The “Why and How” of Risk Management

IRMI (the International Risk Management Institute, Inc.) recently published an excellent “white paper” covering the basic principals of business risk management.  You can find it here.  It is somewhat lengthy (approximately 70 pages), but well worth the read. 

Described as an “illustrative introduction to risk management for business executives”, the author (George L. Head, Ph.D., CPCU, ARM, CSP, CLU) begins by asking the reader to consider a hypothetical scenario (a fire causing the near collapse, and ultimate demolition, of a 2-story concrete garage supporting a 5-story, 80-unit apartment complex).  This factual scenario is then used to provide a “concrete foundation” (pardon the pun) from which the author explains the basic “whys and hows” of risk management for business organizations.  

One of the things I particulary like about the paper is that, in explaining “Why We Manage Risk”, Dr. Head includes “Preparing for Opportunities”, and puts it right up there near the top of the list (second only to “Safeguarding Resources”).  The positive aspect of business risk (the fact that business risk is necessary to the creation of business opportunities) is rarely mentioned, much less highlighted, in discussions of business risk management.  My most successful clients understand this key point and are careful to put themselves in the best position possible to take advantage of business opportunities by effectively managing the risks inherent in those opportunities, through appropriate insurance coverage and contractual risk transfer (the basics of which are also discussed in this paper).

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