Risk control, a crucial part of the risk management process, is a business strategy that allows organizations to evaluate potential losses and take action to reduce or eliminate those risks.
It aims to identify, assess, and prepare a company for any threats that may interfere with corporate operations or the organization’s ability to pursue financial goals and other objectives.
Risk control uses findings from risk assessments that uncover potential risk factors in an organization’s operations and management practices. Those factors include financial policies, technical and non-technical aspects of the business, and other issues that could harm the company.
Risk control is important for the health of an organization because it helps the company attain its goals and profits by protecting against financial risks that may affect the bottom line. It is an internal control strategy with loss prevention at its heart — a form of loss control.
Risk Management vs. Risk Control
Although risk control is part of risk management, the two concepts are not the same.
Risk management is the end-to-end process of identifying and handling risks. Risk control, on the other hand, is a way for organizations to mitigate risks by implementing operational processes.
For example, a company might control the risk of equipment failure by performing maintenance according to a preset schedule. That is not the same as the entire risk management process of identifying equipment failure as a potential threat, mitigating the threat through maintenance, assuring sufficient surplus equipment in case of a failure, and reporting on equipment maintenance to senior executives.
Put another way, risk control is specifically focused on preventing risk, reducing the effect of that risk, and reducing disruption should the risk actually happen.
What does risk control include?
Also known as “risk treatment,” risk control includes the following.
- Risk avoidance. Applying safeguards that eliminate or reduce the business risks that can harm the organization’s assets. While risk management seeks to control the damages and financial consequences of threats, risk avoidance aims to avoid the threats entirely.
- Risk transference. Shifting the risk to other areas of the business or to outside entities, such as an insurance company. The goal here is to let another entity accept the risk. For example, a company could outsource business processes as data storage or IT management, transferring the risk to providers of those services (under the logic that they are experts in those fields, better able to handle the risk).
- Risk mitigation. Reducing the impact if a bad actor exploits a vulnerability. Risk mitigation means having policies and procedures in place to lessen the adverse effects when something happens. These risk mitigation strategies include incident response plans, disaster recovery plans, and business continuity plans.
- Risk acceptance. Understanding the potential consequences of a risk, and accepting the chance of those consequences without control or mitigation. An organization might do this when it believes the chance of the risk happening is minimal, or the potential harm from the risk wouldn’t be significant.