There are many types of risk that can affect your bottom line and compromise your operations. Being aware of these risks is crucial to protecting the longevity and success of your business.
Risk engineering solutions are customized services specifically designed to mitigate risk exposure, control costs, and make your business more competitive. Preparing for risk in advance also ensures that you don’t face any colossal damage that may affect your business.
There are 4 main types of risk that your business might encounter. Knowing each of these in detail is the first step towards turning your risk into an opportunity for growth.
1. Strategic Risk
Strategic risk is a type of risk that can affect the internal objectives of your business. It often occurs as a result of outside forces affecting the effectiveness of your internal operations.
For businesses operating within the crane, scaffolding, or rental equipment sector, exposure to strategic risk can be particularly significant. This is because such businesses deal with expensive equipment that requires a high upfront investment. When a rental equipment company purchases a new model of heavy equipment for hire, they intend to recover the cost from renting out that equipment for a fee. If their market research was ineffective and they purchased equipment that is not in demand, recovering from this large investment can be difficult and detrimental to the business.
But how can strategic risk be mitigated? The solution involves a combination of risk engineered solutions that can keep your business aware of current market forces. A deep awareness of the current market can help you remain one step ahead at all times. Indeed, working with a risk management provider will keep you aware of market factors and impacts so you can both grow and protect your business.
2. Hazard Risk
Hazard risk refers to the “pure risk” that can occur from workplace accidents. Hazard risk occurs as a loss or no loss scenario. It applies to damages related to loss of life or injury, damage to property, an onset of health complications in workers, and damage to the environment. As you know, hazard risk is always a possibility on the construction worksite. Construction-related accidents from slips and falls, equipment failure, electrocution, and other workplace hazards can cause your business to incur high compensation costs and lots of downtime.
Because hazard risk occurs mainly from accidents, it can be difficult to foresee when such an accident will happen. Therefore, the best way to prepare for hazard risk is by having an effective insurance policy that can restore your operations back to normal in good time, along with a proper safety and training program. Indeed, insurance allows you to essentially transfer the cost of a hazard risk to your insurer in exchange for a monthly premium.
In order to prepare for hazard risk, you should follow a 3-step process:
- Identify the hazard risk
Start off by carrying out a comprehensive analysis of your work environment and the risks that you’re likely to face on a daily basis. Your insurance broker should be able to help you. For example, scaffolding companies may identify the risk of slips and falls as a top hazard in the workplace. Similarly, a crane company may identify the risk of equipment failure and damage to property as a top risk they’re facing.
- Assess its potential impact
Once you identify the hazard risk, assess its potential impact on your operations. This means estimating how serious the risk can be to people and their property.
- Implement a strategy for risk management
After the risk has been identified, there are several steps you can take to mitigate it. For example, Allied’s loss control services work to reduce exposure by guiding clients through the planning process of implementing new safety guidelines, regulatory compliance, health training, and more.
3. Operational Risk
Operational risk refers to any potential failures that can occur within your daily operations. This type of risk also includes external, unforeseen circumstances that can affect your internal processes. Examples of operational risk include system failures within the business operations (which can cause costly downtime), a breakdown in transportation systems (causing the delay of goods supplied/delivered), and suppliers failing to meet their contractual obligations.
Operational risk is specific to a particular business, and thus requires a customized risk management solution. Indeed, managing operational risk requires knowledge of a business’s internal environment so as to implement the most effective mitigation strategy available.
Operational risk can be managed by using specific controls aimed at reducing the damage caused by failed internal processes. For example, a crane company that experiences failure in one of its machines can have an emergency rental service available to deliver a new machine within a short period of time. Similarly, an equipment rental company can equip its machines with sensors that track performance anytime they rent out a specific object. If the machine is on the verge of failure, the company can take a proactive approach and provide a replacement to clients in good time.
Mitigating an operational risk can become expensive if you don’t work with the right risk engineering solutions provider. Therefore, it’s important to seek out experienced service providers and industry-specific resources when preparing for this type of business risk.
4. Financial Risk
Financial risk affects all areas of the business. This type of risk can come in the form of loans at risk of default or cash-heavy transactions where customers may default in paying. Asset-heavy businesses (such as engineering companies) face financial risk on a regular basis. It may come from sales transactions of expensive equipment or high-cost services offered to clients. For example, a crane company may carry out work on a construction site as a subcontractor, only for the main contractor to fail in delivering payment.
Financial risk can potentially cripple your operations if adequate risk management steps are not in place. You can lower your exposure to financial risk via a combination of insurance policies, better customer evaluations, and hedging. With hedging, you essentially diversify your income streams such that a default in payment by a few customers doesn’t affect your entire revenue base. However, offloading the risk (through an insurance policy) is usually the best way of ensuring that your business is minimally impacted by financial risk.
How Allied Insurance Brokers can help
At Allied Insurance, we know all about your industry and its risks. We combine innovation, experience, and comprehensive insurance policies to provide effective solutions to businesses. Our industry-specific insurance and risk management services are directed toward crane and rigging, scaffold and access, rental equipment companies, and nonprofit & human service organizations.
In these industries, we have over 35 years of experience and hundreds of clients nationwide. We know the risks that your business is likely to face, and we take time to understand your specific operations before we propose customized solutions. From comprehensive, industry-specific insurance policies to personalized online resources, we take a multi-dimensional approach to insurance coverage and risk management. The end result for you is a safer, more cost-effective, and profitable business. Contact us today.