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Making risk management happen in your organization.

Keith R. Gibson, CRM, is risk manager for Municipal Insurance Association of British Columbia.

It is the goal of every risk manager to be proactive not only in day-to-day operations but in a company's future. Making risk management a reality or a vital aspect of company operations is aptly called "making risk management happen."

A good place to start is with a corporate risk management policy statement, which should be adopted by senior management. If an organization lacks a policy statement, the risk management objectives loses focus. A policy statement should give direction to all levels of management and specify the goals of the organization in relation to risk management.

Making risk management happen can be especially difficult if the risk manager is isolated. If this is the case, the risk manager must attain more visibility, with the support of his or her superior. In addition, tact and diplomacy is usually required, as the risk manager must continually remind his or her superior of the importance of keeping current with management decisions. Other than being visible, it is important to convey to colleagues and senior management that risk management is an increasingly vital and effective management tool.

Getting a Foothold

Selling risk management objectives is the key to making risk management happen in an organization. But before one can sell, he or she must be proficient in risk management techniques, know the company's operations and outline the sales approach. Define which department needs to be addressed. Also, consider political strategies such as to whom or where does the department officially report within the organization. Anticipate obstacles and know the pros and cons of the subject as well as the audience's expectations. Try to overcome objections by listening to and understanding their concerns and opinions, verifying issues and positions and solving their problems.

The timing of the presentation or meeting and its location are also important. Make sure that all participants are committed to attending. Finally, get feedback from them before and after the presentation and qualify and answer in writing questions that were raised.

However, knowing the subject and audience and having interpersonal communications skills does not guarantee that risk management goals will be embraced. Sometimes the proof rests with how well the risk management department handles the organization's exposures and losses.

In his address at the 1987 Canadian Risk Management Conference, then RIMS President Art Bostwick discussed the management-by-walking-around concept.

He explained how it is an excellent tool to make risk management happen. By physically viewing the organization in operation, a risk manager becomes more aware of the operations and gains hands-on experience. Information on the past, present and future objectives of the organization by department and division is essential in risk identification.

Through risk identification, an analysis of the operation by department will reveal the exposures involved and indicate the strengths of various departments. It also provides information on department functions and how they relate to each other, and thereby helps develop the catastrophe plan.

Catastrophe planning is an in-depth identification program requiring the participation of every function within the organization. This plan highlights the equipment, services and facility requirements of every department. With the completion of the risk identification step, recommendations can assist various departments in protecting corporate assets against a potential loss. If there is already a risk identification review in place, it may be time to review that data and update files by analyzing what it takes to get a downed facility operational in the least time.

Obtaining the cooperation and support of other departments is also important. The legal department can review contracts, defend claims, litigate claims against third parties, provide legal opinions and appoint outside counsel. Administration can handle incident notification, asset expansion or acquisition and board reports. The finance department can oversee budgeting, valuation of asset registers, asset expansion or acquisition, financing of claim settlements for both insured and uninsured incidents, insurance premium payments and alternative risk financing. Operating departments can be involved in identification, evaluation, control, incident reporting and internal investigation. Finally, personnel can be responsible for employee benefits, employee safety and workers' compensation.

External resources, namely, attorneys, consultants, insurance brokers and industry associations can help a risk manager analyze and identify exposures. Attorneys can assist with contract review, litigation, legal opinions and judicial reviews and summaries. Consultants can offer general management and risk management advice and provide actuarial and loss control engineering services. Associations offer their members educational programs, industry reviews of identification exposure evaluation and the opportunity to network with other managers facing similar exposures and problems.

Loss Costs

Loss cost allocation is another way to make risk management happen. Most managers are accountable for department budgets. Consequently, if loss costs are allocated back to the responsible departments and department heads are held accountable, they are likely to be receptive to risk management programs.

However, lost cost allocation programs do have problems. Determining fair and equitable distribution of costs can be as simple as charging loss costs to the department or as complicated as pooling arrangements with varying self-insured retention levels for different coverage classes. Department heads may question who is responsible or liable for a loss. They may attempt settlements and try to defend losses, but since these actions are not within their expertise, the result may be additional and inequitable losses.

Another form of loss cost allocation, other than third party losses, is to have the risk management department pay for the cost of repairs and replacement of equipment losses. This ensures that incidents and losses, insured and uninsured, are reported to the risk manager. Whoever has control of the funds is guaranteed that damages will be reported.

Communications is perhaps the most effective tool in risk management. The risk manager should be on top of and able to communicate current events and issues affecting the organization's operation. If the risk manager is a poor or uncreative communicator, risk management programs and techniques will suffer.

Verbal presentations should be clear and concise. Slide presentations should show the organization's facilities and equipment to convey a message. Letters and memorandums should be short and to the point and accompanied by background material to reinforce the subject. Regular newsletters or bulletins can highlight good risk management practices, as well as recent legal developments that affect the organization. In all communications, humor and pictures are effective tools.

Obviously, no risk manager can work in a vacuum. Risk managers require the assistance and cooperation of the entire organization. A risk manger should know how the organization operates and have the necessary educational and professional qualifications.

The risk manager cannot be expected to personally minimize the adverse effects of losses, but rather to act as an adviser and coordinator. In short, the risk manager should be the catalyst to consolidate the efforts of all managers who control the organization. Making risk management happen in an organization requires more than just knowing risk management; it requires ingenuity and creative thinking.
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Gibson, Keith R.
Publication:Risk Management
Date:Apr 1, 1991
Previous Article:How the corporate risk manager contributes to company value.
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