A risk management specialist identifies potential risks and decides whether to avoid them or finance potential losses. They protect organizations from accidental loss of assets or financial loss due to injury or damage to third parties. The specialist must identify all areas of exposure, find solutions, and implement selected programs. Insurance is a common solution, but the cost must be weighed against the likelihood of loss. Successes and objectively measured results are important in supporting risk management techniques.
A risk management specialist is employed by an organization to manage its exposure to various operational risks that may cause damage or loss to assets or the ability to maintain operating cash flow. This professional first identifies all potential risk exposures and then decides whether the organization should avoid those risks altogether or how it should finance the resulting losses. The risk management specialist’s primary responsibility is to protect the organization against accidental loss that will cause physical damage to the organization’s assets or financial loss incurred as a result of injury or damage to a third party. All organizations face the possibility of accidental loss of assets or liabilities 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 estate or personal property, he or she must consider what could cause harm. Common exposures to loss are fire and theft.
In terms of liability, the risk manager must consider which operations of the organization could result in injury or damage to others. If the company owns automobiles, the risk of collisions creates liabilities. In the case of a manufacturer, its product presents the most significant source of liability risk. The risk management specialist must identify all these exposures to manage the results.
The second step in the risk management process is finding a solution to these exposures. In addition to completely avoiding exposure, which may only be feasible under limited circumstances, the risk management specialist must determine how to finance potential losses. A common technique is to use insurance, but the risk management specialist will need to weigh 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 insured withholdings. Assessing the optimal 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 assessing the cost and benefit of each risk management technique. Successes and objectively measured results carry significant weight with senior management in supporting a risk management technique and the role of the risk management function. As business operations evolve, it will be necessary to adjust selected techniques to meet the needs of the organization. In addition, the insurance market continues to experience business cycles that will affect financing decisions.
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