In today's business environment, managing risk is an important cost control center of any management function or situation. Understanding the true cost of risk and safety is a task that is subjective at times, objective at others. Often, a hazard evaluation will identify hidden costs and potentially huge future losses for a business or organization that are not known or fully evaluated in the present.
Applying a systematic Hazard Evaluation and Control approach to analyzing risk, and assigning dollar cost values to identified hazards and their control strategies, is an excellent method to maximize your organization's risk management dollar and identify previously unknown or poorly evaluated hazards.
The importance of using a systematic approach cannot be overemphasized. Such an approach will allow dissimilar hazards, their associated risks, and dissimilar Hazard Control Plans, to be analyzed in an apples-to-apples cost comparison. Such a Cost/Benefit Analysis applied to Organizational Risk and Hazard Control shows quantitatively which risks are the largest for the organization and how much they are costing the organization annualized year after year. In addition, the same methodology can be used to evaluate the Cost/Benefit of any proposed Hazard Control measures, and identify the largest Return on Investment (ROI) for any Hazard Control Strategy.
Systematically applying Hazard Identification, Evaluation, and Control is a continuous process hat is part of any highly functional organization's management discipline. This process is outlined in a flow chart at the end of this article. Once the Controls are put in place, the evaluation process should be repeated to make sure the controls are mitigating risk as planned and within budgeted cost.
To do a systematic Cost/Benefit Analysis of Hazards and their Controls, the hazards must be identified, evaluated, and a series of controls must be considered. Once the controls are known, they can be evaluated to determine if they function to control the hazard to an "Acceptable Level of Risk".
How does your organization define an 'Acceptable Risk'? Depending upon the nature of your organization, the type of business, the potential for harm, and the resulting losses from hazards, your organization will have a unique level of risk tolerance that must be addressed in any Hazard Control process. There are several methods that can be used to evaluate hazards and risk tolerance level of your organization, but the easiest to comprehend and apply is the Risk Matrix. Each hazard has a frequency and severity rating associated with the hazard.