RISK MANAGEMENT BASICS
Presented by John Chino, ARM PE, CSRM
Arthur J. Gallagher Risk Management Services, Inc.
OBJECTIVES
Attendees will understand:
• Components of the Risk Management Process• The direct & indirect cost of risk• The benefits of Risk Management• Current loss trends• Risk avoidance techniques
• Manage risks Reasonable application of effective management skills to control internal & external risks
• Reducing organizational risks to an acceptable level
• Good managementIdentify unsatisfactory conditions/practices
WHAT IS RISK MANAGEMENT?
“Locate, assess, and establish effective preventative and corrective measures for elements detrimental to organizational efficiency and effectiveness”
WHAT IS RISK MANAGEMENT’S FUNCTION?
WHY WORRY ABOUT RISKS?
• Direct cost (insured)
• Indirect cost (uninsured)• $1 to $3 - $53 Ratio• Operational budget
$1
$3-$53
IMPACT Example
• Direct Cost $12.4 million annually
• Indirect Cost
$3 X $12.4M = $37.2 million annually
$5 X $12.4M = $62.1 million annually
$10 X $12.4M = $124 million annually
INDIRECT COSTS
• Employee lost time• Employee/crew wages• Overtime/comp time• Cost of hiring
replacement• Cost of training
replacement• Supervisory time
• Investigation time• Legal expenses• Building/equipment
damage• Replacement of
materials/supplies• Decreased output• Over 125 miscellaneous
costs
RISK MANAGEMENT BENEFITS
• More effective and efficient services• Better quality of services• Increased production (more services per dollar)• Decreased operational costs• Reduced cost of risk (direct & indirect)• Reduced waste of resources• Community satisfaction ( happier taxpayer)• Improved employee morale (motivation)
PUBLIC ENTITY MISSIONS• Efficient, Accessible and Effective Government
• A Great place to live, work and play
• Provide solution oriented services to the community through the application of professional skills, adopted plans, and standards which facilitate the growth of the local economy and enhance the quality of life and preserve the natural environment for current and future generations.
RISK MANAGEMENT PROCESS
Five step process
1) Identify risk exposures
2) Analyze risk exposures
3) Select appropriate risk management techniques- risk funding- risk control (avoidance)
4) Implement techniques/measures
5) Monitor results and revise as necessary
RISK IDENTIFICATION 1st Step
• Identify all areas of exposure
• Physical property
• Loss of income/services
• Human resources
• Legal liability
EXERCISE
Risk Identification
SAMPLE EXPOSURE
RISK ANALYSIS 2nd Step
• What can go wrong?• Identify everything that can go wrong
• How severe is it likely to be?
• How frequently is it likely to occur?
• Prioritize (most serious first)
RISK ANALYSIS 2nd step cont.
• Property• Automobiles• Buildings• Equipment
• Property damage• Crime• Weather• Fire• Other
RISK ANALYSIS 2nd step cont.
• Loss of income/services• Operations that produce income
• Taxes• Fees• Other
• Loss of services (work disruption)• Accounting processes/IT• Embezzlement
RISK ANALYSIS 2nd step cont.
• Human Resources• How can staff get hurt/killed
• Office• Field• On travel
RISK ANALYSIS 2nd step cont.
• Legal Liability• Auto, General, Law Enforcement, Civil Rights,
• Land Use, etc.• Protect citizens property• Protect citizens operations• What tasks/activities will get you sued
SAMPLE RISK RANKING CRITERIA
2
Sample – Likelihood
How Likely? % of Time How often? Frequency
5 Certain or Almost Certain
>75% Expected to occur in most circumstances Daily, weekly
4 Likely 50 – 75% Will likely occur in most circumstances Monthly
3 Possible 25 – 50% Fairly likely to occur at some time Once a year
2 Unlikely 5 – 25% Could occur at some time
Once a decade
1 Rare 0 – 5%Will occur only under
special circumstances
10 years or >
RISK AVOIDANCE
AVOIDANCE 3rd Step
• Terminate
• Transfer• Hold Harmless• Indemnification Clause• Defense Clause• Insurance Certificates
• Treat
• Tolerate
DECISION
PROCESS
Identify all sources of
potential loss
Evaluate each risk
TERMINATE
Take action toeliminate risk
TREAT
TOLERATE
TRANSFER
Take action totransfer risk
Monitor and Review Results
Take action to treat risk
Set standardsPolicyTrainingEquipmentServices Accept risk
NO
YESNO
NO
NO
YES
YES
YES
RE-ASSESSSeverity, Probability, & Frequency
IMPLEMENTATION 4th Step
• Build a Team/Create a RM Culture• Policies & procedures• Define responsibilities• Communicate to employees• Train employees• Implement preventative measures
MONITOR 5th Step
• Establish and evaluate performance measures
• Commend and correct individually and organizationally
CONCLUSION
Q & A
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