Risk management is the process of identifying, evaluating, and, or assessing risk and then developing techniques to manage the risk. In ideal risk management, a prioritization process is followed whereby the risks with the greatest loss and the greatest chance of occurring are handled first, and risks with lower probability of occurrence and lower loss are managed later.
A first step in the process of managing risk is to identify potential risks. The risks must then be assessed as to their potential severity of loss and to the probability of occurrence.
Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories:
- Avoidance - Don't do it
- Control – Take on the risk but find methods to reduce it
- Accept – Although the poorest form of mitigating risk, accepting the risk is often necessary if the operation is a critical component to your business strategy and profitability.
- Transfer – Transfer the risk to a third party like an insurance company
Contact us if you would like to discuss a risk mitigation strategy with an insurance and risk advisor.