RISK-MANAGEMENT OPTIONS

Risk-management options refer to the decisions of an organization to take action or purchase insurance for the purpose of:

- Risk avoidance

- Risk reduction

- Risk retention

- Risk sharing

- Risk transference

Risk elimination or avoidance: Risk elimination is a strategy used to prohibit any activity that can lead to identified high levels of frequency and severity risks (Box 16.2). In other words, avoidance or elimination automatically prevents some risks from being a concern for an organization because they are inherent to activities that will not be conducted by such an organization. For example, a nonprofit organization working with youth may decide that their outdoor activities will not include sky diving because of the risks associated with it. In that context, the organization does not have to purchase a policy for sky diving, because the associated risk or liability is no longer an issue of concern.

Box 16.2 Sample risk-Management-Prevention Activities

Safeguarding any activity that carries risks and hazards

Establishing procedures for maintenance and safe use of vehicles, machines, and equipment

Inspection of noncompany-owned vehicles (e.g., registration, insurance)

Establishing standards of qualifications for drivers and users of machines and equipment

Making prompt repairs or changes where there is risk for slips, falls, or other accidents

Organizing safety training for employees

Ensuring that first-aid kits and guidelines for personal protective equipment are readily available on site

Introducing policies about assaults, physical fights, and harassments

Obtaining formal guarantees from providers or suppliers that the products you are selling will not do harm if used properly

- Fire prevention (smoke detectors, extinguishers, and inspections)

- Maintenance of storage, electrical equipment, gas appliance, and heating equipment

- Proper storage of flammable liquids

- Proper insurance and equipment-insurance warranty

- Burglary prevention through control of access to property buildings and a surveillance system

- Robbery prevention

- Vandalism prevention

- Computer crime prevention

Risk mitigation or reduction: Risk mitigation or reduction is the decision of an organization to focus on actions and strategies that can help prevent risks or significantly reduce their effect when they occur (Box 16.3). Risk mitigation encompasses actions and strategies, such as education and training, to increase awareness of potential risks, adoption of best practices to reduce the likelihood of certain risks identified in the literature related to a field of practice, or thorough assessment of physical facilities to prevent the effect of natural disasters (e.g., hurricane).

Risk retention: A nonprofit organization may decide to accept the occurrence of a potential risk, provided that such occurrence and its severity are low. For example, a nonprofit organization may decide to no longer purchase an insurance package for a particular copier because it costs less to fix it in-house. On the other hand, an organization may decide to increase the deductibility insurance on a new set of vehicles because it has been found to be less expensive. In these two examples, there are risks associated with the decision not to purchase insurance or to purchase insurance that means a loss of money in the short term, but the organization decides that it is in its best interest to retain such risks.

Box 16.3 Sample of items for risk reduction

- Identification of areas of vulnerability

- Training plans

- Communication plans

- Evacuation plans

- Emergency plans for damaged facilities

- Emergency plans to assist the injured

- Emergency plans for building shutdown

Risk sharing: Nonprofit organizations can engage in activities with some potential for risks, but do so in partnership with another organization, and decide to share the costs that may be associated with such risks. For example, a nonprofit organization might use the facilities of another agency to organize an event. There is a risk for liability that both organizations agree to share through an agreement.

Risk transference: Nonprofit organizations can reduce some risks, but will never be able to eliminate or avoid the potential for occurrence of most of them. Therefore, it is important to purchase insurance policies, and transfer these risks to another party, generally an insurance carrier agency (Box 16.4). Examples of insurance policies are:

- General liability to cover bodily injury suffered by a third person and claims in court

- Property insurance to protect a nonprofit organization from loss, theft, or damage to its property

- Health insurance to cover employee health care costs

- Life insurance for employee mortality

- Surety bonds to cover losses due to embezzlement

- Worker's compensation for employees as required by law

- Unemployment insurance to cover lost wages related to layoffs

- Employment discrimination policy to cover employment discrimination claims

- Directors' and officers' insurance to cover director and officers from personal liability due to their participation in the governance or management of a nonprofit organization

- Volunteer accidental medical insurance to cover potential volunteer injuries

- Automobile insurance for transportation-related issues

 
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