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How do you Evaluate and Manage Risk?

August 12, 2011

It seems like every day there is an event, whether domestically or internationally, that has an impact on the world economy. Whether it’s earthquakes in Japan, uprisings in the Middle East, or floods in the heartland of the country, there always seems to be something happening that potentially will have an impact on your business. Knowing what’s coming next is certainly not something you have the ability to predict, but having a plan in place BEFORE it happens will make responding to it a lot less painful.

It seems like every day there is an event, whether domestically or internationally, that has an impact on the world economy. Whether it’s earthquakes in Japan, uprisings in the Middle East, or floods in the heartland of the country, there always seems to be something happening that potentially will have an impact on your business. Knowing what’s coming next is certainly not something you have the ability to predict, but having a plan in place BEFORE it happens will make responding to it a lot less painful.

In recent years, larger organizations have been shifting the responsibility of managing a company’s risk to a Chief Risk Officer. The evolution of the global marketplace has forced these companies to shift from analyzing risk on a periodic basis to a daily routine, always being prepared in the event the unexpected were to occur. That’s all well and good if your company is of the size that would allow for such a position to be warranted, but, for most of you, that probably isn’t the case. Therefore, what are you supposed to do?

You can look back to my previous posts to see how to protect yourself from internal fraud, which is obviously a big risk that a company can easily analyze and implement measures to prevent and detect. But that is only one area where your company is exposed. By adopting a policy to perform a complete risk assessment analysis on at least an annual basis, and periodically reviewing that analysis to ensure that all of your bases continued to be covered, you will be prepared react should the unexpected happen.

If you haven’t gone through such an exercise in the past, this may be a time consuming and potentially frustrating process. You will need to breakdown all of the “mission critical” aspects of your business and analyze them both individually and in the aggregate to make sure you are evaluating all aspects of exposure. This process will obviously be different depending on the type of business, and may require you to look to your consultants for assistance (including your insurance advisors, attorneys, accountants, or others). It is critical that this is an “all in” effort by all involved, and could potentially include employees from all levels within your organization.

By formalizing the process, you will not only have all of the information in one place, but you will be able to effectively manage, and delegate management of, these risks appropriately.

Stay tuned for my next post “Top 10 Areas to Evaluate in Your Risk Assessment”. If you need any help with this process, please contact me 401-274-2001.

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