Risk Management — What’s it all about?
May 12, 2011
What’s all the fuss?
Joe Risser CPCU, ARM-P
Director, Risk Management
Cal Poly San Luis Obispo
The term “Risk Management” has become increasingly popular in recreation activities and programs. But what is it and why is it important?
Let’s take an example of how many people manage risk every day – when driving a car.
We Identify Risk including: personal injury, damage to your car, injury to other persons, their cars, property of others and exposure to liability as well as unplanned expenses (medical expenses, car repair or replacement, fines, court judgments, etc.)
We Analyze Risk by imagining not only our own pain and suffering from injury but also that of others; significant costs of medical expenses; possible loss of income while recovering from injury; costs of repair or replacement of damaged vehicles and other property, and possible large costs for injuries or damages we cause to others if we are judged to be at fault.
We then Develop (or utilize existing) Techniques to manage the risks.
- Society has established a number of Risk Controls, such as traffic laws and structures, to reduce the number and potential of car accidents. Drivers choose to follow these guidelines to prevent injury and damage to themselves and others, and to avoid other consequences such as traffic tickets. Having a 911 system to summon emergency medical aid to the scene of an accident is a risk control strategy to reduce injuries and damages.
- There is however a need to establish a technique to pay for expenses if an accident occurs. Risk Financing is the other half of techniques to manage risk. Automobile insurance is a technique which can pay for many expenses resulting from an automobile accident. Society has stepped in and required the owners of cars to show proof of minimum levels of liability insurance in order to register and license a vehicle, to ensure that drivers can finance at least some of the expenses related to the risks of driving a car. Having a savings reserve is a technique that can help finance insurance deductibles or other uninsured expenses.
Deciding and Implementing Techniques is critical step in managing risk. Obeying traffic laws may not have significant costs, but maintaining a car in good operating condition to avoid accidents will be an expense. Compared to the thousands of dollars of damage for which a driver could be judged responsible, insurance premiums can be cost effective. Evaluating the costs (financial, time, effort) is critical to deciding which techniques a driver can implement in order to manage their risk through control and financing.
Risk Management in sports activities and recreation programs involves the very same steps to protect your programs and your business:
Identify Risk — Know your facilities, equipment, services, materials, operations, standards of care and how participants, employees, visitors and bystanders can be injured or property can be damaged.
Analyze Risk — How often could injury or damage occur? What could be the impact of each injury or damage that could occur on the program?
Develop Techniques to Control Risk and to Finance Risk — How can you prevent or reduce injuries and damage — safety procedures, staffing ratios, supervision, inspections, national standards? How could you fund payment for injuries or damages — financial reserves, insurance?
Decide and Implement Risk Control and Financing Techniques — Do you have the time, energy, skills, and funds to implement and maintain techniques to manage risk? What if you don’t manage the risks? How will you pay for losses from risk? Should you discontinue some activities or programs to avoid risk?
Unmanaged risks can result in:
Injuries to people — participants, employees, visitors, others
Damage to property — personal, business or entity
Interruption of programs — failure to accomplish purpose, loss of business
Negative reputation — loss of participants and employees
Unexpected payment – thousands of dollars for medical expenses, repairs, replacements, legal fees, fines, etc. resulting in lack of funds for operations and possible closure of the program and/or business.
Loss of revenue and/or funding — unexpected payments, loss of participant fees due to poor reputation and interruption of program, loss of funding due to poor reputation and interruption of program resulting in reduction and/or closing of the program or organization.
Managing risk is the process of planning, organizing, leading and controlling the activities and resources of a program or organization in order to minimize adverse effects of risk on people, property, operations, reputation and financial resources.