What is risk management?
Most entrepreneurs are risk takers, willing to invest resources with an expectation and hope, but no guarantee, of reward. Risk" is another word for "peril" and refers to things that can go wrong. Crime, vandalism, fire, a personal injury lawsuit, a computer virus, equipment breakdown, death or illness of a key employeethese are examples of adverse events which can cause economic harm to your business or organization goes on.
Risk management is a broad topic. It involves taking steps to minimize the likelihood of things going wrong, a concept known as loss control. It also involves the purchasing of insurance to reduce the financial impact of adverse events on a company when, despite your best efforts, bad things happen. No one likes thinking about what could go wrong. Nevertheless, as a prudent manager, you should understand the risks your business faces. Until you identify risks, you cant make good decisions about managing them.
RISK MANAGEMENT STARTS AT THE TOP
Risk management, particularly loss control, begins at the top of any organization. If the head of company makes it a point to emphasize safety, compliance, and lawful and ethical behavior, the rest of the organization is more likely to follow suit.
Risk management costs money, but the costs of not paying attention to safety concerns and not purchasing insurance can be far higher in the long run than any front-end savings. While small companies typically do not hire full-time risk managers, risk management should not be left to chance. Specific individuals should be required to take responsibility for safety and compliance programs as well as for insurance matters.
RESOURCES FOR RISK MANAGEMENT
Thanks to the Internet, all organizations have easy access to enormous amounts of information on risk management, including loss control measures, safety, compliance and disaster preparedness and recovery. Extensive checklists and suggestions of a general nature are available as well information tailored to specific types of businesses. Check the resources available from your insurance company.
One useful resource is your insurance agent. Invite the agent to tour your premises and discuss how you are currently managing risks. He or she will be able to evaluate your actions and offer suggestions.
Depending on the nature of your business, it may be a wise investment to engage a risk management consultant.
LOSS CONTROL AND INSURANCE
Effective loss controlreducing the number and size of lossesmay impact both the availability and affordability of insurance.
A really poor loss history can make it difficult to find insurance. On the other hand, businesses that actively manage risks, and thereby control losses, will have fewer claims and will often see those efforts rewarded with lower insurance premiums.
PREVENTING FIRE LOSSES
Below are some questions to help you prevent fire losses:
Are employees trained in fire safety? Do they know exactly what to do if a fire starts? Is extra training given to those responsible for storage areas, housekeeping, maintenance and operations where there are open flames or flammable substances are used or stored?
Do you have the right type, size and number of fire extinguishers? Your fire department or fire protection equipment supplier can advise you. Are the fire extinguishers serviced and tagged annually? Do you review with employees at least once a year where the fire extinguishers are and how to use them?
If needed, have you modernized your electrical system? Faulty wiring causes a large percentage of nonresidential fires. Are electrical panels accessible, with at least three feet of clearance and labeled? Except for temporary use (or surge protection for sensitive electronics such as computers) electrical equipment should be plugged directly into an outlet, rather than into extension cords.
Have you situated your business in a fire-resistant buildinga structure made of noncombustible materials with firewalls (self-supporting solid walls running the full width and height of the building) that create barriers to the spread of fires?
Does your building have a fire alarm system connected to the local fire department or an alarm company?
Does your building have a sprinkler system to douse fires? If so, is it serviced, including a main drain test, at least annually? Is your sprinkler system the right one for your kind of building and the materials used in your business? Different types of buildings and contents require different types of fire suppression systems. Your insurance carrier, alarm company or local fire department can assist you in choosing the most appropriate type of system.
Have smoke detectors been installed, and are they regularly tested?
Have you posted "No Smoking" signs? Do you enforce the rule? Is there evidence of smoking?
Do you regularly check your heating system?
REDUCING VULNERABILITY TO THEFT
Businesses face various types of theft, including burglary and robbery by outsiders, theft by insiders and identity theft.
Burglary Burglary refers to crimes involving the unlawful entry of a structure with or without force. Burglary prevention starts with making your premises an unattractive target by creating barriers to illicit entry. Appropriate measures will vary depending on the type of business, the premises and the location. For some businesses, security needs may be met simply by leasing a professional office in a building with good security and assuring there are strong doors and appropriate locks. This is particularly true for organizations in low-crime areas without high-value goods on the premises.
An enterprise in a building with numerous entrances and windows, located in an area with a high-crime rate and having high-value goods on hand presents a different picture. Whatever type of business you have, your insurance agent, locksmith, police department and a security consultant can provide information on how to make your premises harder to burgle. They may recommend such improvements as steel doors that fit tightly into doorframes, shatterproof window glass, stronger window locks and a fence around the premises.
Exterior lighting deters burglars. The fewer dark places around your facility, the better. Dont let trees or shrubs grow around windows. These provide an opportunity for criminals to conceal what they are doing. Keep dumpsters away from the building.
Valuable property should be locked up to further deter theft. You may want to invest in an alarm system that rings in the police station or at a private security firm.
Robbery Robberies involve the taking of valuables from another person(s) by force or threat of force. If you receive cash in your business, train employees what to do in case of robbery. Your local police department can assist you in developing training material. Limit the amounts of cash in cash registers.
Insider Crime Many businesses put a great deal of effort into protecting their property from theft by outsiders but neglect to put an equal effort into preventing insider theft. Employers should not underestimate the risk of trusted employees stealing from the company.
Identity Theft Identity theft occurs when an individual uses someone elses personal information to commit fraud. Federal law requires businesses to provide identity theft victims with transaction records relating to their identity theft free of charge.
CONTROLLING LIABILITY RISKS
A person cannot prevail in a liability lawsuit against your business or you personally unless he or she can convince the judge, or jury that you breached your legal duty to that person. Examples of such duties include:
Making a reasonable effort to maintain a safe environment for the public
Refraining from slander
Warning about an unsafe condition or product
Investigating an employees complaint of civil rights discrimination
In general, to reduce liability risks, you must behave lawfully and with demonstrable responsibility for the welfare of third partiesa group that includes your clients or customers, competitors and the general public. Additionally, you must obey a variety of civil rights laws and other laws that give rights to your employees (if you meet the criteria of a covered business).
If you can provide evidence that you took your responsibility seriously and made reasonable efforts to prevent harm to others, you are much less likely to be found liable. Evidence can be in a variety of forms, depending on the nature of the liability risk. A few examples are:
Copies of communications with your customers or employees about safety and risk
Records of your efforts to verify that someone you hired was not a risk to others
Testimony that you provided warning signs or other warning signals regarding a hazardous
condition on your property
Evidence from other professionals in your field that the decisions you made and actions you took were consistent with acceptable professional standards
Records that your equipment was regularly serviced by knowledgeable technicians
Notice that in most of these examples, some form of written record is involved. Documenting your efforts to behave lawfully can be vital to proving that you are not liable.
For almost any type of venture, you may find extensive and specific information
NOTE: The answers to coverage questions are primarily based on ISO forms generally used in Florida by most companies. However, please keep in mind that all companies forms are NOT necessarily the same. Some companies may provide broader coverage and some may be more restrictive. IN ALL CASES, THE CONSUMER MUST REFER TO HIS OR HER OWN POLICY FOR SPECIFIC COVERAGE INFORMATION.