{"id":2626,"date":"2016-06-29T10:59:10","date_gmt":"2016-06-29T10:59:10","guid":{"rendered":"https:\/\/gillespieinsuranceservices.com\/?p=2626"},"modified":"2025-04-17T12:49:42","modified_gmt":"2025-04-17T12:49:42","slug":"what-is-risk-management","status":"publish","type":"post","link":"https:\/\/finfrockweb.com\/gis\/risk-management\/what-is-risk-management\/","title":{"rendered":"What Is Risk Management?"},"content":{"rendered":"<h4>What is Risk Management? \u00a0A\u00a0common misconception among\u00a0those that have ever pondered the phrase is that Risk Management is insurance. \u00a0But that is not the case. \u00a0The truth is that Risk Management does\u00a0often involve insurance. \u00a0It is, however, larger than insurance and involves certain ways of thinking, processes, and procedures.<\/h4>\n<p><!--more--><\/p>\n<p>Enough with the vagueness. \u00a0Let&#8217;s start with a definition.<\/p>\n<p>Since\u00a0<strong>Risk<\/strong> is the uncertainty of a positive or negative outcome arising out of a given set of circumstances,\u00a0and\u00a0<strong>Management<\/strong> is\u00a0handling, directing, governing, and controlling actions,\u00a0<strong>Risk Management<\/strong> is purposefully\u00a0handling uncertain circumstances\u00a0that may come your way.<\/p>\n<p>Another definition, which is geared specifically to businesses, is: \u00a0Managing and minimizing the uncertainty of exposures that can adversely affect an organization&#8217;s assets and financial statements.<\/p>\n<p>In the business world, risk management is a process that helps a business progress, grow, and flourish\u00a0by implementing a specific set of protocols geared toward handling the uncertainties about the future.<\/p>\n<p>That sounds complex and academic. \u00a0However, we all manage our risks, whether informally as people carrying on through daily life, or formally as a business through a Risk Management program.<\/p>\n<ul>\n<li>When you take a longer commute through a safe part of town rather than a potentially quicker route through an unsafe part of town, you are managing risk.<\/li>\n<\/ul>\n<ul>\n<li>When a cookie manufacturer makes and stores just enough inventory to ship\u00a0so that the cookies go out fresh and don&#8217;t sit around the warehouse and go stale, it is managing risk.<\/li>\n<\/ul>\n<ul>\n<li>When a farmer puts his hay into five different separate stacks rather than one large stack to minimize the damage if a fire were to occur, it\u00a0is managing risk.<\/li>\n<\/ul>\n<ul>\n<li>When a restaurant decides against offering delivery services to minimize the potential costs of an employee getting in a car accident, it is managing risk.<\/li>\n<\/ul>\n<ul>\n<li>When a winery installs a burglar alarm and fire sprinklers in its storage room,\u00a0it is managing risk.<\/li>\n<\/ul>\n<ul>\n<li>When a\u00a0general contractor\u00a0decides to\u00a0use an electrician as a subcontractor to\u00a0install electrical systems in a new tract home development rather than install them itself, it is managing risk.<\/li>\n<\/ul>\n<p>These are all examples of someone taking action to prevent\u00a0or minimize the impact of bad things happening, whether done formally through a program, or informally by using common sense and real-life experience.<\/p>\n<p>There are advantages to having a formal Risk Management Program as opposed to an informal one, which is just relying on the instincts and intuition of the decision maker. \u00a0But how do you start a such a program? \u00a0It would take longer than one blog post to describe, but it starts with this process:<\/p>\n<p><strong>Identify.<\/strong> \u00a0You have to see all the potential bad things that could happen and be aware of them. \u00a0This is the most important step because you can&#8217;t manage what you don&#8217;t know about.<\/p>\n<p><strong>Analyze.\u00a0<\/strong>This is where you quantify the risks that you&#8217;ve identified. \u00a0You measure them. \u00a0How much? \u00a0How big? \u00a0How frequent? \u00a0What is the potential impact of this particular risk?<\/p>\n<p><strong>Control. \u00a0<\/strong>Now that you&#8217;ve identified a risk and assessed its potential impact, how do you control it? \u00a0There are five different methods.<\/p>\n<p style=\"padding-left: 30px;\"><strong>1) Avoid<\/strong>. \u00a0Opt out. \u00a0The risk is too great &#8211; it&#8217;s not worth taking on. \u00a0This would be the restaurant that decides against delivery.<\/p>\n<p style=\"padding-left: 30px;\"><strong>2) Prevent<\/strong>. \u00a0Take a proactive approach to mitigating a loss. \u00a0This would be the winery that installs sprinklers in its storage room.<\/p>\n<p style=\"padding-left: 30px;\"><strong>3) Reduce<\/strong>. \u00a0There a number of ways to make reductions. \u00a0This would be the cookie manufacturer that doesn&#8217;t stockpile cookies.<\/p>\n<p style=\"padding-left: 30px;\"><strong>4) Segregate<\/strong>. \u00a0This would be the farmer that made separate haystacks instead of just one.<\/p>\n<p style=\"padding-left: 30px;\"><strong>5) Transfer<\/strong>. \u00a0Delegate or transfer it to someone else. \u00a0This can be through hold harmless agreements or contracts where you get another party to assume your risk. \u00a0This would be the General Contractor that subbed out parts of his work to the electrician.<\/p>\n<p><strong>Finance.\u00a0<\/strong> There is always going to be a total cost of risk. \u00a0You will always pay some amount to prevent, avoid, transfer, etc., those risks you incur. \u00a0 A formal Risk Management Program requires that you be prepared. \u00a0There are three different categories.<\/p>\n<p style=\"padding-left: 30px;\"><strong>1) Retain<\/strong>. \u00a0These are internal funds used to pay for cost-incurring risks. \u00a0Whether you pay for a deductible on your insurance policy or for the entire building when the building burns down, you will have an out of pocket cost.<\/p>\n<p style=\"padding-left: 30px;\"><strong>2) Transfer.<\/strong>\u00a0 These are external funds used to pay for cost-incurring risks. \u00a0Like above, the general contractor transferred the risk of electrical installation to the electrician, if something goes wrong, the electrician will pay the costs.<\/p>\n<p style=\"padding-left: 30px;\"><strong>3) Insure.<\/strong> \u00a0This is where insurance finally gets involved. \u00a0It&#8217;s technically a transfer of risk to another party but it gets its own category because it&#8217;s a little different than other transfers. \u00a0Insuring is paying a known cost upfront for an unknown potential loss.<\/p>\n<p><strong>Administrate. \u00a0<\/strong>Risk Management is\u00a0not a one-time thing. \u00a0There needs to be ongoing implementation and monitoring of the processes above.<\/p>\n<p>There they are; the five basic steps of a Risk Management program. \u00a0You may be wondering what those advantages that I mentioned above are. \u00a0Does it really seem worth it? \u00a0Do you really need one? \u00a0I&#8217;ll give you two advantages to start with:<\/p>\n<p style=\"padding-left: 30px;\"><strong>1)<\/strong>\u00a0It will prevent a lot of bad things from happening that hinder, strain, and keep your business from growing. \u00a0Losses, injuries and other damaged goods, whether insured or not, only hold you back. \u00a0It is simply better for your business to not have fires to put out, or at least put a small known number of fires out.<\/p>\n<p style=\"padding-left: 30px;\"><strong>2)<\/strong>\u00a0It will give back some of\u00a0the leader or CEO&#8217;s most precious commodity: time. \u00a0Whereas without a formal Risk Management Program the leader must rely on snap judgments or last minute decisions (because he or she doesn&#8217;t have the time to effectively identify and analyze risks, come up with controls and with financing methods, and then administrate the process), a formal Risk Management Program delegates it to a dedicated Risk Manager.<\/p>\n<p>Admittedly, small businesses may not be too interested in this, but as a business grows and desires to continue growing, a formal Risk Management Program becomes more of an advantage, and even perhaps a necessity.<\/p>\n<p style=\"text-align: left;\">\n","protected":false},"excerpt":{"rendered":"<p>What is Risk Management? \u00a0A\u00a0common misconception among\u00a0those that have [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":3491,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[8],"class_list":["post-2626","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-risk-management","tag-risk-management"],"_links":{"self":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2626","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/comments?post=2626"}],"version-history":[{"count":1,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2626\/revisions"}],"predecessor-version":[{"id":44644,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2626\/revisions\/44644"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media\/3491"}],"wp:attachment":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media?parent=2626"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/categories?post=2626"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/tags?post=2626"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}