Risk Management Plan

All businesses and non-profit organizations face the risk of unexpected incidents, such as a natural disaster, loss of funds through theft, or injury to staff, customers, or visitors on their premises. Any of these events can cost your business money and potentially cause a permanent closure, which is why effectively managing risks through risk management planning is essential.

An enterprise risk management plan can help you prepare for the unexpected and protect your business from long-term damage. To learn more about risk assessment and how to build a risk management strategy, stick around.

What is a risk management plan?

Risk management is the process of identifying possible risks, problems or disasters and then implementing mitigation measures before they happen. A risk management plan, also known as a risk response plan, is a written document that details the organization's risk management process.

The stakeholders of a business or organization, along with organizational leaders, key employees, and project managers, can proactively identify and evaluate the impact of all potential financial risks while simultaneously allowing a project manager to monitor risks effectively as a project progresses.

What are the types of risks to consider?

There are three main types of business risks or business claims scenarios to consider when creating a risk management plan:

Hazard risks

Hazard risk is the most common that comes to mind and includes anything that is a physical loss. Examples of hazard risks include slips and falls, job site injuries, natural disasters, mechanical breakdowns, terrorism, and pandemics.

Business risks

Business risks affect the finances and operations of a company, including compliance issues, processes and procedures, aging population, absenteeism, sexual misconduct and abuse, and retention.

Strategic risks

Strategic risks can impact the value or worth of your company. Usually, the issues arising from strategic risks are longer term, for example it can take years to improve a company’s culture in order to better manage the risk of high employee turnover.

Other examples of strategic risks include corporate reputation, ways to improve employee well-being, making your large or small business more accessible, enterprise or small business health equity strategies, cyber and technology risks, low productivity, employee engagement, and succession.

Understanding risk

To effectively draft a risk management plan, it’s important to have a firm grasp of the word risk. A risk is an uncertain event that, if materialized, would have either a positive or negative effect. Risks are events that might happen rather than things that have already happened.

Though many of us are comfortable with a certain amount of risk in our everyday lives, businesses must prepare for all outcomes. That is part of the reason risk management solutions are so important for businesses. To identify potential risks your business faces is only half the battle. From there, you must prioritize all of the identified risks based on a risk breakdown structure (i.e. risk likelihood).

The three elements of all known risks

When developing a risk management plan, your business must consider the project risk itself, along with the possible consequence(s) of the risk and the probability of it occurring. The project risk, the consequence, and the probabilities are the three elements of every potential risk.

First, the potential risk itself is the event that might occur, and it should always be clearly defined. Meanwhile, the consequences of the risk are also important so your team can understand the magnitude and urgency of what they might need to respond to.

Finally, the probability of the risk, which should be calculated as accurately as possible, helps your team determine an appropriate response to the risk and its possible outcomes.

Keep in mind that not all risks have negative consequences. A risk is simply an uncertain event or condition that has the potential to impact your budget, project timeline, or the quality of your work. This impact could be positive or negative but should nonetheless be included in your project risk management plans.

Three types of risks

Now that you understand the three elements of every risk let’s dive into the three categories. While all risks are uncertain, not all are unforeseeable. The three types of risk are as follows:

A known risk

A known risk is one that is acknowledged by team members and obvious early on (e.g. budget constraints, material shortages, opposing viewpoints, etc.).

An unknown risk

An unknown risk may not be clear in the planning stages or only known by a small number of people. Therefore, identifying unknown risks is a vital part of any risk management plan.

An unknowable risk

Lastly, an unknowable is one that any reasonable person would not anticipate. It typically comes as a surprise to most team members involved (e.g. a sudden illness, natural disaster, accident, or system failure).

Overall, the purpose of a risk management plan is to get ahead of any new risks and all potential risks. This includes both negative and positive risks, as well as risks in each category above (known, unknown, and unknowable).

Breaking down risk types further

After identifying which ‘type’ of risk you are facing, it can be broken down further into other categories, including physical, location, human and technology that come in the form of project risk management tools:

Physical risks

Physical risks are risks that relate to the physical space in which your business operates. Physical risks are often known as building risks. One of the most common examples is fire. To manage physical risks (as well as the risks they pose to your employees), all businesses must take the necessary safety precautions.

This includes installing fire alarms and smoke detectors throughout the office, making sure all exits are marked, ensuring all team members from senior management to project stakeholders know the exit locations and address of the building to give a 911 operator, and installing a sprinkler system for additional protection.

It’s also important to have a clear emergency plan that employees are informed of, detailing how and when to leave the building in case of an evacuation.

Location risks

Location risks share some similarities to physical risks, except they do not take place in your office space but rather near it. Examples of location risks include nearby fires, floods, earthquakes, tornadoes, hurricanes, storms, or other natural disasters. Prioritizing the safety of your employees is crucial.

Therefore, your business’s risk management plan should involve employees familiarizing themselves with the local streets around the office. Certain individuals should also be tasked with keeping a sufficient supply of fuel in their vehicles. In addition, liability or commercial property insurance could be helpful to mitigate the financial impact of a location risk event.

Human risks

Another common type of risk is human risk. There are many types of human risk. For example, employees suffering from alcohol or drug abuse may pose a risk to your organization. Pro tip: contact BrokerLink to learn more about insurance options, as some business policies may provide partial coverage for the cost of treatment or rehabilitation.

Beyond drug and alcohol abuse, human risks that businesses might want to prepare for include common workplace crimes like theft, fraud, and embezzlement. Thorough background checks and double-signature requirements for all monetary transactions can help mitigate these risks.

Finally, illnesses or injuries in the workforce are two more examples of human risks. Businesses should have backup personnel ready to take on the workload of another employee if they are unable to carry on due to a health-related issue.

Technology risks

Lastly, technology risks are only mounting. With nearly all businesses dependent on some element of technology to function, a single power outage could wreak havoc on your operation.

An example of a way to manage this risk is by purchasing auxiliary gas-driven backup generators to use in the event that a power outage causes your main system to fail. A backup generator can keep your organization going until power is restored.

Protect your valuable assets and secure your future with a comprehensive Risk Management Plan from BrokerLink Insurance. Our expert team is ready to guide you through tailored solutions designed to meet your unique needs. Don't wait—take the first step towards peace of mind. Contact BrokerLink Insurance and get started today!

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Benefits of a risk management plan

The process of developing a project risk management can be beneficial to your business:

A risk management plan helps your company identify risk

Working through the risk management plan process with your team will help you to brainstorm and identify key risks that impact your business now and emerging risks that may have an impact at a future date. Risk awareness is a helpful practice and the first step to help your business be prepared.

A risk management plan can help your bottom line

Managing your risk can be a smart financial choice for business owners. When risks are minimized, the money spent on losses can be saved. For example, if the risk of theft is high in your area, training your staff and purchasing the necessary security equipment can reduce that risk. If the instance of theft declines, so too will the cost of your continual repairs or replacement of stolen items – that money will be saved.

A risk management plan makes for consistent and efficient operations

Implementing detailed risk plans throughout your organization and then training your staff on those procedures can ensure safe and efficient operations. A culture of risk is created within your organization where all staff have a heightened awareness of the risks your business faces, and they work together to reduce those risks.

A risk management plan leads to more satisfied customers

Risk management is often synonymous with safety. Just by making risk management a priority, your premises will automatically feel like a safe environment. Your customers will know that their safety is at the top of their minds and may be more willing to engage with your business.

Having a risk management plan is fiscally prudent

A risk management plan can help you make careful financial decisions to avoid the impact of unnecessary risks on your business and complex projects.

A risk management plan improves a company’s brand

Brand reputation carries a lot of weight. A company that has considered its risks with project stakeholders and project management team usually promotes a safer work environment, leading to staff and customers who are more willing to promote the brand.

How to create an effective risk management plan for your business

Building a robust risk management plan can help position your business to not only survive but succeed when unforeseen circumstances arise. The steps below illustrate how to create a risk management plan that works for your business:

1. Set objectives

Establishing objectives helps the organization align the risk management process with their goals.

2. Risk awareness: identify risks

The second step is meeting with stakeholders (including your insurance advisor) who are committed to improving the risk mindset of your organization. Ask yourselves: what can go wrong? Make a list and identify the many risks that could impact your business.

3. Risk assessment: prioritize risks

Once you have a list you’re satisfied with, start to prioritize the risks in order of the ones most likely to occur with the highest impact. Create a rating scale to help you measure this. It might be overwhelming to tackle the entire list, so set a goal and tackle those with the highest likelihood and greatest impact. Also, consider which risks align with your company objectives. Don’t scrap the rest of the list because sometimes the priority of risk may shift.

4. Risk assessment matrix: evaluate the risk

Once a risk is prioritized, put an estimated dollar value beside each risk to quantify how much it may cost your business should this risk occur. While some aspects of risk could be covered by insurance, there may be components that are not covered yet, still costing your business money.

What is the cost of staff hours and salary dedicated to managing the consequences of a claim? What is the cost of disengaged employees and lost productivity due to poor company culture, employee wellness or harassment? What is the cost of a poor brand reputation?

How to evaluate risk:

Consider how costly the risk of high employee turnover can be to a business if you need to hire new employees every six to eight months. How can a plan be created to mitigate this risk and save the company money? Improving employee engagement and creating a better company culture could help your business retain its employees.

5. Risk Tolerance

Once your risk management team members calculate the estimated cost for each risk, you can assign a strategy for managing that risk. Here are five strategies for managing risk:

Prevent or avoid

These are usually more serious risks that you want to prevent from happening as much as possible.

Risk mitigation

Some risks are difficult to prevent; however, their impact can be reduced or mitigated with a good risk management plan and trained staff.

Risk transfer

Move the risk from one place to another or avoid responsibility for it.

Finance

This is where insurance placement falls. Some risks are better insured.

Assume

Some risks are so minor or seen as a regular occurrence of business that paying out of pocket is a risk that you can take should an incident happen.

Each of these strategies has its advantages and disadvantages. That’s why evaluating each risk and understanding the best strategy to manage it can help when creating your risk management plan.

6. Risk management plan

The final step is to create a plan for each risk that you have evaluated. The document contains the details of the risk assessment, risk analysis and the tolerance or mitigation strategies for the risk. It also highlights policies and procedures for how you plan to mitigate the risk and can help when training your staff.

Best practices to ensure the success of your risk management plan

Risk management plans are crucial to the success of any business. This means that not only is it good practice to create a risk management plan, but you must also do what you can to maintain it. After all, the risks to your business are constantly evolving, which means your risk management plan should evolve along with it.

Generally speaking, risk management plans fail for one of three reasons: an insufficient budget, modelling errors, or ignoring the risks. But there are key ways you can avoid falling into some of these traps, namely, by regularly monitoring your plan.

If you continue to evaluate and examine your risks, you can amend your plan to address said risks. As you discover new risks, use the guide above to help you identify, prioritize, evaluate, and maintain the risk.

The importance of risk management

Risk management plans have so many benefits, from helping your business understand its bottom line to ensuring fiscal prudence. With time, a solid risk management plan can minimize overhead costs and get your teams working smarter, more efficiently, and more productively. Plus, it will allow your team to put out small fires before they grow. The reality is that avoiding risk is impossible, so in order to thrive, businesses must learn to adapt and prepare for various outcomes.

Resiliency is a key component of any successful business, and that’s exactly what risk management builds. Though we can’t predict the future, a risk management plan can help businesses prepare for and respond to uncertain events at the moment.

Create a risk management culture in your business

Risk is everyone’s responsibility! However, it starts from the top. When management is engaged and committed to creating a culture that understands and identifies risks, it also promotes safety.

If your staff is trained from day one to work safely, the culture of your business will change. Risk management is not just about safe work. It’s a mindset: if you work safe, you think safe. Employees won’t just walk by the sign that is about to fall, and they’ll take the necessary action to reduce or remove the hazard until you can fix it. If you have a workplace where visitors and staff feel safe, they’ll return.

The role of insurance in risk management

Insurance coupled with a risk management plan can help to ensure your business has the added protection it needs when the unexpected occurs with a risk reduction plan.

As a business owner, you work hard to avoid a multitude of risks daily. Some of these risks, like a natural disaster, can devastate a business, even forcing it to close permanently. Insurance can provide financial security to help keep your business afloat, even after the unthinkable happens.

In addition to having insurance, having a robust risk management plan can help to minimize your financial losses further when you submit a claim.

Insuring against potential risks

If you understand the importance of a risk management plan, then you can likely understand the role of business insurance. Similar to a risk management plan, insurance is a way to manage and mitigate potential risks. Consider the following policies to protect your enterprise against different types of business liabilities:

• Business general liability
• Business auto insurance
• insuring business vehicles
• Business interruption
• Business professional services
• Home business insurance
• Business property insurance
• Cyber insurance for business

Protect your assets with the right insurance coverage

Now that you have a better understanding of the importance of a risk management plan to your business, it’s time to support it with the right insurance coverage.

At BrokerLink, our business is your business. Our insurance advisors also understand business risk and are here to answer your questions. Manage risks today by giving BrokerLink a call directly or by visiting us at one of our locations across Canada today.

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Risk management plan FAQs

Is my business covered against employee dishonesty?

When it comes to employee dishonesty, is your business covered? With the right response plan and business insurance in place, risk responses to employee dishonesty can be handled with care. To address risks in your contingency plans, speak with your insurance company, which can offer mitigation strategies and policies to protect enterprise interests.

How can I find the right business insurance?

If you're wondering, "What is the right insurance policy for my business?" you're not alone. To ensure your business is protected against all the potential risks out there, speak with your insurance company when formulating your risk assessment and risk response plan so they can help you acquire tailored coverage based on the unique risk events associated with your business.

If you have any questions, contact one of our local branches.