in Project Risk Management. Washington, DC: The National Academies Press.

Wimbledon.com. 2017. Master Plan [online] Accessible at: http://www.wimbledon.com/en_GB/atoz/master_plan.html [Accessed 07 May 2017].

 
 
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