15 Points for Risk Management

Speaking at a series of seminars for executives and graduate students, Robert Abrahamson, executive consultant with A&L Risk Management, Ltd., presented the following 15 points for risk management. Mr. Abrahamson’s suggestions were adapted from the 14 points for organizational management developed by Dr. W. Edwards Deming, the statistician and management guru widely held to be responsible for Japan’s post-war economic recovery. In his work, Dr. Deming stressed that management exists to improve processes so products and services can constantly improve.

The 15 points for risk management are:

1. Create a constancy of purpose toward the improvement of risk management standards and practices. strive to assist in the development of internal risk management controls and strategic planning guidelines for the organization.
2. Adopt a philosophy of continuous improvement and assign a high priority to implementing it.
3. Cease an inordinate dependence on suppliers of insurance and other external services or advice to achieve internal risk management goals and objectives. Establish a proper balance between internal and external expertise so you can maintain control of the risk management process.
4. Reduce the organization's dependence on insurance by improving risk analysis and, if appropriate, considering alternative risk financing techniques.
5. End the practice of awarding your insurance business on the basis of price or long-term relationships. The cost, while important, must be combined with the overall design of a risk management program. Work with selected suppliers to minimize the organization's overall cost of risk (not just its initial insurance cost).
6. Constantly improve every risk management-related activity in the organization to increase the department's overall effectiveness.
7. Implement risk management training and education for key employees, including operating and senior management, since their support is necessary for the success of the program.
8. Improve departmental operations to demonstrate the value of risk management and to help employees do a better job of protecting the organization's assets.
9. Reduce the organization's fear of catastrophic loss through careful risk management, strategic planning and the development, testing and communication of contingency plans. With proper preparation, an organization can withstand disasters and still prosper.
10. Break down traditional barriers between the organization's various departments. People in construction, facilities design and engineering, quality control, sales, operations and the various corporate staff functions must work together to foresee and eliminate risk management problems that are encountered in a company's everyday operations.
11. Avoid the use of slogans, exhortations and targets. Such appeals can portray risk management initiatives as temporary programs (and not ongoing operating strategies). Because risk management is a proactive discipline, it has to become part of a company's continuing operations and an integral part of overall business planning.
12. Institute a program of continuing risk management educations and retraining. Learning new techniques is crucial for professional development and evaluating the effectiveness of the constantly changing methods, materials and services that exist today.
13. When expedient, enlist people to work in cross-functional teams. Corporate risk management is ultimately an organization-wide team effort that should not be hindered by departmental boundaries.
14. Establish a corporate policy statement on risk management to be approved by senior management and communicated throughout the company. The policy statement should outline the organization's risk management objectives and facilitate development of the appropriate procedures.
15. Seize every opportunity to communicate the value of risk management within the organization. This can include participation on committees, periodic reports to management, company newsletters, internal seminars and membership in professional associations. Increasing the internal visibility of the risk management department will benefit you, the organization and the profession.

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