Page1ToolsofRiskManagement•Onceorganizationalriskexposuresareidentifiedandevaluated,riskmanagersmakeuseofeither/bothofthefollowingRMtoolstoeffectivelydealwithrisk:–Riskcontrol:riskavoidance,riskreduction–Riskfinancing:riskretention,risktransferHistoricalNeglectofRiskControl•1.GovernmentregulationwaslessstringentpriortoOSHA(1970)•2.Difficultiesinapplyingmarginalbenefit/marginalcostanalysistoriskcontrol(hardtojustifytoCFO)•3.InsurancewasinexpensiveandplentifulPage2MandatoryStandardsforRiskControl•Theroleofgovernment•Publicinterestjustificationbasedonexternalityargument(s)•Example-OSHA(1970)•SuchstandardsarelegallybindingVoluntaryStandardsforRiskControl•Theroleofnon-governmentalgroups•Examples:–JCAHOEnvironmentofCareStandards–UnderwritersLaboratories•Suchstandardsareconsidered“voluntary”inthattheyarenotstatutoryorotherwiselegallybindingPage3AreasofRiskControl•Employeesafety(***)•Employmentpracticesliability(***)•Non-employeecrimecontrol•Internalcontrols(employeedishonesty)•Computersecurity(***)•Transitexposures•Property–direct/indirectlossexposures•Liabilityriskcontrol(***)•Motorvehiclesafety•Antiterrorism•DisasterplanningRequiredExpertiseforRiskControlPractice•Manyofthetechniquesusedinriskcontrolarespecifictooneareaoranother,andrequiredifferentskills.•Preventingemployeeinjuriescallsfordifferentexpertisethanreducingtheriskofadirectors'andofficers’liabilitysuit,orpreventingembezzlement,butallrequireamixtureoftechnicalskills.Page4ResponsibilityforRiskControl•Manyauthoritiesbelievethatresponsibilityandauthorityforlosspreventionandcontrolprogramshouldbevestedinasingleperson.•Theriskmanager,byvirtueoffamiliaritywiththeexposuresoftheorganizationandthecostsarisingfromsuchexposures,isalogicalpersontowhomsuchresponsibilitymightbeassigned.RiskManagerandRiskControl•Theriskmanagerwillrarelypossessthewiderangeofskillsrequiredforacomprehensivelosspreventionandcontroleffort.•He/sheneedstheabilitytorecognizetheneedforriskcontrolandthemanagerialskillsnecessarytoaccomplishthedesiredgoalthroughtheeffortsofthosewhohavetheneededskills.Page5TheoreticalAspectsofRiskControlPractice•TheemphasisofriskcontrolactivitieswithintheorganizationisPREVENTION•Bothriskavoidanceandriskreductiontechniquesrequireanunderstandingofthecausalnexusassociatedwithidentifiedriskexposures-I.e.riskfactors•e.g.Whatfactorsincreasethelikelihoodofagivenpatientexperiencinganadversedrugevent?TheoriesofAccidentCausation•Therearetwomajortheoriesconcerningaccidentcausation,eachofwhichhassomeexplanatoryandpredictivevalue.–Thedominotheory,developedbyH.W.Heinrich,asafetyengineerandpioneerinthefieldofindustrialaccidentsafety.–Theenergyreleasetheory,developedbyDr.WilliamHaddon,Jr.,oftheInsuranceInstituteforHighwaySafety.Page6Heinrich'sDominoTheory•AccordingtoHeinrich,an"accident"isonefactorinasequencethatmayleadtoaninjury.–Thefactorscanbevisualizedasaseriesofdominoesstandingonedge;whenonefalls,thelinkagerequiredforachainreactioniscompleted.–Eachofthefactorsisdependentontheprecedingfactor.Heinrich’sDominoTheoryAncestryorEnvironmentFaultsofPersonsPersonalorMechanicalHazardAccidentsPersonalInjuryPage7Heinrich’sDominoTheory•Apersonalinjury(thefinaldomino)occursonlyasaresultofanaccident.•Anaccidentoccursonlyasaresultofapersonalormechanicalhazard.•Personalandmechanicalhazardsexistonlybecause...
