RISK MANAGEMENT BASICS Presented by John Chino, ARM PE, CSRM Arthur J. Gallagher Risk Management...

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

5Certain 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

timeOnce 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

D

E

C

I

S

I

O

N

P

R

O

C

E

S

S

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-ASSESS

Severity, 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