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Categorizing Risks.

OVER THE PAST YEAR, AS EXECUTIVE DIRECTOR OF RIMS, I HAVE SEEN a number of efforts to categorize the specific risks that are managed by risk professionals. Even as they integrate knowledge, these professionals are specific in their skills; it is not sufficient to say that they manage "all risks." Just as plumbers must categorize their jobs as leaks, clogs or installations and doctors can divide their functions as orthopedics, ophthalmology or oncology, risk management professionals can classify their responsibilities. Categorizations should delineate four key risk areas: (1) conduct of operations, (2) finance, (3) property and (4) liability exposures.

Conduct of Operations

Production. What factors could interrupt the production of goods and services?

Distribution. What factors could interrupt activities with suppliers, wholesalers, retailers and the Internet?

Customer Risks. What factors could interrupt relationships with purchasers of goods and services?

Post-Sale Service Risks. What factors could interrupt servicing after the sale is made?

Changing Markets. What factors could prove costly as a result of changes in consumer demand?

Changing Technology. What factors could prove costly as a result of changes in technology?

Legal or Government. What factors could interrupt activities or be costly as a result of laws and regulations?

Financing of Operations

Fixed Assets. What factors could interrupt sources of long-term debt and equity funds to finance productive assets?

Working Capital. What factors could interrupt sources of liquid assets and short-term debt?

Property Hazards

Catastrophes. What hazards exist from floods, earthquakes and similar occurrences?

Property Exposures. What hazards exist from fire, explosion, utility failures and similar occurrences?

Computer Systems. What hazards could disrupt telecommunications systems?

Governmental. What hazards could prove costly as a result of governmental actions?

Liability Exposures

Product. What hazards exist because products are used or misused?

Environment. What hazards could prove costly because of pollution or other accidents?

Premises. What hazards exist because of physical operations?

Employees. What hazards exist from workers?

Second Parties. What hazards exist from buyers of goods or services?

Third Parties. What hazards exist from unrelated parties?

Another approach to risk categorization might be more useful. And thus, an invitation: Do you agree with the above approach? How would you improve it? Or, how would you approach the task of categorizing risk? Send suggestions to jhampton@rims.org.

Jack Hampton ("Executive Forum," p. 54) is the executive director of RIMS, in New York. (jhampton@rims.org)
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Title Annotation:questions to categorize risk areas
Comment:Categorizing Risks.(questions to categorize risk areas)
Author:Hampton, Jack
Publication:Risk Management
Article Type:Brief Article
Geographic Code:1USA
Date:Sep 1, 2001
Words:393
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