Regardless of a company’s size, risk management is an important function that tries to reduce loss by identifying types of undesirable events or losses, and trying to prevent those losses or, at least, to mitigate the physical or financial effects. Commonly associated with insurance planning, risk management also encompasses loss prevention and control to provide a holistic view of what can go wrong at a company and how the business should respond.
Unlike larger companies that have dedicated risk management and safety professionals who specialize in the field, small businesses have to rely on staff and outside resources, such as those offered by your insurance company, to develop the most effective risk management strategy for their needs.
The first step in any risk management plan is spending time to think about potential exposures and losses. These risks can come in an array that may include property damage, legal liability, employee accidents or injuries, disaster recovery, technology outages, and other losses.
Your insurance agent and carrier will offer a variety of resources to help you identify and understand potential risk and can arrange access to experts who can provide specialized advice about reducing your company’s risks.
The next step is thinking about the potential effects of each risk. Some exposures, such as the loss of your workplace in a fire, may be catastrophic, while others may be relatively minor. It’s important to understand the difference so you can direct your risk management efforts to the most important exposures.
The next step is developing ways to reduce those risks and their potential effects. Instead of storing your inventory in one facility, for instance, it may be a good idea to divide it between two smaller storage areas so a fire at one building wouldn’t destroy your entire inventory.
Once you’ve identified the risks, categorized them by severity, and identified potential mitigation strategies, the final step is arranging property and liability insurance to provide financial protection in a loss occurs.
Even with the best of intentions, things can go wrong, and it’s important to ensure that a relatively minor loss won’t impact your company’s financial position. Insurance provides an important financial backstop that helps you concentrate on running your business and serving customers.