Risk management is a crucial aspect of cybersecurity and the overall business. But what risk management strategies are most suitable for a particular business or industry?
Having a solid risk management strategy is more important in the current dynamic business environment than ever. Regardless of the industry, how businesses quickly and effectively identify and manage risks determine how they will recover or rebuild. Integrating risk management strategies are important for all businesses, as they lay foresight on returns on investments and the potential backlash caused by business activities.
What is a Risk Management Strategy?
A risk management strategy is essentially a structured method of addressing business/company risks. Instead of perceiving risk management as discrete tasks, businesses should view risk management as a continuous iterative process where existing and new risks are continuously identified, analyzed, monitored, and managed.
Continuous risk assessment and response ensure that the company, employees, and other resources remain safe. Risk management primarily involves:
- Identifying risks – risk identification involves the identification of vulnerabilities passively or through control processes and tools that raise red flags upon detection of potential risks. Being proactive in risk identification is a better way of reducing business vulnerabilities.
- Risk assessment – this should be done immediately after risks are identified. The risks identified should be evaluated to determine the severity level, probable impact, and concerns. Risk audit teams should assess each risk independently. Businesses should conduct risk assessments regularly.
- Responding to risks – implementing controls is the next step after a risk assessment. This enables businesses to address the risks effectively and timely. Businesses should adopt an integrated risk management strategy to address arising risks.
- Monitoring risks – monitoring organizational risks should be an ongoing process. Continuous monitoring enables businesses to take prompt action before the severity and impact of risks surpass acceptable or remediable levels.
Examples of Risk Management Strategies
Managing business risks requires the adoption of different responses to deal with different types of risks. Not all risks warrant similar actions or responses. Below are examples of risk management strategies that businesses can employ:
1. Risk Avoidance
Risk avoidance typically involves removing the possibility of the risk becoming a threat or a reality. The main goal of risk avoidance is eliminating the possibility that the risk may materialize or constitute a hazard from the start. This might mean changing your manufacturing practices or avoiding some activities, such as entering a new but possibly threatening contract.
The viability of risk avoidance depends on your specific business circ*mstances. Remember that avoiding various activities because of the potential risks also means forfeiting the returns and opportunities associated with these activities. Over time, businesses should re-evaluate their risk avoidance strategies and find alternative ways of addressing the underlying issues.
2. Risk Acceptance or Retention
Risk acceptance means the business won’t take actions to prevent or mitigate risk probability and impact. Also known as the “do nothing” approach, the business acknowledges the impending risks at the beginning. It is the best strategy if the business can absorb or deal with the consequences of the risks.
Businesses should also be wary that if the risks occur regularly, it can lead to business disruption and high remediation costs. Therefore, assessing this risk management strategy alongside other approaches is very important. It should be used if the consequences are not severe or low.
3. Risk Transfer
Transferring risks enables businesses to redistribute the consequences of adverse events to multiple parties. Businesses can share risks with company members, outsourced entities, partners, or insurance companies. Risk transfer is best for business risks that are less likely to occur but have a significant financial impact if they occur.
Signing contracts with suppliers and contractors is an excellent way of transferring risks. However, this may not always apply. For instance, if your products or services are subpar due to supplier or manufacturer error, customers will still associate your business with poor quality goods, even if the supplier compensates for the damages.
4. Risk Reduction
Risk reduction or mitigation involves measures taken to minimize the impact or probability of risk occurrence. The focus of risk reduction is to reduce the severity of consequences to acceptable levels, otherwise known as the residual risk level. Most businesses strive to reduce risks where possible for economic benefits. For instance, you can introduce strict safety measures, diversify business operations, or strengthen internal controls to reduce risk severity.
5. Risk-retention
Risk-retention is a contentious risk management strategy that should be selectively applied. Here, the business acknowledges or accepts the risk as is. In most cases, the risk accepted is a trade-off to offset major risks in the future. For instance, businesses can choose a low premium health insurance policy with a high deductible rate. The initial risk is high medical expenses if an employee sustains injuries while at work.
Risk Management Strategies in Cybersecurity
The risk management strategies above generally apply to all business organizations. In cybersecurity, these strategies would depend on an organization’s chosen cyber risk management framework.
A cyber risk management framework serves as an organization’s guide in detecting, assessing, monitoring, and mitigating risks. It contains specific guidelines, industry-standard methods, and best practices that businesses can adopt.
Some examples of cyber risk management frameworks are:
- National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF): NIST CSF is a framework published by the U.S. NIST, which contains guidelines based on industry standards that can help organizations mitigate cybersecurity risks.
- Department of Defense (DoD) Risk Management Framework (RMF): This strategy is used by DoD agencies to manage cybersecurity risks. The U.S. federal information systems adopted it in 2010.
- Factor Analysis of Information Risk (FAIR) Framework: FAIR enables organizations to understand risk factors and how probable they are to result in a loss of assets better.
Conclusion
While all risk management strategies are effective, the best way to deal with business risks is by evaluating the situation at hand and the impact and probability of a particular risk. It is implausible that businesses can eliminate all risks. Therefore, you should focus on evaluating whether the impending risks are acceptable to choose an appropriate management strategy.
Key Takeaways
- Risk management is a continuous process involving identifying, assessing, monitoring, and mitigating risks.
- Risk management strategies refer to methods that enable organizations to respond quickly and effectively to business risks.
- Some examples of risk management strategies are risk avoidance, risk acceptance, risk transfer, risk reduction, and risk retention.
- Cyber risk management is more targeted at managing IT and cyber risks.
- Cyber risk management frameworks dictate how an organization approaches risk management in cybersecurity.
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