Risk Management 101: Insurance Not the Only Resource for Your Business

There is risk in everything we do. From crossing the street, driving a car or running your own business, each carry some sort of risk. Risk is not always negative. The key is finding a balance between the negative risks and the opportunities of operating your business.

A goal is to minimize risk when possible and mitigate risk when avoidance is not an option. Insurance is only one resource, yet imperative, in risk management. Risk reduction is minimizing the risk or the loss from the risk if it occurs. For example, sprinklers installed in a building reduce the loss if a fire occurs but does not reduce the risk of the fire in the first place. The only way to minimize and mitigate risk is to be knowledgeable about the potential risks.

Without knowing the risk, a proper plan can not be developed. Business owners have their personal level of risk adversity. The amount of accepted risk by the business owner is a business decision and is best made by management. Being informed of the possible risks is vital to making business decisions that fit you and your business. Outsourcing legal risk by retaining an attorney allows you to focus on your business and develop your business without being distracted. An attorney can assess you business’ legal risk and is better versed at finding solutions to reduce or eliminate those risks.

Once risk plans are in place, management should periodically review the plan and meet with risk management team to evaluate the external business environment. A few questions to ask include -- Are there changes regulatory changes that affect our industry? Have any new employment law passed? Is the business categorized differently, thus subjecting the business to more/less regulations? Risk management plans should not be purely theoretical; the plans should include financial elements so business decisions can be made to maximize the value of the business. This approach to risk management was developed by Robert Courtney Jr. of IBM.

How often do you evaluate your business’ risk? Do you have a schedule for reviewing your business’ risk and management plans? Would quarterly legal updates specific to your industry or general monthly newsletters on new legislation from your attorney be helpful?

Posted by Jess Bailey at 4/15/2010 10:05 AM
Categories: Risk Management, Liability
Tags: Risk Management Entrepreneur Liability
 

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