Risk Management
Family Business Institute |
Family Business Experts is the Internet organization for the Atlanta-based
Family
Business Institute. Don Schwerzler, who has been working as a family busines
advisor for
nearly 40 years, founded the Family Business Institute as a specialized resource
for
families in business together. Family Business Experts, the highest-ranked family
business resource on the Internet, contains tips and success strategies for
family
business, and can be found here.
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Risk Management is a discipline that aims to protect assets and profits by reducing the potential for loss before it occurs, and by financing, through insurance and other means, potential risks to catastrophic loss.
The Risk Management process consists of four elements:
RISK MANAGEMENT - identifying and quantifying the exposures that threaten an organization's assets and profitability. Risk assessment is the vital first step of risk management. Until you know the scope of all of your possible losses, you won't be able to develop a realistic, cost-effective strategy for dealing with them.
LOSS CONTROL - reducing the frequency and/or severity of losses through preventive measures, such as sprinkler systems, improved housekeeping practices or preventive maintenance of key equipment. Loss control is all about reducing the frequency and/or severity of losses through preventive measures. The most extreme form is to avoid activities that are hazardous. Loss control next looks for ways to reduce risks if they can't be avoided. Loss control further looks for ways to minimize risks.
RISK TRANSFER - shifting the financial burden of loss so that, in the event of a catastrophe such as natural disasters, human error or court judgments, an organization can continue to function without severe hardship to its financial stability. Risk transfer is about deciding who will bear the risks that you have identified and that you can't completely control or avoid. Risk transfer strategy varies from retaining exposure to transferring most of the exposure. When the risk transfer decision is to transfer part or all of a risk, there are options. Insurance is one, but there are also non-insurance options to consider. For most family-owned or closely held businesses, in our experience, there is almost always a better risk management strategy than keeping the cash resources on hand for self-insurance!
RISK MONITORING - continually assessing existing and potential exposure. Risk monitoring is the last major element of risk management - but certainly not the least important! RISK MANAGEMENT is a process of organizing and planning - just as important as strategic, financial, marketing and human resources planning. Like any good planning, the process should be continual or on-going. Once your basic RISK MANAGEMENT PLAN is in place, risk monitoring means to review it and update it continuously.
