Risk Management articles for surveyors
Risk Management - FAQs
by Tim Prior LLB AIRM, Senior Risk Management Consultant
What is risk?
A likely event with negligible consequences is of much less concern to a business than an event which could have disastrous consequences, even if it is less likely to happen. Therefore a simple practical definition of risk is the combination of the probability of an event and of its consequences. The more likely an event, and the more serious its consequences, the more important it is that the business has assessed the risk and taken steps to manage it.
What is risk management?
Risk management is the process by which the risks are identified, analysed and managed. All businesses face some or all of the following risks: public liability, employer’s liability, health and safety, compliance, regulatory, financial, strategic, disaster, operational (particularly negligence).
All too often, partners will make assumptions about the risks they face in these categories. Some will be complacent about their ability to cope if any of them materialise. How well prepared is your business?
I’ve been running my business for years. Why is it suddenly so important?
Every business faces risks. Sometimes high levels of risk are acceptable because of the potential rewards. However, a business that does not know what risks it faces cannot plan how to deal with those risks. Its business plan will be flawed. In today’s increasingly regulated world, with increasingly sophisticated (and litigious) clients, it is no longer sensible to assume that being professional will be enough to keep your practice in good shape. Even the best can become complacent. Risks evolve and new risks materialise – both quantity surveyors and estate agents have received prison terms for money laundering offences.
If you don’t know what the risks are, you cannot plan accordingly and you risk a nasty surprise. Unplanned events often need urgent action – fire-fighting. The more time you spend fire-fighting, the greater the impact on the day to day running of your practice. How many such events can your business cope with?
Risk management is essentially about planning. As the saying goes: if you fail to plan, plan to fail…
What risks should I be thinking about?
It obviously makes sense for you to be aware of all the business risks that your practice faces. Some you will be aware of, but may have left them sitting ‘on the back burner’ for too long. Some will only have arisen because of changes in the law or regulation, such as the RICS’ recently acquired Designated Professional Body status for FSA purposes. However, many risks will have little impact on your business – others will be very improbable.
One of the biggest risks is in failing to keep up to date with law and practice. Although this is well recognised, some surveyors still get caught out. It is often the basics that get overlooked, with shortcomings such as file management and communicating the cause of the problem.
I’m already busy – is it urgent?
This will depend on how good your systems already are and will obviously vary from practice to practice. Only you can say. However, the acid test of whether it is urgent or not is if you do nothing, will you then suffer a high profile negligence claim or a dent to your reputation, resulting in the loss of a string of important clients? If you then take panic steps to prevent a repeat of whatever caused the problem, ask yourself whether it would have been easier to plan ahead instead.
What risks should I tackle first?
Start by looking at any complaints and claims your firm has received in the last few years, even if the claims have not been pursued. Settled claims and ‘near-misses’ are good indicators of areas where your practice is vulnerable – could the same scenarios cause similar or worse problems in the future?
How do I get started?
Start by doing some research into risk management. Look at your broker’s website or ask them for advice. Do the same with your insurer – if you are not sure who you are insured with, your broker will be able to tell you. If searching the internet, use words such as ‘internal control’ and ‘corporate governance’ as well as ‘risk management’.
Who should do it?
Risk management is a shared responsibility, but the overall control and direction needs to be overseen at a senior level. This should be a Board level appointment, held by a partner, practice manager or Director of Risk. The person with overall control should delegate various tasks to colleagues.
Written policies
Insisting on a written policy is never a waste of time, even if everyone knows what to do. Sometimes all that is required are a few lines or paragraphs. When someone new joins the firm, induction is made much easier when there are written policies. However, policies should be short and practical. Lengthy documents tend to gather dust and become out of date quickly. Areas on which firms should have a written policy include: quality standards, client vetting, terms of engagement, email, file management and file auditing.
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Surveyors
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Travelers Insurance Company Ltd.