Risk management: Why is it important for your business?
Oct 15, 2013 2 minute read
All businesses and non-profit organizations face the risk unexpected events, such as a natural disaster, loss of funds through theft, or injury to staff, customers, or visitors on your premises, could impact operations. Any of these events can cost your organization money or cause your organization to permanently close.
With a risk management plan, you can prepare for the unexpected, minimizing risks and extra costs before they happen. By considering potential risks or events before they happen and having a risk management plan in place, you can save money and protect your organization’s future.
What is risk management? Risk management is the process of identifying possible risks, problems or disasters before they happen. This allows business owners to set up procedures to avoid the risk, minimize its impact, or at the very least help cope with its impact. A business or organization should make a realistic evaluation of the true level of risk and plan accordingly.
What should a risk management plan include? A successful risk management plan should recognize and address potential risks and threats. These plans don’t have to be expensive or very time consuming. The risk management process can be as easy as answering the following few questions:
- Risk identification – What can go wrong? (Risks can apply to your workplace or from the particular work you do)
- Risk analysis – How will it affect us? (Consider probability and impact to your operations – is it high or low?)
- Risk control – What should we do? (Both to prevent the loss from occurring or to recover if the loss does occur)
- Risk treatment – If something does happen, how will you pay for it?
An effective risk management plan should include:
- A commitment from all levels of the organization
- Policies and procedures established and clearly defined for all staff
- All staff should have clearly defined roles, responsibilities, and accountability
- Adequate resources and tools allocated for the plan
- Ongoing training, testing and monitoring of the risk management plan
What are the benefits of a risk management plan?
- Saving valuable resources: time, income, assets, people and property can be saved if fewer claims occur
- Creating a safe and secure environment for staff, visitors, and customers
- Reducing legal liability and increasing the stability of your operations
- Protecting people and assets from harm
- Protecting the environment
- Reducing your threat of possible litigation
- Defining your insurance needs to save on unnecessary premiums
Insurance and risk management systems
Purchasing the appropriate insurance coverage for your business is an important part of your risk management plan, but it’s not enough by itself. You still must have policies and procedures in place to reduce risks to ensure your assets, reputation, financial security and operations can continue without interruption.
Insurance companies may view your organization more favourably if you can prove you have a stable risk management plan in place to minimize the impact of potential claims. It could even help you qualify for reduced insurance premiums. To learn more, speak with your local BrokerLink broker.