A Beginner’s Guide to Risk Mitigation and Management for Security and Compliance Professionals
Good data governance can go a long way toward reducing business risk. If your content and your data are secure, you’ve eliminated danger to your customers’ information and secured your proprietary information. From a digital perspective, you’re ahead of the game.
But data governance shouldn’t be your only concern. Your business also faces other kinds of threats, which could be anything from a competitor releasing a new product to a customer choosing to take their business elsewhere, which can impact your bottom line. In order to keep your business truly secure, you need to look at risk from a holistic perspective.
A great risk management strategy considers risk from every possible angle, from employee fraud to legal compliance to disaster insurance, and helps you to avoid the worst consequences each event could have on your business—whether it’s a costly lawsuit or losing your office to a natural disaster.
Risk management vs. risk mitigation: Though risk management and risk mitigation are often used interchangeably, the two terms refer to slightly different things. Risk mitigation involves limiting the effect that risks can have: it’s a single component of the larger risk management process. Risk management refers to the overall practice of assessing and addressing the risk your business faces.
How To Build A Holistic Risk Management Strategy
Every business will have a unique risk management strategy, which should take into account their external context—their industry space, the cultural norms and laws of the countries they operate in—and their internal context, which can include things like an organization’s mission, values, organizational structure, and resources.
The risks businesses face are unique. Regardless of your situation, an effective strategy will always include several key steps that you need to follow:
- Identify risk
- Analyze its potential impact on your business
- Evaluate and implement risk mitigation solutions
- Monitor and improve strategy
Identify your business risks
The first step in your risk management plan is to identify the specific risks for your business and start building a list. There are several different methods you can use and combine to do this:
- SWOT analysis (strengths, weaknesses, opportunities, threats): Often used to help guide business decision-making, SWOT analyses can also help you to understand risks.
- Look at past problems: Review records of past incidents that have had a negative impact on your business. Why did they happen? What could have been prevented or done differently?
- Ask “what if” questions: What if my competitor comes out with a new product tomorrow? What if a cargo ship gets stuck in the Suez Canal? Asking these questions can help you look at your business from different angles.
- Think of worst-case scenarios: Pessimism is a useful tool for risk management. It can help you prepare for unlikely but extremely damaging events.
Remember, identifying risks is an ongoing process, and you’ll want to repeat it regularly as circumstances change or new risks occur.
Analyze the likelihood and severity of your risks
Once you have identified a set of business risks, the next step is to analyze the level of risk, the likelihood of it happening, and the impact it could have on your business. For example, an earthquake could have devastating consequences for a firm that operates in California, but earthquakes might never cross the minds of a similar firm in North Dakota.
Other factors to consider are what consequences would be if the risk occurs and what controls are currently in place to prevent it. Just because a risk is likely doesn't necessarily make it a top priority. It could be a minor nuisance or have an easy fix, whereas a less likely risk could be devastating, bumping it up on the priority list.
To take these additional factors into account, experts often use this formula to think about risk:
Risk = Threat x Vulnerability x Consequence
You can also use a risk assessment matrix, which allows you to weigh the probability of something happening vs. the potential damage it could cause. Once you’ve analyzed your risks, prioritize the most likely to occur and the most damaging to be dealt with first.
Evaluate and implement risk management solutions
Now that you have your list of risks in order of priority, you can start evaluating how to deal with them. In risk management, there are four options to address risk:
- Avoid: Decide the risk is too costly or damaging for your business and decline to take it on. For example, you could decide not to adopt a new, untested piece of software.
- Reduce: Limit the chances of the risk happening, and mitigate the impact it can have on your business if it does happen.
- Transfer: Pass the risk on to a third party by purchasing insurance, for example.
- Accept: Accept the risk as part of doing business. Sometimes, it’s the only option available.
There are several factors to consider when you’re evaluating risks. How would you avoid, reduce, transfer, or accept a risk?
Choose the option that makes the most sense for your business. If buying insurance to cover a risk is more expensive than accepting the risk, then insurance probably isn't the right decision. But if accepting a risk means you could face catastrophe, then insurance is a better option.
Once you’ve chosen strategies for each of the risks that your business faces, you can begin to implement them. Create a timeline for your strategy, and make sure to designate a person or team responsible for implementing and overseeing it. Keep all of the stakeholders involved, so they understand the process and the changes that are being made.
Monitor your strategy
Once your risk management process is set up, you’ll want to keep an eye on how it’s working and whether it’s being implemented correctly. One option is to designate a person or team in charge of it, or put each department head in charge of the risks that fall within their purview.
If you don’t monitor your strategy, you might not catch places where something isn’t working or miss out on possible improvements. You also want to make sure you repeat the first part of the process regularly to identify new business risks as they appear.
6 types of business risk and tactics to mitigate them
Before you put pen to paper to create your risk management strategy, consider the wide range of business risks out there. It’s essential to understand the types of risks your business faces in order to adequately manage them.
1. Physical risk
Physical risk refers to something happening to your employees, your premises, or your physical assets. More specifically, this can include anything from a fire, to a natural disaster, to an employee getting injured on the job.
Tactics to mitigate physical risk:
- Have up-to-date safety installations like fire extinguishers, sprinklers, clearly-marked fire exits, security guards, and alarm systems
- Purchase adequate insurance policies for workplace injuries, property damage, and unexpected disasters
- Schedule drills and training for employees on what to do in an emergency. Encourage your employees to memorize your business address and to retain critical contact information where it can be easily located, in case employees need to call 911 or update their colleagues about emergencies.
2. Operational risk
Operational risk relates to the day-to-day operations of your business, including all of its processes, products, and people. For example, an employee forgetting to send an important contract and missing a deadline would be an operational risk.
Tactics to mitigate operational risk:
- Keep your business equipment in good condition, and on a regular maintenance schedule
- Put great processes in place and audit them regularly
3. Legal and compliance risk
Legal risk and compliance risk is when a new law or regulation threatens to disrupt your business, or you fail to comply with an existing regulation. For example, European businesses failing to comply with the General Data Protection Regulation (GDPR) risk getting sanctioned.
Tactics to mitigate legal and compliance risk:
- Understand the laws and regulations that apply to your business. Consider hiring an expert or designating a Chief Compliance Officer on your executive team.
- Automate compliance as much as possible
- Conduct regular internal audits to verify compliance
4. Financial and economic risk
Financial and economic risks are all of the risks associated with your business’s finances and the economy: cash flow, loans, credit, the unexpected loss of a client, or a bad economic climate.
Tactics to mitigate financial and economic risk:
- Diversify your income streams
- Keep business debt to a minimum
- Have enough liquidity and cash flow to weather economic downturns
5. Data security and fraud risk
Data security and fraud risk is the risk that your data or systems will be compromised and the harm that can cause your business. This includes things like data breaches, cyberattacks, identity theft, and employee fraud.
Tactics to mitigate data security and fraud risk:
- Use permissions management to limit who has access to your data
- Always encrypt your business data
- Don’t retain data you no longer need: establish a process to dispose of old data
- Put strong password policies in place, and require that employees update their passwords regularly
6. Strategic and reputational risk
Strategic and reputational risk refers to any risk associated with your business strategies, such as choosing to release a new product or changing the company’s tagline. Reputational risk specifically refers to behaviors that could damage your business’s reputation—for example, releasing a faulty product and having to recall it.
Tactics to mitigate strategic and reputational risk:
- Perform extensive market research to validate business strategies
- Put quality assurance processes in place
- Hire a competent, proactive customer service team
Calculated risk is part of doing business
By now, you should have a good idea of how to build a risk management strategy for your team, as well as some of the most common risks that businesses face. Looking at a complete list of everything that could possibly go wrong might feel daunting, but remember that every business venture involves risk, and taking risks is a necessary and unavoidable part of doing business.
Risk management can help you to understand risks and mitigate their impact. Learn more about managing data risk in this eBook.
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