Do You Need To Formalize Your Risk Management?

Rob O'Regan -- Expert Business Source, 4/25/2007 6:34:00 AM

Whether you realize it or not, the insurance policies you have taken out for your business form the basis of a risk-management strategy. Established business owners may want to consider creating a more formal program for managing their business risk.

The U.S. Small Business Administration and The Hartford have published Managing Your Risk, a guide for small business owners looking to shore up their protection against various types of risk. The guide offers six steps for a successful risk-management program:

Make a commitment to provide the resources, leadership and support to implement and maintain a company-wide program.
Review your insurance protection with your agent to make sure you understand what is and is not covered.
Consider loss control an operating issue, adopting a policy that defines accidents, incidents and insurance losses as you would any other operating problem that hinders productivity and profit.
Make it someone’s job to identify and control hazards at your business.
Identify hazards and dangerous conditions in your business.
Put a plan in place to minimize or avoid the hazards and dangerous conditions you have identified.
Monitor your success and seek improvements as needed.

The guide also lists the critical elements to examine when assessing your risk:

Property
General liability
Product liability
Computers and E-commerce risks
Disaster planning
Workers’ compensation
Motor vehicles

Wherever possible, companies should consider transferring risk to other parties, such as lessors, vendors, subcontractors – even customers. The guide offers tips on how to transfer your business risk to others:

Lease business property and equipment. Depending on the leasing arrangement, your property and liability risks may be assumed by the lessor.
Use “just in time” delivery. If your business permits, and deliveries are not time sensitive, you might want to require vendors to store merchandise and materials at their sites until you need them. Or, if you are in the packaged goods trade, ask your supplier to drop-ship merchandise directly to your customers.
Transfer risk to your customer. Your lawyer can discuss ways to transfer ownership and risk of goods that have been sold to a customer but which remain on your premises. Also, pay careful attention to your warranties to make sure they protect you.
Hire the right subcontractors. Employing knowledgeable, properly insured subcontractors can reduce your workers’ compensation risks and minimize high-risk product liability exposures. Request “certificates of insurance” to verify that your subcontractors have adequate insurance.
Consider “hold harmless” agreements. A “hold harmless” agreement is a risk-management tool that shifts legal and financial risk from you to another party. Consult your lawyer about these types of contracts.
Don’t try to be all things to all people. Let your competitors take the chances on potentially dangerous projects or ventures.