In the modern business environment, managing risk is an organization’s top priority. Typically the risk management process includes a number of steps that should be repeated often and with each new project: risk identification, risk analysis, risk prioritization, and risk treatment.
The most important step in the risk management process may well be risk treatment – that is, deciding what you’ll do about a risk once it has been identified. There are a number of paths your organization can take. Most common are four potential risk treatments: risk reduction (risk mitigation), risk transfer, risk acceptance, and risk avoidance.
In this article we’ll take a closer look at risk avoidance as a mitigation strategy, so that your organization can better determine whether avoidance is the right risk treatment for you.
First we need to dive a little bit deeper into risk avoidance and what it is.
What Does Risk Avoidance Look Like?
In project management, risk avoidance is a strategy that businesses can adopt to reduce their level of risk by avoiding certain high-risk activities altogether. Simply put, risk avoidance means not taking risks.
That said, organizations can’t eliminate all of their risks entirely. The right risk avoidance strategy, however, can help your organization prevent some of the losses associated with risks. A risk avoidance strategy is an important part of any risk management plan, and it’s especially useful for protecting your assets from potential losses.
Although many businesses may already have business insurance or a professional liability insurance policy (also known as errors and omissions insurance) to protect them from lawsuits, a risk avoidance strategy can provide an additional layer of protection.
Avoidance typically involves running your organization in a way that eliminates certain hazards and exposures that might result in a lawsuit or some other financial loss. A comprehensive risk avoidance strategy is one designed to deflect as many threats as possible, to avoid the costly and disruptive consequences of an unexpected event such as a security breach.
An example of risk avoidance might be a manufacturing business not using certain hazardous materials or chemicals due to the dangers of handling and storing them; or, an organization limiting the type of customer data it stores on its computers in case of a cyberattack. The latter of these two examples has more to do with cybersecurity risk and digital risk management in general.
Risk avoidance is just one type of risk treatment. In risk management, the type of risk treatment you choose is typically decided according to the type of risk and which treatment will be most effective for managing that risk. As mentioned above, other risk treatment types include risk acceptance, risk reduction or risk mitigation, and risk transfer.
Risk acceptance means choosing to accept a risk without taking any actions to mitigate it. Risk reduction seeks to eliminate the potential risk and the potential for damages and financial consequences of a disruptive event by mitigating risk. Risk transfer means contracting with a third party to assume the risk and its consequences on your behalf.
Risk avoidance seeks to eliminate a potential risk and the potential for damages and financial consequences of a disruptive event. Ultimately, your organization should use a combination of risk treatments, including both risk avoidance and risk mitigation strategies when managing risk. Together, they can greatly reduce the likelihood of a liability lawsuit or some other form of financial loss.
What Are the Downsides of Risk Avoidance?
While risk avoidance might seem like the right answer to all risks, avoiding risks can also mean losing out on the potential gain that accepting the risk can bring. For example, an organization might refuse to purchase a property or business to avoid legal liability. By avoiding that risk, however, the organization will forego a number of potentially lucrative business opportunities.
For this reason, it’s important that your organization follows a robust risk management program that considers all of the possible risk treatments available, to decide which will work best for you. In some cases, you may find that risk mitigation or risk acceptance are better strategies than risk avoidance.
Best Practices for Risk Avoidance
To avoid risks, your organization will need to design and implement the right policies, procedures, technology and employee training to support your objective. We’ve compiled some of the best practices for risk avoidance as a risk management strategy.
Start at the Beginning
Before you get too far into risk avoidance as a risk management strategy, you first need to make sure that all the other parts of your risk management process are working correctly. As part of your risk management program, you should frequently revisit all the steps in the process and make any necessary changes as new risks arise.
Risk identification begins with a risk assessment and a risk analysis; make sure that these processes are well documented and that they’re replicable. It is nearly impossible to avoid risks if you don’t know what those risks are.
Once you’ve assured that these components of your risk management program are up to speed, you can start thinking about risk treatment options. Keeping a risk register throughout the risk management process will help you identify more clearly which risks require which treatments. You can also use a risk heat map to help you better visualize your risk management strategy.
Just like the risk management process itself, you’ll need to make sure you document everything that has to do with your risk avoidance strategy. This means maintaining a paper trail, including signed documentation and written correspondence. Documentation reduces the chances of a misunderstanding, and it gives you the evidence you need in the case of an audit or a lawsuit.
You should also follow up on any verbal agreements with a letter or an email to confirm the details in writing. Additionally, it would be wise to have an attorney examine your contracts, leases, and agreements.
Keep Open Communication
Make sure that your clients, employees, and any other business stakeholders are informed as clearly as possible. This includes defining what you plan to deliver for products and services, as well as letting your clients know about any disruptions. Make sure that clients are aware of, and agree with, any key milestones or changes that happen during a project.
You also need to make sure that your employees and team members all understand their risk management duties. For each identified risk, make sure that there is an owner who is responsible for executing the appropriate risk treatment. Again, a risk register can help you keep track of this information.
Helping your customers, employees and business stakeholders understand the best practices for risk avoidance can not only demonstrate just how seriously your organization takes risk management. It can also help to reduce the risks associated with these actors by encouraging them to do the same.
To do so, you should consider providing specialized training and education for your employees, business partners, and clients. Security awareness training works because it helps end-users better understand how their actions affect your organization, and why those actions are important.
Ultimately, you can put all sorts of policies, processes, and programs into place, but they won’t be effective until the people using them can articulate why those mechanisms exist in the first place. Building a risk-aware culture isn’t easy, but it can make the difference between a successful risk management program and one that fails.
Choose Tools to Help
For most organizations, the risk management process is time consuming and expensive. From risk identification to risk avoidance, there are a lot of moving parts that need to be addressed, and it can quickly become overwhelming, especially if you’re doing everything internally and relying on spreadsheets to get things done.
Fortunately, there are solutions designed to help.
Manage Risks with ZenGRC
No matter which risk treatment is right for you, the right software solution can help you better manage risks and mitigate business exposure by providing you with greater visibility and control across your organization.
ZenGRC from Reciprocity is risk management software that can help your organization pinpoint risks by probing your systems and finding cybersecurity and compliance gaps for you. Zen can even help you prioritize those risks and assign tasks to members of your team. Zen’s user-friendly dashboard lets you see in a glance the status of each risk and what needs to be done to address it.
Zen also generates an audit trail of your cybersecurity risk management activities, and it stores all the documentation in a single source of truth repository for easy retrieval come audit time. It also allows for unlimited self-audits so you always know where your organization’s risk management and compliance efforts stand.
At Reciprocity, a team of cybersecurity professionals is always looking out for you and your organization’s assets, making sure you get the best and most up-to-date cybersecurity risk management tools on the market.
With Zen, cyber risk management all but takes care of itself-leaving you and your team free to address other, more pressing concerns, like boosting your business and your bottom line.
Learn how we can fit into your business and schedule a demo today to get started on the path toward worry-free risk management, the Zen way.