Question

Do you think that risk mitigation strategies can always keep the operating costs of company to a minimum?

Answer 1

In order to determine if risk mitigation strategies are equipped with resources to always keep the operational costs of a company to a minimum, let's first set a brief understanding of risk mitigation and the major strategies that are in play.

Risk mitigation can be defined as taking the necessary steps to reduce the adverse effects of threats and disasters on business continuity. Risk mitigation strategies describe different methods of dealing with risks - which may be different for different companies. We need to understand however that the fundamental question is not how to eliminate risks altogether but find means to reduce the impact or probability of the occurrence to the minimum.

There are four well-known risk mitigation strategies:

• Risk Acceptance - is a strategical acceptance of the risk without deploying any means to reduce it as the company possesses the capacity to accept its impact.
• Risk Reduction - is one of the most common strategies by businesses through which organizations are able to take countermeasures to reduce the risk to an acceptable level.
• Risk Avoidance - is a strategy to avoid any exposure to the risk altogether even if that leads to cancellation of projects, or termination of a contract, etc.
• Risk Transfer - is a strategy to transfer the risks to another person or entity, like outsourcing certain operations, taking an insurance, etc.

Mentioned below are certain scenarios where risk mitigation strategies might come to play:

Risk 1: Medical offices that are concerned with the possibility of its elderly patients getting infected while seeing a practitioner in the office might choose to enforce rules for more effective sanitization amongst all personnel, not only limited to doctors and nurses.

Risk 2: A dog-boarding facility that is concerned about the spread of kennel cough and wants to prevent it within their premises need to instill rules among employees to cross-examine the record of all incoming animals, no matter their regularity to the facility.

The certain risk mitigation examples outlined above showcase the fact that the main idea of risk mitigation is to avoid and possibly prevent adverse impacts of risk. It may or may not be cost-effective but it surely provides enough data points for the decision-makers to make a choice.

Therefore, we can say that all risk mitigation practices/strategies are implemented solely for the purpose of reducing the impact of adverse events, which could end up having an impact on the revenue of the company but does not necessarily keep the operational costs to the minimum,

There are multiple other ways of ensuring operational costs are kept to a minimum. Practices such as the cost-benefit analysis (CBA) of all activities/decisions of the organizations provide the outlines of impacts on the cost f0r each action undertaken/going to be implemented by any company. A few other ways to reduce operational cost could be the use of technology for automation of services, promoting virtual workspaces, improving financial processes, etc.