Gambling on risk--by assuming a catastrophe won't strike their company--is the most grievous mistake risk managers can make, according to a list developed by independent risk management services provider Business Risk Management Solutions, a division of The Keane Organization with offices in Baltimore and West Conshohocken, Pa.
Underestimating how high the stakes are is the No. 2 mistake.
The guys behind the list, BRMS Chief Development Officer Peter Teuten and CEO Doug Johnson, report that 50 percent of all businesses that suffer a catastrophe of any kind close within a year, a statistic found in a recent study by the International Disaster Recovery Association, Johnson says.
"I think it's the general nature of people to say, 'This isn't going to happen to me,'" says Johnson.
BRMS conceived of its list, "The Top 10 Mistakes in Risk Management," as a way to educate risk executives about starting and maintaining effective risk management programs. The contents and rankings, Teuten says, are the product of on-the-job experiences of BRMS clients.
"What we did is compile a list of the things we considered pitfalls in the area of managing risk," says Teuten.
The most frequent advice BRMS offers clients and businesses to help them avoid these top 10 mistakes, Teuten and Johnson agree, is to simply undertake an initial risk assessment.
"Get started someplace," Johnson says."Whether you've identified your HR risk, your infrastructure IT risk, any area where you could be vulnerable--start there."
No. 3 on the list is equating more attentive risk management efforts with increased insurance coverage. "In lots of cases, it's certainly a major component of it," says Johnson. "But it's not the only component."
This perspective results from a lack of objectivity in the risk management industry, Teuten and Johnson say.
Teuten adds, "Ten to 15 years ago, the role of the risk manager was really an insurance buyer, nothing more, nothing less. That has changed dramatically."
Other missteps include the failure to maintain a focused and centralized program (No. 7) and the failure to educate and train employees for emergencies (No. 10). The second half of the list focuses on what risk managers do wrong after their businesses make the initial commitment to prevent future risks.
The best response to these mistakes, Teuten and Johnson maintain, is to educate risk managers and CFOs about risk assessment.
And what's the best way to educate them?
"You scare them," Teuten says."Simply scare them."
October 1, 2005
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