Risk Manager – A Vital Role in an Organization's Protection
Commercial enterprises face a broad range of potential threats, many capable of seriously damaging or even bankrupting the business. Taking an unexpected hit is a common experience business owners dread.
TL;DR
- A risk manager is a professional who identifies, assesses, and mitigates corporate risks.
- They are critical in protecting businesses from potential losses.
- Common misunderstandings include conflating risk managers with insurance brokers.
- Taking the time to understand and communicate risks can make for a more robust business.
What is a Risk Manager in Insurance?
From the perspective of a client, a risk manager is an individual responsible for the minimization and management of uncertain risks that could negatively impact an organization’s earnings or mission.
Technically speaking, risk managers examine and assess potential risks that could pessimistically affect an organization’s operative execution and financial success. They often consult with various teams and department heads to understand ongoing projects fully, identifying possible risks and proposing strategies to manage them.
Key Related Terms to Know
- Risk Mitigation – Actions taken to reduce the adverse effects of potential risks.
- Enterprise Risk Management – A strategic business discipline that supports the achievement of an organization’s objectives by assessing and managing all risks of the enterprise.
- Risk Analyst – A professional who analyzes an organization’s financial or investment decisions considering potential risks.
- Certified Risk Manager – A designation awarded to those who have demonstrated expertise in managing risks, hazards, and exposures.
Common Questions About Risk Managers
What Does a Risk Manager Do?
A risk manager identifies, evaluates, and prevents potential risks that might affect a company’s profitability or ability to operate. They develop risk management policies and strategies, ensure they are implemented effectively by conducting audits and inspections, and recommend corrective actions when necessary. For example, a risk manager at a construction firm would work to identify construction risks like site safety hazards, timeline overruns, and potential labor issues, and develop protocols to handle these risks effectively.
What’s a Risk Management Plan?
The risk management plan is a document prepared by the risk manager outlining the identified risks, their assessment, and methods of managing them. This document helps guide decision-making to minimize potential risks associated with the activities of the organization.
Why is ISO 31000 Important to Risk Managers?
ISO 31000 provides a universally recognized paradigm for practitioners and companies employing risk management processes. Using ISO 31000 can help organizations increase the likelihood of achieving objectives, improve stakeholder confidence and trust, and efficiently use resources.
What is Reputational Risk and How Does a Risk Manager Handle It?
Reputational risk is the potential loss resulting from damages to a firm’s reputation. It could lead to loss of revenue, increased operating costs, or loss of market value. A risk manager would handle this by taking proactive steps like public relations campaigns, or reactive measures such as crisis management plans to protect the company’s reputation.
Risk Manager vs. Certified Risk Manager
There could be confusion between a standard risk manager and a certified risk manager. The two terms may sound similar, but their differences lie in the level of professional recognition.
Comparison Area | Risk Manager | Certified Risk Manager (CRM) |
Primary Use Case | Identify, evaluate, and prevent potential risks | Demonstrate professional expertise in managing risks |
Coverage / Concept Type | In-house role or third-party consultant | A designation awarded by the National Alliance for Insurance Education & Research |
Typical Exclusions | Usually does not have an official certification | Must meet certification requirements, including coursework and examinations |
Who Is Most Affected by Errors | Organization employing the risk manager | Risk managers seeking to advance their career |
Common Mistakes | Ineffective risk management strategies | Underestimating the time and resources required to achieve certification |
Real Claim Examples Involving Risk Managers
Scenario 1: While working for an energy company, a risk manager recognized a potential energy risk — the company’s dependence on a single electricity provider. The risk was communicated to executives. The company diversified its energy sources, which came in handy when the provider reported a major outage.
Scenario 2: An international company had not completed a risk assessment for its foreign operations. After employing a risk manager, an international risk was identified concerning currency fluctuations. The company hedged its currency risk, shielding itself from financial loss when the currency fell.
Scenario 3: A risk manager recognized a potential reputational risk from poor employee safety standards at a manufacturing company. The company invested in improving its safety standards, which paid off when an audit by OSHA found no significant issues, averting a potential public relations disaster.
Limitations and Common Mistakes
- Risk managers can’t eliminate all risks.
- Overlooking the important role of a risk manager in insurance underwriting.
- Risk managers may face constraints regarding resources and corporate culture.
- Failing to incorporate risk management into the business planning process may lead to ineffective risk management strategies.
How to Explain Risk Managers to Clients
Personal Lines Client “Think of a risk manager as a safety inspector. They assess your home or property, spot risks — like a broken step, which could lead to accidents. They help you figure out ways to fix these risks, protecting you from potential losses and lawsuits.”
Small Business Owner “In your business, you face different types of risks daily. From potential fires to employee injuries or even lawsuits, a risk manager helps minimize these risks. They identify and evaluate potential obstacles and help you navigate them, keeping your business running smoothly.”
CFO or Risk Manager “As a top official, you’re responsible for your company’s financial health. A risk manager plays a crucial role in this. They identify and evaluate potential issues that could affect your bottom line. By addressing these risks upfront, you’re better prepared to handle whatever comes your way, ensuring your company’s durability.”