Should you hire a risk manager?
If you’re a small-business owner and not sure how to answer that, the following information might help. It could be one of the most important business decisions you’ll ever make.
Risk Manager Defined
A risk manager helps identify, assess and prioritize the risk and liability associated with conducting business, then plans and prepares appropriate actions to address that risk.
To put it another way, the risk manager addresses the effect of uncertainty on objectives both positive and negative.
What Is Risk Management?
According to the University of Texas (U of T), risk management is the process of making and carrying out decisions that will minimize the adverse effects of accidental losses.
What Is the Risk Management Decision-Making Process?
The U of T says the risk management decision-making process consists of five steps:
• Identifying and analyzing loss exposures
• Examining alternative risk management techniques
• Selecting the appropriate technique
• Implementing the technique
• Monitoring the results
Loss prevention, spreading risk, contractual transfer and insurance are examples of risk management techniques.
Who Needs a Risk Manager?
In theory at least, nearly every business could benefit from the advice of a well-trained risk manager. In reality, though, it’s not always cost-effective.
Big business entities routinely invest in the services of a risk management consultant or even a full-time department to handle such needs, but small-business owners may not be able to afford the same services despite the disproportionate importance of avoiding litigation.
Commonly Encountered Situations
For those that think their small business is immune from risk, think again.
A quick glance at the most common types of risk should provide more than ample proof that risk is unavoidable.
• Damages due to fire, water or other natural disasters, including the loss of use and amount of business lost until business is able to resume.
• Lawsuits or litigation due to accidents, injury or other situations.
• Criminal activities, key person loss, business interruption and even competition from other providers.
One method many small-business owners use to circumvent the cost without exposing their business to undue risk is to use the services of a knowledgeable insurance agent.
Agents have the advantage of constantly dealing with claims and commonly encountered liability situations, and they’re also required to be informed about the legal, social and fiscal environments surrounding their clients and insurance products.