A risk management specialist is employed by an organization to manage its exposure to various operational risks that can cause damage or loss to assets or the ability to maintain operational cash flow. This professional first identifies all the potential exposures to risk, and then decides whether the organization should completely avoid those risks or how it should fund the ensuing losses. The primary responsibility of the risk management specialist is to protect the organization from accidental losses that will cause physical damage to the organization's assets or financial losses incurred as result of injury or damage to third parties. All organizations face the possibility of accidental loss to assets or liability to third parties.
The first step in the risk management process is to identify all areas in which a company may be exposed to loss. For example, in terms of physical assets such as real property or personal property, he or she should consider what could possibly cause damage. Common exposures to loss are fire and theft.
In terms of liability, the risk manager should consider what operations of the organization can result in injury or damage to third parties. If the company owns automobiles, the risk of collisions creates liability. In the case of a manufacturer, its product presents the most significant source of liability risk. The risk management specialist must identify all of these exposures in order to manage the outcomes.
The second step in the risk management process is to find a solution to these exposures. Other than completely avoiding the exposure, which may only be feasible in limited circumstances, the risk management specialist must determine how to fund for potential losses. A common technique is the use of insurance, but the risk management specialist will need to evaluate the cost of insurance versus the benefit or likelihood of loss. One solution is to balance the use of insurance with self-funding in the form of deductibles or self-insured retentions. The evaluation of the ideal amount retained and transferred is a primary responsibility of the risk management professional.
The last step in the risk management process is to implement the selected program. In larger organizations with more than one individual dedicated to risk management, the assistance of a risk analyst is helpful in evaluating the cost and benefit of each risk management technique. Objectively measured successes and outcomes carry significant weight with senior management in supporting a risk management technique and the role of the risk management function. As the business operations evolve, it will be necessary to adjust the selected techniques to meet the organization's need. Additionally, the insurance market continues to undergo business cycles that will affect funding decisions.
