Managing risk Featured

1:28pm EDT August 24, 2005
Risk is inherent in every aspect of business. But that doesn’t mean it’s time to bury your head in the sand and pray nothing goes wrong.

Instead, says Carol Rose, vice president of claims for employee benefits and insurance firm Sander Kessler, it’s better to take proactive measures to mitigate the risk in your business before anything happens.

“The key element is management’s enthusiastic support and ability to get all the employees to be responsible,” she says. “The idea that safety is someone else’s responsibility is really pass. It’s got to be everyone in the company, from the CEO to the dockworker. Everyone has to believe that safety is their job and their priority.”

Smart Business spoke with Rose about the definition of risk, how to manage it and what it takes to get your company’s employees to buy-in.

What exactly is risk and how do you separate it from other aspects of your business?

You have to identify the risks that can be managed versus those that can’t. There are a lot of exposures out there that you have no control over — for example, market down turn. Risks associated with a product or service can easily be identified and, to one degree or another, quantified based on experience, the direction that court cases are going and any regulatory changes. A company’s exposure to workers’ compensation claims is probably the easiest exposure to identify. It’s directly related to the type of industry a company is in, the number of workers, payroll, locations, kinds of operations and company culture.

Once you identify the exposure that is manageable, look at the various ways to mitigate the cost to your company for those risks. It can be done in a variety of ways. Risk control, which is safety. Risk retention, which has a lot to do with your appetite for risk and how sure you are of your numbers. And then look at ways to transfer your risk. That could be outsourcing, contractual risk transfer or purchasing insurance.

So what’s the first step toward identifying risk exposure?

Look at your loss history. Look at the trends. You can see what you’ve been doing right, how you’ve reduced your exposures in certain areas and also where you’re not doing as good a job.

And then what?

Once you’ve done that, take a fresh look at all of your operations. Look at things like the number of employees you have in each class. Look at your manufacturing processes and procedures. Look at the properties where your operations are located. Look at risks to others that are visiting your properties, and proximity to hazards. Identify any hazardous materials or byproducts that you use in processing.

As you look at each aspect, ask yourself certain questions. ‘What can go wrong here?’ ‘What’s the worst thing that could happen?’ ‘What’s the most likely thing to happen?’

Again, looking at your loss history, ‘What did we suffer in the past and what did we learn from that?’ ‘If the worst happens, could we survive this, and how could we survive this?’

After you do that, look at your vendors and customers and ask the question, ‘What happens to us if they suffer a catastrophic loss and they are shut down for a month, six months or a year?’

How can a CEO engage the senior management team to help identify the company’s strengths and weaknesses to expedite this process?

A CEO who takes risk identification and risk management seriously and is enthusiastic about it, I think that enthusiasm will inure the senior management, especially if they can crunch those numbers and demonstrate how losses they have suffered have impacted the bottom line.

Many companies also use incentive plans and tie bonuses to certain operational goals, like zero lost time. By making a manager responsible for controlling the costs in their division, it hits the bottom line directly. Any loss the company suffers, even if you have insurance, will influence your premiums in the following year. Not all losses are insured, so you can have a direct impact on your company’s capital.

It sounds like this all leads to a written plan — a risk-management guide. What should be included in it?

A risk-management guide should be set up in sections according to the areas of risk. Each section should identify property, work comp, product liability, auto, etc. And each of those sections should include certain information that would be readily available in the event of a loss.

It should identify the company’s key individuals to be contacted and outline the necessary steps to be taken in the event of a loss. It should state the obvious — take care of injured people first, for example. When people are in the middle of a disaster, they don’t think clearly. It is nice to have a check list so they hit all the stops.

It should also include summary information about insurance coverage that is available. The carrier, the limits and deductibles are important. If you have a minor loss, it may be within your deductible and you’re not going to file a claim. It should also have 24-hour claim reporting information.

Carol Rose is vice president of claims for Sander Kessler, an employee benefits and insurance firm. Reach her at or (310) 309-2212.