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Concepts of Risk Management
Risk Management in terms of the handling of risk is as old as life itself. Man has always been involved in taking risks and subsequent decisions related to risk management.
Risk Management has developed out of insurance thanks to the insurance managers in the USA during the years after WWII. They came to realise that there was more to be gained from spending money on avoiding and reducing risks and on preventing and reducing loss compared to merely buying insurance.
Risk Management Techniques.
A risk is a "hazard, chance of bad consequences or loss or exposure to mischance." Exposure to hazard or loss is obviously an important element in risk just as the concept of uncertainty, the contingent element of risk.
Risk must be related primarily to an uncertainty. For a business, this uncertainty will relate to future earnings and cash flow, also to assets owned presently and acquired in the future. If there is no uncertainty, there is no risk. Uncertainty could be expressed in forms of variability or potential variability of earnings, cash flow and assets.
The variability can be unfavourable or favourable with a negative or positive effect on earnings and cash flow. Some instances of uncertainty and variability are:
Fire:
Reduction of assets and / or earnings
Political Risk:
Largely a matter of government intervention, perhaps by acquisition or confiscation. The governments' financial policy can seriously affect earnings as with levies and grants. Social pressure is a form of political risk for instance, public opinion might force closure of a factory.
Technical Risk:
Will performance expectations be met? A new process might not be ready on time or it could yield higher benefits.
Marketing risk:
Will potential customers want the product? Could it be made obsolete by changes in taste, location, service needs?
Labour risk:
Will difficulty be experienced in staffing? Are we vulnerable to staff dissatisfaction?
Third party & other liability risk:
One event can alter fortunes considerably, liability risks are utterly capricious - the exposure is unrelated to the value of the assets or earnings.
The range of uncertainty is great and may of the aspects interrelate. For instance, a riot situation is not only a danger in itself but by reducing the effectiveness of fire prevention measures, it increases the risk of accidental fire.
The basic risk problem in business is to protect earnings, cash flow and assets. This necessitates analysis of the potential risk, determining as far as possible its probable and possible extent and taking steps to control the risk. If we cannot economically control the risk our problem becomes one of the risk financing, or ensuring that sufficient funds are available to meet the post loss situation in terms of depletion of assets, cash flow and earnings.
Risk management is the identification, measurement and economic control of risks that threaten the assets and earnings of a business or other enterprises. The word "economic" requires emphasis. There is no point in spending more money for preventing losses than the losses themselves would cost taken as a whole or taking 100 percent effective loss control action at a cost too great for the business to afford.
How do we act?
Our loss controll professionals will conduct a comprehensive inspection of your facility, identify susceptible risks/perils in every section of your facility. Than we evaluate the extent of exposure and 'EML' (estimated maximum loss). Completing our risk-study we will review your insurance contracts and agreements. we compare risk-study and suggest appropriate insurance cover.
. The objectives are to:
. Reduce your exposure to loss.
. Transfer risk where appropriate.
. Design & implement safety programe
. Monitor Claims.
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