Principles of Risk Management and Insurance, 13th Edition

Benefits of Risk Management

The previous discussion shows that the risk management process involves a complex and detailed analysis. Despite the complexities, an effective risk management program yields substantial benefits to the firm or organization. Major benefits include the following:

• A formal risk management program enables a firm to attain its pre-loss and post-loss objectives more easily.

• The cost of risk is reduced, which may increase the company’s profits. The cost of risk is a risk management tool that measures the costs associated with treating the organization’s loss exposures. These costs include insurance premiums paid, retained losses, loss control expenditures, outside risk management services, financial guarantees, internal ...