Here’s Why You Might Be Overpaying for Risk Management

risk-management

by Homerun Nievera, CDE | Negosentro.com |

Most business operators are aware of the need to manage risk. However, the drive to stay ahead of potential calamities is by no means unique to for-profit companies. In this post, we’ll occasionally refer to standard insurance policies as a form of risk management, as this is a relatable correlative with which most have significant experience. Furthermore, virtually any entity that takes out some sort of insurance policy – from a multinational corporation to a private citizen – does so with the hope of managing risks.

However, risk management is about much more than staying ahead of potential financial losses. For example, think of a person who plans on driving a car. Any responsible driver would take out a car insurance policy that would cover both damage to the car and medical expenses for themselves and any passengers. But this is only one consideration. They may also invest in defensive driving lessons, airbags and seatbelts. All of these would be considered forms of risk management.

But what if that same person decided to take a mechanic’s course so that they could fix any potential problems with the car should it break down? What if they went a step further enrolled in a wilderness survival course just in case they found themselves stranded in a remote location due to a breakdown? While there may be an unusual situation in which these measures would pay off, most people would agree that this level of risk management is taking the entire ordeal more than a bit too far.

From an organisational standpoint, it’s worth taking a step back to consider whether or not you are paying too much for risk management. Are you doing the equivalent to of hiring a full-time private physician when the only feasible risks you’re facing are minor scrapes and bruises?

Consult the Experts

First and foremost, large-scale risk management is better left to a professional firm. Charter a third-party risk management specialist to assess and advise your organisation. Seeking Lloyd’s risk management advice (or a consultation from a similar firm) is a good place to start. Firms like this have honed risk management into a finely tuned science. They’ll be able to tell you where you should be focusing your resources, as well as point out areas where you can cut back.

One of the likeliest ways to overpay for risk management is to over-manage potential problems. The easiest way to illustrate this point is in the context of an insurance policy. Imagine taking out high-performance-vehicle auto insurance cover to protect a car worth less than £1,000. Even if you were involved in an accident that totalled the vehicle, high-level coverage would be complete waste. You’re better off placing £1,000 in a savings account and taking out liability coverage just in case you cause an accident that wrecks someone else’s car.

Risk management specialists apply this sort of thinking to highly complex systems. While most of us have no need to consult the experts when it comes to insuring a vehicle, understanding, assessing and mitigating potential risks becomes much more difficult at top organisational and procedural levels. This is where the experts could make a profound difference.

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photo-homer nievera

Homerun Nievera is a serial techpreneur, digital marketer and professional speaker.

Apart from managing tech enterprises, Homerun is the publisher of a blogazine network that delivers niche content to its audience.

He also a Certified Distance Educator from the University of the Philippines and has launched Edusentro.com with the objective of bringing free education to under-served areas everywhere.

As a blogger, Homerun writes across various topics but looks into techpreneruship as his main course.

He seeks to help entrepreneurs build their digital presence and make a difference. Follow Homerun on Twitter @bnievera or like his page on Facebook.

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