Be prepared Featured

7:00pm EDT November 25, 2009

Running any business comes with its share of risks. But if you fail to prepare for that risk by creating a risk management plan, you’re leaving your company vulnerable to factors that can create a negative impact both immediately and in the long term.

“Failure to identify, assess and manage risk can have an adverse impact on profitability, competitiveness, quality, brand value, reputation of your firm and morale of your employees,” says John P. Azpell, an account executive with ECBM Insurance Brokers and Consultants.

Smart Business spoke with Azpell about how companies can create personalized plans to identify, assess and manage their risks.

What factors go into a comprehensive risk assessment?

Risk assessment is the initial step in the risk management process, which includes the following components: Identify the risk and assess its possible impact on your organization.

While the term ‘risk management’ is most commonly related to the insurance world, it actually has much more far-reaching implications for an organization. Executives are usually concerned with typical insurance-related items, such as potential risk to an organization’s buildings and property, injuries to employees or liability issues related to products or services.

But risks can also come from the current uncertainty in the financial markets, issues with potential failure or underperformance of a product, the impact a competitor may have on your business or the potential vulnerability of your computer system and the competitive, financial and client information contained within that system.

Once the risk is identified, the next step is the actual analysis. Factors included in such a review are the potential severity of the risk, the probability of the risk occurring and the potential frequency at which it may occur.

What are the dangers of remaining exposed to these risks?

Risk is inherent in business. The danger lies in not recognizing the risks or failing to take steps to manage or mitigate the risk. Failure to identify, assess and manage risk can hurt profitability, competitiveness, quality, brand value, reputation of your firm and morale of your employees.

In addition, costs associated with dealing with an unanticipated risk may create a large expense that was not in the budget, which could result in an inability to fund planned growth, a key acquisition or equipment upgrade.

How can a comprehensive risk assessment benefit a company?

Undertaking a comprehensive risk management and assessment program can help a company in many ways. Such a program will help you to focus on better overall management of your company and help support a more effective strategic business plan.

Timely reaction to an unplanned event will lessen the impact of that event on the bottom line. By taking the time to identify and manage risks posed to you, you may find that you are in a much better position to succeed.

How can a business develop a comprehensive risk assessment plan?

Committing to a plan is the obvious and most important first step. That plan should be part of an ongoing and proactive risk management process. If your organization does not employ a full-time risk manager, you should appoint a point person to oversee the program. There are also many outside sources, such as consultants, who can provide preliminary and/or periodic audits of your program. Many times, your own insurance broker can be of great help in this area.

Careful evaluation of all aspects of your company’s operations is required, including inspection of the physical plant, vehicle and/or equipment fleet, review of all agreements (employment related, purchase orders, leases, third-party contracts, etc.), Web site content, employee manuals and handbooks, and internal procedure manuals.

Another important area that should not be overlooked is the impact, if any, of a disruption of business for a major supplier or customer.

Note that there are many tools available, such as risk survey checklists, which may be found online. And while these are a great starting point in the process, they may also include questions or sections unrelated to your particular organization. More important, they may not include questions related to areas unique to your industry or individual company.

Once you formulate a plan, you must maintain regular follow up, review and documentation in order for the plan to be effective. It must also be adaptable to change, as you may find that the risks to your organization are constantly evolving with the times.

Who should be involved in the process?

Top management must direct and commit to the process.

Additionally, members from each key department should be involved. The people on the front line are often better suited than management to help in identifying some of the potential risks posed to an organization. These employees will also be directly involved in the implementation and modification of any plan put in place.

Along with the staff, it is also critical to have a knowledgeable consultant assist you in the process and provide needed insight and resources.

John P. Azpell is an account executive with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100 x1329 or