The Risk Management Process
I decided to take a step back and look at the forest and not the trees in this and some of the next blog posts. The Risk Management Process may look basic, but not following the natural flow can cause an enormous financial burden to small and large companies alike.
While working with various organizations, clear differences become apparent between organizations that employ a continuous series of steps to manage loss exposures versus those that don’t. If the organizational goals are clearly defined, an organized, continuous risk management process may be applied.
Such events as pending insurance renewals, serious claims, a merger or acquisition, debt or equity restructurings, or new laws or regulations can initiate a process. With a continuous process, these events can be managed in a more productive and less reactive way.
The risk management process consists of six key steps which, when applied in a continuously, result in higher organizational profitability, quality, and asset value.
1. Identification of Losses.
There is a wide variety of methods and techniques to identify loss exposures which would interfere with an organization’s objectives. The use of document, compliance, inspection, and expert reviews typically reveals areas in which additional risk management techniques and services should be focused.
2. Analysis of Losses
The analysis of losses is typically reviewed by frequency, severity, total dollar amounts, and timing. This analysis enables an organization to develop projections, prioritize exposures, and allocate risk management resources.
Loss exposures may be addressed with a wide variety of risk control and financing techniques. These include thousands of different products and services which may be used to deal with very specific risk exposures.
4. Selection of The Applicable Technique.
Once the first three steps have been completed, the techniques that prevent or reduce losses are put into play. All financial and non-financial matters should be taken into consideration.
All the various techniques used require immense support and guidance from the organization’s management team and governing body. Without this support, the methods will be less effective and the organization will not adequately meet its defined goals.
6. Monitoring and Revisions.
Acceptable standards and results-based performance measurement throughout the organization is vital. With constant monitoring and revisions, the organization will utilize its risk management for higher financial and social results.
As I previously mentioned, even though this blog centers on Workers Compensation, it is sometimes best to take a step back to the basic steps to prevent and reduce losses.
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