There is no good time for bad things to happen!
It is often more difficult and expensive to respond to a risk event than to prepare ahead of time. In fact, without preparation, an organization may find it impossible to recover and restore operations to a stable, pre-loss, condition. For example, structural engineers advise installing hurricane clips on roofs during construction. The clips minimize the effects of windstorms. While shingles may not survive, the roofing structure will still be intact, preventing water damage and mould growth that could render the structure uninhabitable.
Similarly, infrastructure design flaws or inadequate maintenance can intensify the impact of a climate event. Undersized culverts can cause road failure and damage to utility lines. The interruption in transportation corridors can lead to bankruptcies and other social woes.
Proper emergency preparedness adds response planning and the implementation of safety measures before a disaster occurs, minimizing loss. Insurance companies know this. Buildings with fire extinguishers, firewalls, and safety exits often receive lower insurance premiums.
Once a loss occurs, organizations must trade their regular business model for disaster response strategies to recover and survive. There are no growth opportunities here! Thus good risk managers advise “Be Prepared!”
Even when an organization has insurance coverage, it may not wholly recoup the costs of damage, repairs, and the lost opportunity. Insurance may provide compensation for monetary losses, but this is never one hundred percent. Naturally, there is no compensation for the loss of human life.
In cases such as the 2016 Fort McMurray wildfire, a large portion of the entire city was evacuated and damaged. Today, many of the evacuees are still having trouble rebuilding their homes and businesses. The strain on an individual’s or an organization’s cash flow may be dramatic.
Risk management begins with an understanding of the overall risk facing the organization combined with the careful management of uncertainty in all facets of the operation. The organization can use risk assessment methodologies to measure the impact of risk on a wide range of business processes. With this information, the organization can make better decisions on their operational, financial, and strategic approaches to ensure resiliency.
Organizations comprise many different business units, each performing necessary functions. Enterprise risk management encourages establishing a central risk management department as the most efficient means of achieving risk resiliency. With senior management leadership, appropriate resourcing, and clear and consistent communication throughout all levels of the organization, a central risk management department will promote a risk resilient organization.
Socrates said, “know thyself!” This quote applies to risk management. Clear goals are necessary for organizations to measure and address uncertainties. Understanding organizational goals and culture establishes a foundation for taking action. Clear objectives provide a benchmark for assessing performance, establishing risk tolerance thresholds, and determining the overall amount of risk acceptable to the organization.
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