Our industry hasn’t done a great job of managing risk comprehensively or systematically. There’s a better way.
What comes to mind when someone mentions enterprise risk? Depending on the context, you might think about that last big project that had a tough deliverable. Or maybe if you are a CFO or a finance leader, you groan and lament the cost of a necessary insurance evil. Or maybe as a C-suite or member of the board, you worry that there’s a poorly defined enemy that’s waiting to bite a chunk out of your firm or maybe even threaten firm viability. Well, you’d be right. It is all that and more.
Our beloved industry has not done a great job of managing risk comprehensively or systematically. Too often risk management is a siloed initiative. People in the silos grapple with risk as far as it pertains to them. Those silos may be operational (projects) versus finance. The silo may be one practice area versus another. It may be geography or client or a project type that is under the Alternative Project Delivery umbrella. Again, you are right if you think it is all of the above.
What we do know is that risk management is not just insurance. Insurance plays a key role for sure, but insurance is just a method of risk financing. The driver should be a risk management strategy. What is the risk management strategy? Does your firm have one, and if not, how do you get one? We are here to help.
Combining industry research, personal experience, and interviewing brokers and underwriters, we conclude there’s a better way.
Silos. The silo approach is normal but fraught with a risk of its own making. That condition is sub-optimal linkage across and between silos of factors impacting enterprise risk. Silos can also lead to getting caught thinking that contract or client risk limits are firm risk limits. Silos may also inhibit large scope, 360 thinking that regards firm viability as the chief goal of enterprise risk management. Project risk, healthcare costs, or cyber risk among many others all affect firm risk and each are just a part of the picture – what should be an integrated picture.
What we find. Based on our experience and research, we find a combination of things when we analyze firms’ insurance and risk programs. Coverage may be ill suited in that firms are paying for coverage unlikely to be utilized, especially in a general liability situation as opposed to professional liability. Often firms may have deductibles or retentions that they should expand based on their financial viability and frequency (or infrequency) of claims. As it becomes more difficult to get narrow or specific coverages, firms may overpay for insurance they can build for themselves in a captive.
Another area demonstrating the need for coverage flexibility is Alternative Project Delivery or APD. While APD is a clear opportunity to shift risk among design firms and contractors, engineering firms need to understand and protect themselves especially in the design-build world.
Remedy. The real decision is to commit to a risk management strategy while having confidence in the outcome:
- Makes your firm safer.
- Makes your firm more viable and resistant to adversity.
- Changes cash flow and profit for the better, if the circumstances are right.
Zweig Group has an offering and a process in place to develop the risk strategies, assess enterprise risk, recommend solutions, and help you implement the solutions.
Let us show you what we can do.
Survey. In order to capture more current information and provide better advice, Zweig Group has opened a short survey for firms to let us know their specific circumstances. The data we gather will remain completely anonymous and will be used for benchmarking and service improvement. Click here to participate in the survey!
Dathan Gaskill is managing director of Zweig Group Risk Solutions. Contact him at dgaskill@zweiggroup.com.
