Posted on May 17, 2014
Every successful business must consider strategic planning to help save money, grow their business and protect it from risk. Risk management is essentially the means through which companies can reduce or eliminate the risk of unexpected events or misfortunes that could potentially impact the business.
Risk Management Defined
The process of managing risk involves a step by step plan to identify, assess and prioritize risks within a business. Once identified, the plan seeks to minimize or completely eliminate negative impact. Some of the more common types of risk that businesses face can be handled easily. Commercial insurance protects companies from the risk associated with such events as workplace accidents, fire, earthquakes and tornadoes. Companies must also evaluate the potential for fraud, theft or harassment risks as well as financial issues, project failure and vital record protection.
Why Risk Management?
Protecting businesses from potential vulnerabilities is the heart of proper risk management. These important plans allow companies to focus on what is important to maintaining and growing the business while reducing the possibility of financial loss. Managing risk ultimately protects the business owner, employees, clients and the general public from harm or events that could affect them adversely. In addition, risk management plans also seek to protect business documents and physical company assets.
Five Step Process for Handling Risk
Most risk managers devise plans using the following five step process to more effectively handle risk.
1) Identify risks or threats
2) Assess vulnerability of key assets to the threat
3) Ascertain expected consequence of threat
4) Determine risk reduction strategy
5) Create priority procedures to manage the risk
Examples of Risk Management Strategies
Once risks or threats are identified, companies can properly plan and budget on how to handle them. For example, if a restaurant understands that their establishment is a high risk area for slip and fall accidents, they can take steps to purchase proper safety equipment to help limit the potential for injury. They may also decide to transfer the risk to an insurance company so that when a slip and fall injury occurs, the insurer handles payment of any claim or lawsuit due to the injury. A risk assessment plan for fire might be to install fire sprinklers and extinguishers as well as holding monthly employee fire drills.
Successful businesses understand the importance of having a risk management program in place to protect their assets, employees and finances. Insurance professionals can assist companies in managing their risk through commercial insurance programs designed to limit the liability of business owners should the unexpected happen.