Plan and prepare for the future of your business.
Risk management provided by Phelan Insurance Agency, Inc.
Risk management goes beyond insurance in that it’s about planning for and mitigating potential business risks, aside from a policy that pays out when suffering a loss. The two work hand-in-hand together, but it’s important to understand that risk management is all about planning and strategizing for the long-term of your business.
What is risk management and why is it important?
Every business has unique goals, just as it has industry-specific risks. Achieving those goals while minimizing the potential risks is what every risk management plan strives to achieve. The risk management process includes several key elements to ensure that any business can prepare for the worst and plan for the future. These include determining risks, understanding and prioritizing them based on occurrence and severity, developing a plan to reduce and mitigate those risks, and reviewing the process regularly to ensure effectiveness.
Real world examples of risk in business.
There are a variety of factors that determine the frequency of certain things impacting your business, such as the type of industry, location of operations, number of employees, and training programs to name a few. Knowing what some of the common business risks are can help get the risk management process started. Some examples include damage caused by natural disasters, accidental injuries, cyber hacks, and lawsuits from customers or employees. Identifying risk factors in your own business and how they impact your ability to achieve your goals is the initial part of the process.
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Every business faces risk. The level and type of risk will vary based on multiple factors including industry, size, and location, among others. Risk can never be fully eliminated, but it can be reduced.
Risk management is the practice of taking proactive steps to identify and mitigate risk. It’s a broad topic that involves many areas of a business, from personnel and technology to safety and compliance. Risk management can not only help a business identify what risks need to be insured, it can also pinpoint ways to reduce.
Staying compliant is hard. The laws for many facets of business are ever-changing. Employee handbooks can become out of date. Employment and other contracts can contain problematic language if not handled properly. Employee relations and human resources concerns can get complicated.
There are insurance coverages like employment practices liability insurance (EPLI) and directors and officers liability insurance (D&O) that can help pay for the legal costs of defending lawsuits against the business, but risk management can help shed light on areas of the business where process improvement and consistent practices could help avoid litigation.
Employees can make mistakes for a number of reasons. Sometimes, it’s simply the result of a lack of education. Some businesses may choose to skip training because they don’t have the time or resources to devote, but this can lead to mistakes and accidents.
Conducting employee training can reduce risk. For example, sexual harassment training often helps businesses avoid lawsuits. Safety training is essential to avoid workplace injuries. Many insurers will help companies provide employee training as a cost-saving measure.
The Occupational Safety and Health Administration (OSHA) sets and enforces standards aimed at ensuring the environment in which employees work is safe and healthful. Employers are required to comply with these standards and OSHA may audit workplaces to verify compliance. Employers that fail to comply can be faced with hefty fines.
Lockout/tagout, hazard communication, and powered industrial trucks standards, among others, all require specialized programs. Utilizing outside resources to create and train employees on these programs can be a cost-effective solution that ensures your business is doing everything possible to meet required standards.
If your business involves driving, you know that safety is paramount. Failure to drive safely not only endangers the lives of your employees and the general public, but it can also have costly repercussions for the business.
Increasing driver safety is a cost-effective risk management tool. Classes and seminars can be effective resources. Telematic programs allow businesses to see every move a driver makes. Driving simulators can offer hands on training for drivers of trucks, school buses, agricultural haulers, and other vehicles to prepare them for scenarios they may face out on the road.
When it comes to weather and natural disaster related losses, where your business is located impacts the kinds and level of risk it faces. Fires, hurricanes, blizzards, tornadoes, earthquakes and other events can cause major losses to your business.
While it’s impossible to control the weather, it is possible to lower the risks the weather poses. Risk management involves assessing which events are most likely and what steps a business can take to protect their building and contents, their employees, and other systems.
Technology failures can be extremely detrimental to an organization. Problems can arise from power outages or surges, cyber-attacks, or telephone and communication failures.
Understanding what risks the technology your business uses is susceptible to, the processes a tech failure could affect, and how to prevent losses from tech failures is an essential part of risk management. This can help determine the proper insurance policies that are needed, such as cyber liability, property, and business interruption coverage.
What happens in the aftermath of a cyber hack?
A number of action steps must be taken once your business has experienced a cyber hack. These steps include:
- Notifying customers and clients of the breach (a legal requirement in most states).
- Restoring your business’ website to working order.
- Dealing with extortion attempts.
- Paying damages to clients, customers, and suppliers who lose out because of your breach.
Assessing the impact and frequency of risks.
Once the risk factors of your business are determined, they need to be prioritized by the potential frequency that they might occur and the potential impact that they could have. Developed risk management techniques and strategies will go further by identifying which areas of your business need the most attention. Understanding which risks can have the most detrimental impact and are most likely to occur narrows down the top priorities of your customized plan.
Reducing and mitigating risk effectively.
Developing an effective risk management strategy for your business is essential, and understanding which risk factors to prioritize over others is the key to successfully minimizing and managing them. This is where a risk management plan is developed fully to include all of the risk factors and the ways in which your business will need to adapt and adjust to prevent and prepare for those risks. Whether it’s training sessions for your team, adjusting operations, changing work schedules, updating technology systems or equipment, or putting resources into getting employees certified, the plan put in place will be driven to reduce and mitigate risks specific to your business.
Reviewing and enhancing risk management strategies.
Because risk management is a cyclical process, reviewing the plan isn’t the end but simply another part of the system that makes it even more effective. The timing of these reviews can vary depending on your business and the specific risk factors involved, but is key to helping improve upon the existing plan. And because things change in the world and your business over time, new risk factors may come up and will need to be accounted for. The review process also puts the achievement or failure of goals into consideration and can change the trajectory of your business for the better.
If you are interested in how to better identify and manage business risks, contact us to help you get started on the risk management process.
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