Developing a Risk Management Program

Real estate managers deal with risk on a daily basis. While risk cannot be completely avoided or eliminated, it can be managed. Risk management reduces the likelihood of something occurring and the severity of its consequences. Developing a risk management program and completing a property information report are important steps toward gaining a knowledge and understanding of the risks that people and property face.

Developing a Risk Management Program

Creating a risk management program is a demanding task that may take several weeks or months to complete appropriately and often requires the use of consultants or insurance agents who specialize in this type of work. Developing a risk management program involves five steps:

1. Acknowledge and Identify Risks

Some degree of risk or uncertainty about the future is always present. The first step to managing it is acknowledging that risk exists and identifying as many specific risks as possible, and the likelihood of them occurring. The following types of risks should be identified for your properties:

• Personal Safety
• Property
• Financial
• Natural Disaster
• Mechanical
• Automobile

2. Evaluate and Prioritize Risks

The second step is to review all the risks listed in the first step and decide the probability of the risk occurring and how extensive the loss would be if it did occur. Talking with other property supervisors and the insurance company’s representative may help the real estate manager understand frequency and cost estimates. Consideration of new risks such as terrorism is important.

3. Decide How to Manage Risks

Once the risks have been identified and evaluated, the next step is to develop a written plan that outlines how they will be managed. The plan should include which risks will be absorbed by the company and which will be insured. The plan should also outline which processes or procedures must be changed or eliminated to mitigate risk exposure.

4. Implement a Risk Management Plan

Next, the plan should be implemented:

• Distribute and explain the plan to all affected
• Train those affected in the new processes immediately, and eliminate old material and processes
• Install appropriate administrative controls for internal staff and external suppliers
• Manage all claims when accidents do occur

5. Review, Evaluate, and Adjust the Plan

Finally, it is always necessary to adapt to the ongoing changes that occur in the insurance industry and the legal system. Plans, processes, and risks should be reviewed periodically. The plan should continue to be relevant, comprehensive, and effective. Also, review the previous plan to determine if risk management techniques have the desired impact, i.e., decreased injuries or claims.

Property Information Report

A property information report contains detailed information about a property that gives an overall picture of a property and its history. Understanding specific information about a property is necessary when working with an insurance company to ensure appropriate coverage. It can also be extremely helpful when creating a risk management program. Some items a property information report may contain follow:

• Name, location, and type (office, shopping center, industrial, residential) of property
• Property details, including the current function, historical function, number of units or stories, occupancy percentage, square footage, etc.
• Construction (walls, floors, roof) and year built
• Details on major systems (fire sprinkler systems, smoke alarms, central station monitoring, swimming pool, etc.)
• Information about previous claims
• Photographs of the property