What are the Essential Techniques of Risk Management
There are five basic techniques of risk management:
- Loss Prevention and Reduction
- Transfer (through Insurance and Contracts)
Avoidance: Many times it is not possible to completely avoid risk but the possibility should not be overlooked. For example, at the height of a thunderstorm, Physical Plant may not release vehicles for travel until the weather begins to clear, thus avoiding the risk of auto accidents during severe weather. Some buildings on campus have had repeated water problems in some areas. By not allowing storage of records or supplies in those areas, some water damage claims may be avoided.
Retention: At times, based on the likely frequency and severity of the risks presented, retaining the risk or a portion of the risk may be cost-effective even though other methods of handling the risk are available. For example, the University retains the risk of loss to fences, signs, gates and light poles because of the difficulty of enumerating and evaluating all of these types of structures. When losses occur, the cost of repairs is absorbed by the campus maintenance budget, except for those situations involving the negligence of a third party. Although insurance is available, the University retains the risk of loss to most University personal property.
Spreading: It is possible to spread the risk of loss to property and persons. Duplication of records and documents and then storing the duplicate copies in a different location is an example of spreading risk. A small fire in a single room can destroy the entire records of a department's operations. Placing people in a large number of buildings instead of a single facility will help spread the risk of potential loss of life or injury.
Loss Prevention and Reduction: When risk cannot be avoided, the effect of loss can often be minimized in terms of frequency and severity. For example, Risk Management encourages the use of security devices on certain audio visual equipment to reduce the risk of theft. The University requires the purchase of health insurance by students who are studying abroad, so that they might avoid the risk of financial difficulty, should they incur medical expenses in another country.
Transfer: In some cases risk can be transferred to others, usually by contract. When outside organizations use University facilities for public events, they must provide evidence of insurance and name the University as an additional insured under their policy, thereby transferring the risk of the event from the University to the facility user. The purchase of insurance is also referred to as a risk transfer since the policy actually shifts the financial risk of loss, contractually, from the insured entity to the insurance company. Insurance should be the last option and used only after all other techniques have been evaluated.
Contracts: Often vendors and service providers will attempt through a contract to release themselves from all liability for their actions relating to the contract. These are often referred to as "hold harmless or indemnification" clauses. Due to the complexity of interpreting these provisions, the President has delegated contracting authority for the University solely to staff in Contracts & Procurement. The Office of University Risk Management reviews contracts and agreements as requested by Contracts & Procurement to identify and assess risks, evaluate insurance standards, and review hold harmless and indemnification provisions. The Chancellor's Office requires that the University obtain in most instances not only a Certificate of Insurance, but also an Endorsement. Collecting these documents is often the most time consuming aspect of the contracting process.
WHAT ARE THE ESSENTIAL TOOLS OF RISK MANAGEMENT?
Risk identification and assessment should be part of the planning and development of all department and unit programs or activities. To assess the risks posed by a program or activity, take the following steps:
- Identify the tasks associated with the program or activity. For example, the tasks associated with conducting a lab experiment might include traveling to an off-site location, preparing the experiment, conducting the experiment, cleaning up the experiment and disposing any waste.
- Identify the hazards associated with each task. A thorough identification of the tasks involved and the hazards they present is very important. Risks that aren't identified cannot be managed! For example, hazards related to preparing the experiment might include improper set up and lack of appropriate equipment.
- Evaluate and select risk management techniques. The goal is to conduct the program or activity in such a way as to reduce the likelihood that something will go wrong and/or reduce the severity of any losses if something does go wrong. For example, the hazards related to preparing the experiment might be addressed through training and supervision, creating several different experiment stations so that not all of the students are working at the same station, and bringing extra equipment.
- Assess the risks associated with the program or activity with the selected risk controls or transfers in place.
- Determine whether to modify or proceed with the program or activity based on the risk assessment.
- Implement the selected risk management techniques and monitor the results. Designating who will implement the selected risk management measures and setting a time table for completion of those tasks is very important
- "Frequency" and "severity"are used to measure the risk remaining after appropriate risk management techniques have been implemented.
- Activities or programs that include tasks that pose a high severity of loss, i.e. major injuries or death, significant property damage, significant operational interruptions, should be avoided if the frequency or likelihood of a loss occurs regularly or often. Activities with a high severity of loss but a moderate or low frequency of loss must at the least be well-supervised and require participants to sign releases of liability.
- Most of the programs and activities of the University include tasks that pose a moderate severity of loss, i.e. minor injuries, property damage or operational interruptions, and a moderate or low frequency of loss. Nonetheless, these activities should be well-planned and have adequate supervision.
- Activities or programs that include a negligible severity of loss, i.e. injuries that only require first aid or minor medical treatment and little or no property damage, and little likelihood of loss require very little risk management.