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Risk mitigation refers to the process of planning and developing methods and options to reduce threats or risks to project objectives. A project team might implement risk mitigation strategies to identify, monitor and evaluate risks and consequences inherent to completing a specific project, such as new product creation. Risk mitigation also includes the actions put into place to deal with issues and effects of those issues regarding a project.

Strategies:

1. Risk Acceptance: Risk acceptance comes down to “risking it.” It’s coming to terms that the risk exists and there is nothing you will do to mitigate or change it. Instead, it understands the probability of it happening and accepting the consequences that may occur. This is the best strategy when risk is small or unlikely to happen. It makes sense to adopt risk when the cost of mitigating or avoiding it will be higher than merely accepting it and leaving it to chance.
2. Risk Avoidance: If a risk from starting a project, launching a product, moving your business, etc. is too large to accept, it may be better to avoid it. In this case, risk avoidance means not performing that activity that causes the risk. Managing risk in this way is most like how people address personal risks. While some people are more risk-loving and others are more risk-averse, everyone has a tipping point at which things become just too risky and not worth attempting.
3. Risk Mitigation: When risks are evaluated, some risks are better not to avoid or accept. In this instance, risk mitigation is explored. Risk mitigation refers to the processes and methods of controlling risk. When you identify risk and its probability, you can allocate resources for management.
4. Risk Reduction: Businesses can assign a level at which risk is acceptable, which is called the residual risk level. Risk reduction is the most common strategy because there is usually a way to at least reduce risk. It involves taking countermeasures to decrease the impact of consequences. For example, one form of risk reduction is risk transfer, like that of buying insurance.
5. Risk Transfer: As mentioned, risk transfer involves moving the risk to another third party or entity. Risk transfers can be outsourced, moved to an insurance agency, or given to a new entity as is what happens when leasing property. Risk transfers don’t always result in lower costs. Instead, a risk transfer is the best option when it can be used to reduce future damage. So, insurance can cost money, but it may end up being more cost-effective than having the risk occur and being solely responsible for reparations.

Risk Evaluation

Identification: First and foremost, you must identify and define the types of risks that your business faces. There are both internal and external risks. When identifying risks, consider if they are preventable, such as operational risks, or not avoidable like natural disasters.

Impact assessment: Once you have identified risk, you can estimate their impact. This involves defining the probability that a risk will occur and its respective result or consequence.

Develop strategies: Finally, you can determine the necessary strategy for those risks that are likely to happen with medium or high probability. While you may still want to monitor low risks, they are less of a priority when it comes to taking the next step and making a plan.

The method of calculating break-even point of a single product company has been discussed in the break-even point analysis article. A multi-product company means a company that sells two or more products. The procedure of computing break-even point of a multi-product company is a little more complicated than that of a single product company.

The determination of the break-even point in CVP analysis is easy once the variable and fixed components of costs have been determined.

A problem arises when the company sells more than one type of product. Break-even analysis may be performed for each type of product if fixed costs are determined separately for each product.

However, fixed costs are normally incurred for all the products hence a need to compute for the composite or multi-product break-even point.

In computing for the multi-product break-even point, the weighted average unit contribution margin and weighted average contribution margin ratio are used.

BEP in units  = Total fixed costs / Weighted average CM per unit

BEP in dollars = Total fixed costs / Weighted average CM ratio

The weighted average selling price is worked out as follows:

(Sale price of product A × Sales percentage of product A) + (Sale price of product B × Sale percentage of product B) + (Sale price of product C × Sales percentage of product C) + …….

and the weighted average variable expenses are worked out as follows:

(Variable expenses of product A × Sales percentage of product A) + (Variable expenses of product B × Variable expenses of product B) + (Variable expenses of product C × Sales percentage of product C) + …….

When weighted average variable expenses per unit are subtracted from the weighted average selling price per unit, we get weighted average contribution margin per unit. Therefore, the above formula can also be written as follows:

Breakeven Point = Total fixed expenses / Weighted average contribution margin per Unit