In order to protect businesses and companies from loss of earning potential, a risk management strategy and business continuity plan must be in place. Risk management is the process of identifying, analyzing and evaluating risk factors. Proper risk management can influence control of possible future events and is proactive rather than reactive. Most business models are faced with preventable, strategic and external threats, which can be managed through either acceptance, transfer, reduction or elimination. On the flip side, risk also must be considered in connection with opportunities and returns.
According to Professor of Risk Management and Insurance at the Haskayne School of Business Anne Kleffner, there are three main categories associated with the risk management process: identify (events and sources of risk), analyze (the likelihood and consequences of risk) and evaluate (is the risk acceptable?). During the evaluation phase, businesses and companies can either choose to leave the situation as is, treat it or eliminate it. Equally important in the risk management process is the strategy for treatment and the ability to measure and monitor success. Kleffner says, “The “guts” of risk management are really assessment and treatment.”
The reason businesses and companies implement risk management systems is to identify all possible risks, reduce or allocate those risks and provide a rational foundation for making better decisions related to risks. Kleffner explains that risk management can essentially be divided into four buckets: property, liability, personnel and income. Businesses must address all four buckets and make provisions to protect property and personnel, while decreasing liability and maintaining income. “Business continuity plans are fundamental,” emphasizes Kleffner. “Businesses and companies must protect themselves from large losses.”
Kleffner says that without risk management, businesses may not be able to achieve their strategic objectives. Risk management is relevant to both small and large businesses, “it just looks different,” says Kleffner. “In large organizations, you would have people dedicated to risk management and specific written policies and guidelines. For small businesses, on the other hand, it would typically be up to the business owner or another employee such as an accountant, who consequently might also look after the business’s insurance.”
When it comes to risk management, businesses, big and small, should always consider insurance. According to the Insurance Bureau of Canada (IBC), businesses are encouraged to invest in professional liability or errors and omissions insurance coverage, property insurance, workers’ compensation, vehicle insurance and business interruption insurance.
Fresh Kitchen owner Paul Morissette has been providing Calgarians with fresh and wholesome food since 2008. In his line of work, there are many risks that can affect his and his employees’ earning potential. These risks include, but are not limited to, loss of food, theft, employee injury, vehicle collision, business lost revenue, fire and injuries or accidents sustained on clients’ property. Having insurance is a value add, says Morissette. “No one wants to ever think they need to rely on insurance. But the reality is, it is a necessity in any business to protect yourself, your employees and the longevity of your brand. Whether it is daily operating insurance, business loss insurance or WCB to protect your employees from injury insurance.”
Morissette says that one of the largest components of his business’s revenue stream is corporate catering. “All of our large corporate clients require us to have at least a $5,000,000 COI (certificate of insurance) to protect against any issues that could happen while on their property. If we did not have this provision, we would not be eligible to get this large amount of business.”
When it comes to loss of income, workplace injuries also account for a good portion of a business’s loss of revenue. When an employee gets hurt and is then unable to work, the business is negatively affected, which is why it’s important to have insurance. But for some industries, it’s also important to plan ahead and invest in workplace injury prevention such as safety apparel.
Tyler Sloan’s company Sloan Safety provides a vast range of industries with head-to-toe personal protective equipment (PPE) solutions. Sloan says “businesses and companies can purchase all the safety apparel required to protect their employees for job specific tasks. By providing the appropriate PPE, they mitigate the risk of injury. This combined with safe workplace practices, significantly reduces accidents and injuries in the workplace.
According to Sloan, “Every hour, over 400 people in Canada suffer an injury in the workplace. Over 90 per cent of these injuries are preventable by wearing the proper PPE specific to the task. The long term physical, psychological and financial costs of these injuries are devastating.” As part of the evaluation phase of risk management, Sloan says, “We work with businesses and companies to understand its needs and find the best PPE solutions for its employees. We offer a full range of apparel that meet or exceed the highest industry safety standards so we can be a single point of contact for all the right gear. Not only do we strive to supply the best safety apparel on the market, we also seek to provide the best value to get the job done within a certain budget.”
What happens when a business or company does not have a risk management system in place? Kleffner says statistics show that small businesses that did not have insurance or business continuity plans and experienced a disaster such as a flood or fire could not recover and therefore not re-open, which leads to loss of income for the owner and his or her employees.
Morissette says that in the 13 years of operation, Fresh Kitchen has seen three break-ins, two employees who filed for WCB and were out of work for significant period of time and two delivery vehicle collisions. His advice is simple, “Insurance is a must to operate, to grow and protect your business, brand and most importantly – your employees.”
Insurance for businesses and companies can be costly. But Morissette says it’s critical to have and worth it. “Insurance provides legitimacy and shows your customer base that you care about the services you provide to them. If Fresh Kitchen did not carry the different types of insurance that it carries – its customers would question the safety of the food and how it’s provided to them daily.”
Is risk management worth the effort and expense? In order to answer this question, businesses and companies must first understand how risk management helps to improve its decision-making, planning and prioritization. Risk management also helps to anticipate what could go potentially go wrong and prepare in advance in order to prevent disaster or serious financial loss.