Risk Management for Small Businesses and Non-Profit Organizations 101 (Part 2)



In its purest form, risk management is simply the process of:

     1.  Identifying risks.

     2.  Identifying the potential impact of those risks.

     3.  Deciding how to eliminate or minimize the potential impact of those risks.

 So, when I am helping a client manage legal risks, I have two general goals in mind.  They are (a) to avoid legal liability so that my client isn’t taking any risks he/she/it does not need to (through risk shifting provisions in a contract, for example) and (b) to make sure that my client can survive the potential detrimental impact of those legal liability risks which cannot be avoided (through adequate insurance coverage, for example). 

 Large corporations have their own in-house risk management staff and in-house attorneys to deal with the minutia.  Individuals, small businesses and community organizations don’t have any of that support.  Which may leave you feeling like “tag, you’re it”. 

Sometimes handling your own risk management is a simple task.  You’re going sky diving, which involves the risk of hurtling to the ground from a great height, striking it and becoming a human pancake, so you use a parachute, making sure that it has been folded and packed correctly, that you are wearing it securely, and that you have a backup chute.  There, that risk is managed pretty easily.   But that’s only because (a) there’s no uncertainty about the nature of the risk or its potential magnitude and (b) there is really only one way to minimize it.  

(To tell you the truth, if it were me this risk would be avoided altogether, since I would simply not jump – or better yet, I would simply not get in the plane – but hey, that’s just me, and anyway, that would have been a lousy example for this blog post.)

Most business activities involve more uncertainty about the legal risks involved, which in turn means that deciding how to eliminate or minimize the potential impact of those uncertain risks will necessarily involve a combination of interlocking legal mechanisms.  And like a puzzle, when it all fits together right, it’s a pretty picture, and it makes sense.  Which makes me happy.

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