Mar 04 2014

Risk Management: Proactive Steps Help Minimize Risk

Another helpful article for board members from FCS Community Management – Utah’s community and property management leader.

We hear the term Risk Management a lot. What does it really mean? Risk Management is the process of making and carrying out decisions that will minimize the adverse effects of accidental losses upon the community association. Or in other words, being proactive, instead of being reactive. The best way to be proactive is to implement the following five steps:

1. Analyze your community association’s exposure to possible losses

2. Examine alternative risk management techniques

3. Select appropriate risk management techniques for your community association

4. Implement the techniques

5. Monitor the results of your risk management program.

Some of the best ways to analyze and identify your association’s exposure to loss are conducting surveys, examining financial statements, making personal inspections and hiring experts like reserve specialists and accredited community managers. There are two examining techniques to treat primary exposures to loss: risk control and risk financing.

Risk control includes exposure avoidance, loss prevention, segregation of exposure and contractual transfer. Exposure avoidance means avoiding circumstances that would expose the community to certain types of loss, like not allowing alcohol in the clubhouse. Loss prevention is taking steps to reduce the frequency of a potential loss. For example, conducting quarterly inspections to make sure there are no tripping hazards. Segregation of exposure is establishing some type of backup to prevent loss, like offsite data storage. Contractual transfer involves entering into a contract that will transfer the association’s legal responsibility for any loss. For example, having the landscaper’s insurance covering landscaping liabilities.

Risk financing includes retention and transferring. Retention is covering a potential loss with your own savings. For example, if your clubhouse is worth $3 million dollars, keeping $3 million dollars in your savings to cover the potential loss. Transferring is taking the financial obligation and having another party be responsible for it, like buying insurance for your association. It is important to select techniques that work best for your association and immediately implement them. You will need to monitor your risk management techniques to ensure they are the best alternatives for your association. By being proactive rather than being reactive, you can minimize the risks in your association.