Risk identification is the most important part of risk management

With all of the unknowns in the world today, companies need to continually scan the horizon for emerging threats and opportunities. This will better prepare their business to manage the downside of risk while positioning themselves to capitalize on opportunities that may be presented. It requires both an internal and external focus, a sense of the micro and macro, and an honest assessment of their strengths and weaknesses.

To that end, organizations are using Enterprises Risk Management Programs to establish a framework for addressing the ever-changing risk landscape their organization may face. These programs focus on an entitywide view of risk, require the input of cross-functional committees and leverage external help from the company’s board of directors, its attorney, CPA, banker and insurance agent. Together, they allow a company to truly determine its risk appetite and ability.

Smart Business spoke with Chas Lowe, a commercial insurance specialist at Zito Insurance Agency, about the process a business can use to identify threats and opportunities to help support its strategic objectives and goals.

Why should companies include an array of experts in a risk management assessment?

Organizations have a general perception of what risks are out there and what could possibly happen to their business, but there’s a tendency to focus on risks that are physical in nature — their building catching on fire or one of the vehicles in their fleet getting in an accident. While those risks absolutely exist, and it’s important to acknowledge them, these types of hazards are easier to plan for and insure against. Typically, it’s a previously unknown, or emerging risk that brings a company down.

To get a broad perspective into what risks exist in the market, it’s a good idea to gather an array of experts and lean on them to find ways to limit the organization’s risk exposure. This can be done by having them perform a SWOT analysis — identifying an organization’s strengths, weaknesses, opportunities and threats — for individual internal departments, their supply chain, IT infrastructure and more. This will more clearly identify the organization’s position in the market.

Once risks are identified, a company can then begin to plan for them, setting the foundation for comprehensive solutions to support the organization’s underlying strategic goals. For example, a company can purchase insurance to insulate or hedge against certain threats, put controls in place to help reduce any exposure to that risk, or avoid other activities altogether. How exactly the company decides to approach risk depends on its risk tolerance in specific areas, something else that can be determined throughout the analysis.

How often should assessments be conducted?

The ever-changing macro landscape drives the need to conduct an analysis as frequently as possible. It’s like sonar, sending out a signal to get an idea of where the company currently stands in the marketplace.

At a minimum, assessments should take place on an annual basis, coinciding perhaps with a board of directors meeting to bring in those outside subject-level experts. Annual reviews are practical because it will also help the organization keep up with new technologies, which evolve quickly. However, because a comprehensive risk management program should continually evolve with the business, the more frequent these assessments can be performed the better.

How can insurance brokers and agencies help?

Brokers deal with multiple clients across multiple industries, meaning they come across examples of how other companies have dealt with similar issues. Companies should get their insurance broker involved in the process as soon as possible. A lot of agencies make resources available to their clients at no cost — disaster/continuity plans, vehicle use agreements, subcontractor agreements, OSHA inspections, etc. Those plans can help companies determine viable options for getting the business back up and running as quickly as possible in the event of a significant business disruption. Brokers, an agency or even a carrier can help provide companies with tools and resources to help them weather just about any storm.

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