What is a Risk Management Consultant?

Many people are familiar with the term "Risk Manager".  In fact, if you work for a large national or international company, you more than likely have a risk manager on staff.  In fact, you may have a Chief Risk Officer with an entire staff of risk managers under their watch.  However, if you are an owner or an officer of a small or medium-sized business, chances are you don't share in this experience.  Does that mean that the risks your organization faces are smaller?  Less complex?  Non-existent?  The truth is that many small and medium-sized businesses have just as much need for internal risk management as larger companies.  The difference lies in their ability to fund this function internally on a full time basis.

Because many small and medium-sized businesses lack the financial resources necessary to bring this talent "in-house", they look for risk management advice elsewhere. Common places to receive risk management information include: trade organizations, OSHA, RIMS, insurance carriers and insurance agents. In fact, you may presently be using some of these same sources of information to answer your risk management questions. What results are you seeing? What types of questions do you have? How have you been able to use this information to develop a strategic plan for your company's future? How do you know what questions to ask? How do you know you aren't missing anything? Even with your questions answered, are you sleeping well at night?

A dedicated risk management consultant may be some of the best money that your company can spend. A good risk management consultant will have a broad-based risk management background. They may also have experience specific to your particular niche or industry. This makes a risk management consultant invaluable to you. The typical risk management consultant will want to conduct meetings with the key leadership of your organization, or you as the business owner. They do this so that they have a good flavor as to the culture of your organization and how you approach risk. They will want to interview your supervisors to determine if your message got through to them or did it get lost somewhere in translation? They will also want to interview and observe the work habits of your front line. The best organizations have no communications gap between the leader and the hourly employee. However, a seasoned risk management consultant has experienced a variety of situations and knows how to handle each in its own unique manner.

After interviewing employees, a risk management consultant will want to review any processes and procedures you have in place that involve risk management. This may involve cash handling and deposits, supply chain procedures, human resources procedures, insurance policies and placement, contractual risk transfer and active (self-insured) risk strategies. By doing this, the risk management consultant is able to paint a risk profile of your organization that allows them to determine which risks you are actively taking (deductibles, retentions, self-insurance) and which risks you are passively taking (you don't have a clue about them). Once the risk profile is completed, the risk management consultant will want to sit down and visit the results with you and your leadership team.

The most important part of the review meeting is the collaboration between the risk management consultant and the leadership of your organization. This collaboration will result in your organization's plan of action to correct any deficiencies that were found in the profile and improve on the strengths that were identified. This plan of action should be specific, include follow-up measures, have accountability and also have a tracking mechanism that creates "real-time stewardship". By doing this, all stakeholders will know exactly how the risk management function of your organization is performing at any given time throughout the year.  In addition, the risk management consultant will identify your company's Total Cost of Risk, or TCOR.  It is important for you to know this number because it is what is driving the financial end of risk management in your organization.  Further, it establishes a great baseline for you to judge your results throughout the year.

Good risk management consultants adapt based on the companies that they work with.  A good risk management consultant can provide you with several options for their compensation based on the scope of the relationship.  You could pay them a flat project-based fee, an hourly rate multiplied by billable hours, an annual retainer or some combination of the aforementioned.  The best risk management consultants are willing to put some of their compensation at risk based on results.  For example, If your organization is experiencing a higher than average TCOR (Total Cost of Risk), the risk management consultant may want to charge you a flat fee with a "gain-share" provision.  What this means is that they would consider charging you a lesser fee on the front end with a bonus on the back end based on results.  A common arrangement that I see is based on the reduction of TCOR.  If your company has a TCOR of 1,000,000 and you hire a risk management consultant, that consultant may discount their annual fee and take a % of the TCOR reduction as a bonus.  I have also seen risk management consultants that have licensed their company as an insurance agency.  This allows them to handle the negotiation and placement of your insurance policies directly with carriers and underwriters.  It also gives them the ability to strip the commissions from the placement process removing all of the compensation that is currently being funneled to an agent/agency.  By doing this and only charging you a flat fee, the risk management consultant is able to instantly reduce your TCOR.  They also are guaranteeing you that they are on your side of the table because they are not being paid a "commission" to place coverage.  Rather, it is included in the scope of your service fee arrangement with them.  Throw in a bonus based on reduction in TCOR and this is the best possible outcome for all parties involved!

Don't pre-qualify your company.  There are risk management consultants for companies of every shape and size out there.  You may thing that your company is too small to get anyone's attention, but there are risk management consultants that specialize in small businesses that are just as good as Fortune 500 risk managers.  Whether your worry about doing things right or think that you do everything right, chances are your company has risk that it has not contemplated.  Spend some time doing your homework and you may just find that hiring a risk management consultant makes a bigger impact on your financial statements than you ever thought possible.

David R. Carothers, CIC, CRM is a Risk Management Consultant and Licensed Insurance Agent with Praxiom based in Tampa, FL. To contact David Directly, please email him at drc@praxiom-rm.com.