Risky business: risk management strategies during tough economic times.

• Author: Barbour, Tracy
• Position: RISK MANAGEMENT

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Dealing with risk is an inherent part of running any organization. Yet, risk management is one of the most overlooked areas in business--particularly with smaller enterprises.

Technically, risk management is the broad term given for the business discipline that protects the assets and profits of an organization by reducing the potential for loss before it happens, mitigating the impact of a loss if it occurs and executing a swift recovery after the loss, according to the Risk and Insurance Management Society Inc. More specifically, it involves a number of steps, including risk identification, the measurement and evaluation of exposures, exposure reduction or elimination, risk reporting and risk transfer and/or financing for losses that may occur.

Simply, risk management is about protecting people, property and other assets. And an effective risk management system is an ongoing process of analysis, communication and modification.

While risks will vary from one organization to the next, many businesses think of risk management in relation to insurance. Some of the most common types of insurance businesses use to protect their assets are workers' compensation, property, automobile and general liability insurance.

BROADER THAN INSURANCE

Risk management is much broader than addressing risk transfer and loss control through insurance, according to Dave Eckroth, a senior vice president with Parker, Smith & Feek's Anchorage office. The Bellevue, Wash.-based firm is one of the top 100 brokers in Alaska and was recently named the Agency of the Year by Rough Notes Co., a leading insurance publisher. The company was selected for the honor from more than 50,000 independent agencies nationwide.

"Risk management really addresses what I refer to as the total cost of risk, which goes well beyond the cost of an insurance premium," Eckroth says.

For instance, risk management can encompass the contractual transfer of risk, such as between a contractor and its subcontractors. It can also include the cost of mitigating risk by making an investment in safety equipment, reducing the number of workers' compensation claims and returning an employee to work sooner to minimize the severity of loss.

And from a slightly different perspective, risk management can cover losses that an organization decides to self insure--retained loss. For example, a company with a large fleet of autos could decide to insure for liability instead of full insurance. "Those risks which you can potentially sustain are the types that are better to self insure," Eckroth says. "The risks which can cause substantial harm to the organization, you would be better off transferring elsewhere."

The job of evaluating risk is...