risk management matters, are we managing properly
According to an ALS article, the Wall Street Journal reported a poll identified through executives that fewer than 20 percent of companies properly manage risk (ALS Group, 2014). This can be due to an array of reasons. Such as, company leadership may not be disciplined in risk management and its importance. Organizations may not have good communication of risk among departments. Moreover, companies may fail to identify potential risks all together. Poor or nonexistent risk management can have disastrous effects on companies. This process should be more nuanced than simply purchasing an insurance policy. Although insurance procurement can be an element of risk management (risk transfer), it should not be the main component of your program. Risk management is a strategic approach that your risk consultant should be advising you through. Let’s see how we can look at risk management through a strategic lens.
What is risk? A commonly accepted definition is the possibility of gain or loss. When we think about risk in business, risk can exist any and everywhere within an organization. If a company stores information, there is risk associated with that. When a business hires employees, develops new processes, acquires another company, manufactures products, all these functions and many more involve risks. According to Larry Linne, CEO of the InCite Performance Group, risk can be organized in three different ways: business, strategic, and hazard (Linne, 2022). Let’s look a little closer. Business risk is what is referred to as operational or procedural within the company; How the business is run (Linne, 2022). The strategic risk refers to what impacts the company’s value, and hazard refers to anything physical that can be lost, such as employee injury or asset damages (Linne, 2022). Your risk consultant should be aware of the benefits of organizing your risks into these types of categories. This will enable your trusted advisor to better provide the right solutions for your organization. Once the risks are organized, now they can be managed with company goals in mind. Here are some questions for companies to consider: What risks will be assumed? What risks will be financed? How will the organization mitigate risks if an incident occurs? What can be done to prevent risks? What risks will be transferred? The goal here is not to start with the insurance, but rather, identify the risks and manage them appropriately. This is how a company can holistically effect the cost of risk.
Neglecting to manage your risk properly can have negative effects on your business and in some cases catastrophic consequences. In contrast, companies have reaped great benefits from managing their risk strategically with the right team. These benefits include forecasting probable issues, maintaining a competitive foothold, achieving better budgeting, accomplishing stable growth, and developing better business processes just to name a few. To achieve this, companies are becoming increasingly selective of the teams that they work with. Advisors should be able to provide solid contributions that yield results. Also, they should be adept to cutting edge solutions if issues arise. In today’s market, risk management cannot be taken lightly. Ensure your company is doing its due diligence in identifying and properly managing risk. Take full advantage of professionals that are interested in risk management and not insurance placement. Communicate internally and reach out to trusted advisors for the right solutions. A wise proverb once stated that “there is wisdom in council”. With some strategic effort, your company can be in that top 20 percent of organizations who manage their risk the right way.
REFERENCES
The ALS Group. (2014). 80 Percent of Companies are not Effectively Managing Risk. Is Yours One of Them? https://info.thealsgroup.com/blog/effectively-managing-risk#:~:text=The%20Wall%20Street%20Journal%20recently%20reported%20that%20fewer,risks%20as%20part%20of%20the%20overall%20strategic%20plan.
L, Linne. (2022). The risk focused solution, a different approach to risk. The Risk Opportunity. https://vimeo.com/incitepg/review/696218992/302c362150