FOR SMALL BUSINESSES, IMPLEMENTING RISK MANAGEMENT SYSTEMS IS WORTH THE COST

BY MATTHEW BRODSKY

Reprinted from GO! Magazine - Inflight Magazine of Air Tran Airways, November 2007

Risk management is a hot topic with the nation’s biggest companies. Its practitioners are prime-time players on the ladder, reporting to CEOs and boards. Listen up, small businesses: You could stand to emulate the big boys and implement a risk management system of your own.

According to Rick Vassar, risk consultant and author of Hide Here Comes the Insurance Guy, a risk manager’s work permeates all levels of the organization. Put simply, risk management is knowing what obstacles could derail your business goals, and planning ways to avoid, minimize or just plain survive them. It’s as important for small companies as big ones, says Joy Gänder, owner of an eponymous consulting firm—yet small businesses often don’t give the practice the attention it deserves...

Instead, small businesses tend to relegate the task down into their organization, Gänder says. Or the very top person—the owner—gets stuck with it. The reason? They simply see risk management as insurance, a boring, confusing commodity that’s not worth the cost. “The average business owner can’t stand dealing with property/casualty insurance,” Gänder says.

Keith Pizer, co-owner of a New Jersey-based graphic design firm named 1 Trick Pony, got stuck with the job of buying insurance. He laughs about it now. “You don’t realize how many people you know in insurance until you need it,” he says.

Pizer’s broker helped him to get coverage that matches that of other companies of his size and in his industry. Gänder recommends this sort of comparison shopping for her clients.

She also can take it one step further by factoring in an owner’s risk appetite and balance sheet. If a client has good cash flow and can stomach having more on the line, Gänder might recommend raising deductibles for, say, auto coverage from $100 to $1,000. This increase means a decrease in premium.

But risk management is about more than just insurance. “Risk management is an ongoing process… and it involves a lot of common sense,” Gänder says.

Risk control is all about identifying dangers— called “exposures” in industry parlance—that can threaten business success. Th ink floods, tornadoes, fires. Think lawsuits from disgruntled clients or employees. Think employee injuries. You know your business. What can get in its way?

Figure out ways to eliminate, mitigate and/or finance these exposures. Then implement. Insurance is just one way. Risk control is another. Have a disaster preparedness plan. Review your employee handbook. Back up your servers off -site.

This all might sound complicated and costly, but it’s not. “The biggest misconception is that a risk management program is too expensive,” Vassar says.

Perry Ballard, proprietor of Ballard Safety Consulting, came to his risk-control methods, such as contract disclaimers, in part through his peers and from learning from others’ mistakes. He hasn’t had a disastrous lawsuit or other claim to date. Ballard also got advise from Vassar on how to set up his liability insurance. “You need someone to come in from the outside and look at your exposure,” Ballard says.

Of course, small companies might not be up for hiring a risk consultant. They can trust in their agents to steer them right, or tap into the wealth of risk resources on the internet, including the National Association of Insurance Commissioners, FEMA, the Insurance Information Institute and the Small Business Association.

In the end, all successful small companies get to the point where they have to do something about risk. “As they grow, most small businesses realize that they need to manage their insurance program,”

Vassar says. “Those who make that commitment continue to grow; those who don’t usually remain small or don’t survive at all.”

RISK MANAGEMENT PRACTICES TO REMEMBER

• Take it seriously. Hand the responsibility to an important go-getter. “It’s helpful to elevate risk management and give it more visibility,” consultant Joy Gänder says.

• Know your insurance policy. Compare yours with similar companies. Ensure your coverage is based on replacement costs for damaged items, not book values. Consider coverage for exposures particular to you—i.e. flood coverage near the coast or business interruption for lost income.

• Let your insurer know you. Perry Ballard, a West Virginia business owner, says he shares all his loss-control techniques with insurers. They like that.

• Claims happen, and when they do, deal with them. Consultant Rick Vassar says companies fail to report claims on time or give insurers enough information, which increases insurers’ costs—and they don’t like that.

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