Risk management can mean different things according what what field you’re in, and specifically for property managers, it can vary widely between operational and contractual risks. Overall, risk management means taking concern and preventative actions for these risks to avoid consequences to the property manager’s business. One thing is certain, risk management all starts with educating yourself. Educate yourself and learn to be aware of upcoming risks. The earlier you identify a potential risk the sooner you can take preventative action. The more risk management options you have, less financial consequences will result. As a good rule of thumb, follow this risk management guide on a regular basis:
1. Imagine any risk that might cause a financial loss.
2. Estimate the maximum loss you would face and assign it to one of these categories:
a. Something you could prevent on a day-to-day business.
b. Something you could survive, without financial difficulty.
c. Something that would cause financial failure.
3. Take preventative action by doing the following:
a. Remove the risk entirely: This could mean anything from replacing dead batteries in a smoke detector, or removing broken tree limbs. Sometimes it’s that easy, but not often.
b. Control the risk: You can control any risk by providing a protocol for all to follow. Emergency plans for tornadoes or earthquakes are an example. Or if a tenant wants to break a lease early there’s a protocol they must follow to keep you from losing money.
c. Reduce the risk: This requires pro-active steps and investment to manage risks that could potentially happen. Investing in regular property inspections is a big step to take to reduce potential risks.
d. Insure yourself: This is more of a long term risk management action. You can do all you can to prevent, reduce and eliminate potential risks on their own, but that doesn’t always keep risks from happening. Insuring yourself and your properties is the fall back for when risks become reality and to soften the financial blow to your business.
Everyone knows risks are a part of any business. They come they go, you accept, adjust accordingly, and then move on. Keep risks in mind and always have a plan of action.