Business owners typically spend a lot of time thinking about risk management, even if they don’t know it in these terms. How can I protect my company’s assets against lawsuits? How can I provide a safe environment for customers and employees? Am I protected if my product fails? What if an OEM’s product fails? These concerns can be addressed through the risk management process, which involves five key steps.
Step 1 – Identify and analyze loss exposure
Meet with management staff and identify areas with the most risk, such as your facility (e.g., a shop area that poses inherent risk to the public or employees). Other examples could include a lobby area open to the general public, or a sales lot if you’re a dealer. As a manufacturer of component parts or an upfitter, you may find the greatest liability risk is in your product. Identifying your company’s unique loss exposures is the first step in managing them.
Step 2 – Review available risk management techniques
There are several techniques from which to choose during this process.
- Risk avoidance, which is as simple as not engaging in risky behavior, or changing operations to avoid the risky portion. This option not only eliminates risk — it limits potential as well. It’s also frequently impractical.
- Risk reduction, involving typical loss control measures such as quality tests and inspections, ongoing and thorough personnel training, lock-out/tag-out policies, proper certifications, etc.
- Risk transfer, which has two common forms, including insurance, where you’re transferring risk to an insurance carrier in exchange for premiums paid. The second is through contractual language with OEMs and/or customers. In this scenario, you’re transferring risk to the other party by way of hold-harmless agreements, indemnification agreements, etc.
- Risk retention, where you/your company absorbs the risk. This technique is used when risk is unlikely, or mitigation/transfer cost is prohibitive.
Step 3 – Select the best technique for your exposure
This is a process of weighing risk versus reward. You can avoid risk altogether, but at what cost? Is the risk large enough to invest in reduction testing and training? If you transfer the risk to your customers, will they go somewhere else with more generous or ambiguous contractual language? These are things to consider when identifying the proper technique for your business, and the answers often fall somewhere in the middle. By implementing a well-balanced program, you can protect your company’s assets and still have a viable, thriving business.
Step 4 – Implement the chosen technique
Once the most appropriate course of action is identified, follow through with implementation. Management and key staff should be familiar with your choice and execute an effective communication plan to all employees.
Step 5 – Monitor program success
Monitoring the plan is essential in gathering data on effectiveness of your chosen technique. If it’s not producing the needed result, it may be time to revisit your options.
Businesses with interested, engaged ownership and management are typically the ones that survive, even in the hardest times. Managing your company’s risk is one way of staying involved and in control.
Many insurance providers and agencies have in-house or contracted risk managers who can help with this important task. Check with your insurance professional about their services.