An effective risk management strategy will identify and manage risks that can prevent the business from meeting its strategic objectives.
Decisions will need to be made with respect to which risks are acceptable, which risks you can mitigate, and which risks you decide to transfer. Meeting your growth targets will often take up the vast majority of your time and focus. However, business success will rarely come without having to overcome a few challenges along the way.
How your business decides to apply a risk management strategy can often be the difference between success and failure.
How to develop a risk management strategy?
The development of a risk management strategy will assist your business understand its risk appetite. Communicating that message to your staff will set the tone and form an important part of your company culture.
A risk management strategy will then be emeded within your internal risk management process. The below identifies key topics that businesses should identify and evaluate when developing their own risk management strategy:
Your risk management strategy should appreciate you have a legal obligation to take reasonable steps to prevent accidents or harm to your employees. The Health and Safety Executive offers a useful guide to your obligations required under UK law, including undertaking a risk assessment and purchasing employers liability insurance
If your business interacts with members of the public, you also have a duty of care to maintain a safe environment. This will include any customers, suppliers and contractors. You do not have a legal requirement to purchase public liability insurance, but it is commonly purchased to mitigate the cost of potential compensation claims.
Dependent upon your business activities you may have additional safety risks you need to consider within your risk management strategy. For example, the use of industrial machinery and engineering inspections.
Your risk management strategy should make sure you have sufficient cashflow to manage your operation and pay your debts is critical to the success of your business. The liquidity of your business will allow for you to meet your obligations and further invest in delivering on your strategic objectives.
Your risk management strategy should consider potential shocks to your cashflow that may require significant outlays. This could include high value customers not meeting their obligations under contract or civil ligation against your business for a breach of their professional duty.
Surety bond insurance can assist your business with customers which are unable to make payment. Whereas, professional indemnity insurance
can offer protection against legal costs incurred in defending allegations and will pay any damages awarded.
Your risk management strategy should appreciate there are around 90 regulators in the UK with ranging roles and responsibilities, from protecting consumers and promoting the effective functioning of markets to wider responsibilities around the environment and safety.
Regulators are increasingly active in pursing businesses that do not comply with their legal requirements. Many businesses believe they are too small to become the target of regulatory investigations, fines or penalties. However, your risk management strategy should accept that regulators will pursue wrongdoing no matter the size of the organisation.
Directors and officer’s insurance
can offer protection against civil, criminal and regulatory proceedings for individuals while acting in a managerial capacity on behalf of the company. Whereas, corporate legal liability offered under a management liability insurance policy can protect the business from civil litigation and regulatory investigations.
Technology can offer wide range of benefits from improved productivity, flexible working to reduced costs. However, in an increasingly digital world your risk management strategy should consider your reliance and exposure to security risks.
Data breaches and cyber attacks are increasing in terms of size and frequency. Any risk management strategy will need to take into account cyber security, insurance protection and contingency planning.
Cyber insurance can offer protection and access to specialists to assist with mitigating the damage of security and privacy breaches. Whereas, crime insurance can offer protection from the theft of property and money and both covers can be combined under a cyber crime insurance policy.
Your risk management strategy should take into consideration the assets that your business owns can be tangible goods, such as vehicles, buildings, computers, stock, or intangible items, such as intellectual property.
A risk management strategy should consider your acceptable risk level of damage to your business assets. Fires, floods, explosions and riots, are just some of the risks your business assets maybe exposed.
Property damage insurance under a commercial combined insurance policy can protect your company’s buildings and contents against loss or damage from a range of insured perils. Consideration should also be made to business interruption insurance that protect against the loss of income from being unable to trade.
Why risk transfer is important part of your risk management strategy?
When risks that have the potential to cause a significant financial impact but the chance of occurring is low, they are best transferred from your balance sheet.
Without business insurance, companies would be required to maintain increased capital reserves to protect against unforeseen events. The pooling of insurance premium therefore provides an effective risk management strategy to spread the cost and reduce the financial impact.
Other risk transfer mechanisms that may form part of your risk management strategy include, indemnification agreements, sometimes referred to as hold-harmless agreements, used to transfer risk of loss, damage or liability via a contract from one party to another.