Basic Risk Management
Four Risk Management Techniques
Four basic risk management techniques are: avoidance, modification, retention and sharing. Let's take a closer look at each.
Avoidance — Whenever an organization cannot offer a service while ensuring a high degree of safety, it should choose avoidance as a risk management technique. Do not offer programs that pose too great a risk. In some cases avoidance is the most appropriate technique because a nonprofit simply doesn't have the financial resources required to fund adequate training, supervision, equipment, or other safety measures. Always ask, "Is there something we could do to deliver this program/conduct this activity safely?" If you answer "yes," risk modification may be the more practical technique.
Modification — Modification is simply changing an activity to make it safer for all involved. Policies and procedures are examples of risk modification. An organization concerned about the risk of using unsafe drivers may add DMV record checks to its screening process, or an annual road test for all drivers. An organization concerned about the lack of male and female chaperones for an overnight camping trip may decide to host a day-long hike and picnic instead.
Retention — There are two ways to retain risk. The first is by design. A nonprofit may decide that other available techniques aren't suitable and it will therefore retain the risk of harm or loss. Nonprofits make conscious decisions to retain risk every day. For example, when a nonprofit purchases liability insurance and elects a $1,000 deductible or self-insured retention, it's retaining risk. This can be a rational and appropriate approach to managing risk. Where organizations get into trouble is when risk is retained unintentionally. The unintentional retention of risk can be the result of failing to understand the exclusions of an insurance policy, insufficient understanding of the scope of risk an organization faces or simply because no one has taken the time to consider the risk and how it can be addressed.
Sharing — Risk sharing involves sharing risk with another organization through a contract. Two common examples are insurance contracts that require an insurer to pay for claims expenses and losses under certain circumstances, and service contracts whereby a provider (such as a transportation service or caterer) agrees to perform a service and assume liability for potential harm occurring in the delivery of the service.