Your company faces serious risks every day that can damage its reputation, incur financial loss, and threaten its very existence. Instead of trying to accomplish the impossible and eliminate potential harm, however, you can use a Business Continuity Plan (BCP) for risk assessment and mitigate the effects of risk posed by factors outside your control.
A risk is the possibility of loss from an event that adversely impacts your company’s ability to complete its mission and achieve its goals. There is a difference between risk mitigation and risk management. Risk mitigation is the process used to determine what conditions must exist to create any situation that could result in negative consequences. Risk management identifies the actions that must be taken to limit the possibility of adverse circumstances and lessen their impact.
Reputational loss is an intangible risk. Financial losses represent a quantifiable risk. Successful business continuity planning mitigates and manages those risks so your company can focus on what it does best – serving its customers.
A business continuity team starts a risk mitigation phase by defining events that can happen most likely to cause harm. A typical example is the increasing threat of cyber attacks. The risk can be mitigated by determining the likelihood of a cyberattack, how it might occur, and how long it could last. The risk can be managed by taking steps to enhance pre-emptive cybersecurity efforts, as necessary, and having a backup or separate system that can continue to function in the event of a primary outage.
Four types of risk mitigation strategies are used in Business Continuity Plans – acceptance, avoidance, limitation, and transference, which ones are best for your company to depend on your kind of business, your financial budget, and your level of risk tolerance.
Risk acceptance is used when one or more of the other three mitigation strategies outweigh the potential cost of the specific risk in question. Risks that have a lower likelihood of occurring or those that would cost more money to prevent than to fix fall into the acceptance category.
The opposite of a risk acceptance mitigation strategy is risk avoidance. Business continuity planning might identify potential risks that are likely to happen or those that may cause great harm if they occur. The concept of risk avoidance is used when your company believes it’s best to eliminate the chance of a potential risk based on a cost analysis that determines its future occurrence is a less preferable outcome.
Risk limitation is the mitigation strategy most often used by companies. It combines the risk acceptance and risk avoidance strategies based on a business impact analysis that shows a company would be better off taking some risk than ignoring it or spending too much to try to eliminate the threat. Your business continuity process might determine that it’s impossible to prevent a systems failure while acknowledging that steps must be taken to limit the resulting downtime before substantial damage occurs.
When potential risk must be mitigated, but can’t be accepted, avoided, or limited, the best solution is to transfer the risk to a third party that specializes in managing that risk. Your company may determine that the identified risk is something it can’t handle on its own or is something best handled by an outside group so your business can focus its time and resources on what it does best.
A reliable Business Impact Analysis (BIA) must include several action steps for mitigating risks before a Business Continuity Plan (BCP) can be made to manage those risks successfully.
- Perform a risk analysis to identify potential events that can result in harm or financial loss.
- Examine and understand each risk to calculate how adverse its effects could be.
- Determine the chance or frequency of an identified risk happening to help decide which mitigation strategy should be used.
- Develop a proposed budget for the risk management phase.
- Propose specific risk mitigation strategies to senior management with supporting the rationale.
- Create a BCP that outlines all the steps that will be taken to minimize disruption when disaster strikes.
- Conduct a cost-benefit analysis to determine the most cost-effective BCP to put before senior management.
- Review your BCP regularly and make adjustments since every business is in a state of constant change.
- Communicate upward and downward on the organization charge, so every employee is aware of what needs to be done to ensure business continuity under every possible circumstance.
Completing the checklist above will mitigate the risks for your company and help your business manage those risks on behalf of your employees and your customers.