Most business owners think of risk management too narrowly. Risk management is practiced as a financial exercise which leads to the purchase of insurance. And there are many types of insurance available to businesses which can cover a range of policies such as general liability, real property, business interruption, key man life insurance and even environmental or Directors & Officers coverage. Any or all of these policies may be necessary and worthwhile for a business but the owner should think more broadly about risks.
In general, risk management is a process to assess, control and monitor business activities in order to minimize the effects of risk on the company’s solvency and performance. It can also maximize short and long term value for the business owner.
There are 4 basic types of risk to consider:
- Hazard (eg. Personal injury, property damage)
- Financial (eg. Profit, cashflow, capital)
- Operational (eg. Projects, human resources, safety & health)
- Strategic (eg. Brand, reputation, growth)
There are 5 generic responses to a risk:
- Alternate Actions
- Share or Insure