Risk Management As Part Of Culture
All Insurance Industry Insights on Monday, September 20, 2021
Risk Management - an important part of an organization’s culture and sustainability.
Risk is inherent in every organization, and is described as a condition where the chance, likelihood, or potential for loss exists. It is an observable event or action that can have a material effect on the financial or operational performance of a business. Risk is definable, measurable, and observable over a period of time.¹
Risk management is the identification, assessment, and prioritization of risks to minimize, monitor, and control the probability and impact of losses. There are four general strategies that can be applied regarding risk management²:
- Risk Avoidance: Can you eliminate a service or activity considered too risky?
- Mitigation or Prevention: What steps can be taken to reduce the likelihood of losses occurring or lessen the impact of losses should they occur?
- Risk Transfer: Can you transfer the risk of financial consequences of a loss to another party?
- Risk Retention: Accept the risk as it is.
One of the keys to remaining sustainable in an ever-changing business climate is to remain proactive regarding the risks that may impact your world. This can be done through implementation of a risk management program that includes the five steps of the risk management process¹:
- Identify and analyze the risk(s).
- Consider alternative risk management strategies.
- Select best risk management strategy (or combination of strategies).
- Implement the selected strategy.
- Monitor and improve the risk management program.
A critical element of an effective program is to embed these elements of the risk management process into the organization’s routine operations. In other words, weave it into the culture – what your organization does all the time, every day, when no one else is looking.
While risk can certainly be intimidating, the best practice is to manage it. Ignoring it or assuming “it won’t ever happen to us” can be misleading and potentially result in an unsustainable condition manifesting itself through examples such as product recall, environmental impact, an injured employee, or poor media coverage – we call these situations “hitting-the-wall.”
Implementing a sound risk management program in preparation for what realistically could happen may mean the difference between effectively managing an unexpected event and hitting-the-wall.
PDCM can help your organization understand the elements of risk and offer some tools toward an effective risk management program. Contact us today.
¹American Society for Healthcare Risk Management (ASHRM), “Risk Management Handbook”. Ed. Carroll, R., 4th Edition; San Francisco: Jossey-Bass, 2004: 5, 105.
²Zywave Inc., “Four Components of Risk Management”; 05/06/19.