It Is Worth the Time and Effort for Businesses to Engage in Proactive Risk Management

It Is Worth the Time and Effort for Businesses to Engage in Proactive Risk Management
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Summarizing what is to follow, it is more effective, efficient, and economical for an enterprise to engage in proactive risk management – which when done properly, can prevent or at least mitigate against damage, loss, and non-productive downtime – than it is to ‘bring out the mop’ and reactively clean-up problems after they arise. (Another disclosure: I have spent a good deal of my career working in and around , and teaching about, insurance and contractual risk-shifting, which cannot be neglected as essential elements of an overall operational risk-management package.) In fact, I define myself as a ‘Proactive Risk Management Evangelist’ – that identifier itself should indicate the centrality of this concept to my own law practice and academic thinking and activities.

What is risk?

My preferred definition is that risk is “a prediction concerning potential loss based on known and unknown factors.” 1 Risk is, then, based upon a business’s continuously evolving and predictable environment – which entails markets, technology, finance, regulation, and competition, among other fact-based constituents. 2 Risk is ‘always on’ – it is pervasive and never shuts down.

Risk management, in turn, is based upon a business’s fact-set presented at any given time, and the then-current knowledge base derived from past fact-sets, and entails implementing regular and routine operational practices and systems designed to address repeat, varying, and new fact-sets. In other (and more ‘plain English’) words: to learn from experience; to go through the learning curve; and to plan for the worst, and hope for the best.

Risk management plans must be appropriate to the field of endeavor, whether that is the creation of goods, the delivery of services, or hybrids of goods and services (think of restaurants or repair shops). And there is no need to ‘re-invent the wheel’. Proactive risk management policies, practices, and procedures can be observed, absorbed, and adapted from the ecospace within which one works and the overall environment, whether directly germane to one’s business or not. (Of course, while always being attentive to a third-party’s intellectual property.)

An important third disclosure related to the significance of “regular and routine” above: Routinization involves the mindful (there is that word again) use of formal checklists on a pre-scheduled basis. My thinking on this matter has specifically been informed by the book The Checklist Manifesto: How to Get Things Right by Dr. Atul Gawande. 3

Risk management planning is the establishment of plans to protect one’s personal and financial interests in light of known and unknown risks.

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This involves the following six time-based steps:

  1. Assessing the fact-set presented (past and present directed) – This causes a business to identify its ‘core business’ and conduct an internal/external ‘Strengths, Weaknesses, Opportunities, and Threats’ analysis.
  2. Planning (present and future oriented) – The intentional system created to operate and innovate within the evolving business environment.
  3. Implementation (present oriented) – Execute the plan within the current business environment, often in active concert with external stakeholders (such as vendors).
  4. Evaluation (past, present, and future oriented) – Check if the risk management plan is being implemented consistently with its underlying intentions (that is, producing anticipated deliverables, outputs, and outcome metrics, involving  quality range or acceptable margin-of-error repairs/returns of goods or service ‘call-backs’). Past/present oriented asks “How am I doing?4 Future oriented asks ‘How am I going to be doing?’ – which itself requires consideration of the changing business environment.
  5. Audit (past oriented) – A confirmation of the facts underlying the evaluation process.
  6. Documentation and reporting (past oriented) – Recording the evaluation process and its findings, and often reporting them for compliance purposes.

This six-step proactive risk management process is a highly diluted statement of what occurs as each of those measures is rolled-out, and there are additional operational and legal implications to each of them. This outline, however, describes what can – and should – be done when a business creates and then operates an ‘always-on’ and second nature (yet still mindful) proactive risk management environment. 5

Proactive risk management policies, practices, and procedures can be observed, absorbed, and adapted from the ecospace within which one works and the overall environment, whether directly germane to one’s business or not.

By its own wording, ‘risk’ and its affiliated concepts seem pessimistic in nature. Simply put, they are not. When a business allocates resources (time, talent, and treasure) to proactive risk management, that enterprise can specifically focus less on prospective loss and more on the reason it opened its doors in the first place – to innovate and bring its innovations to the marketplace. That is optimism in practice.

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General note: The material in this piece is derived from many years of this writer’s original research, writing, and lectures.

1 Roger LeRoy Miller, Fundamentals of Business Law Today p. 556 (10th ed. 2016).

2 This differs from gambling, which “is the creation of risk for the purpose of assuming it”. Miller p. 190.

3 http://atulgawande.com/book/the-checklist-manifesto/. This book has been so influential to my thinking that it is almost always a suggested reading for all law school and graduate and undergraduate business school courses I teach.

4 See, e.g., http://www.aartrijk.com/how-am-i-doing-ed-koch-opened-the-loop-were-still-running-around/.

5 As noted previously, a proactive risk management plan must be supported by an equally intentional reactive risk management plan to prepare for risk that can go awry. That topic, however, is a specific subject for ‘another day’.

©, 2019, Philip N. Kabler, All Rights Reserved

– For more information, call Philip N. Kabler of the Gainesville, FL office of Bogin, Munns & Munns at 352.332.7688, where he practices in the areas of business, banking, real estate, and equine law. He has taught business and real estate law courses at the University of Florida Levin College of Law and Warrington College of Business Administration. And is now the President-Elect of the Eighth Judicial Circuit Bar Association.

NOTICE: The article above is not intended to serve as legal advice, and you should not rely on it as such. It is offered only as general information. You should consult with a duly licensed attorney regarding your Florida legal matter, as every situation is unique. Please know that merely reading this article, subscribing to this blog, or otherwise contacting Bogin, Munns & Munns does not establish an attorney-client relationship with our firm. Should you seek legal representation from Bogin, Munns & Munns, any such representation must first be agreed to by the firm and confirmed in a written agreement.

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