Risk management planning is crucial to protecting the assets of the club and its officers, directors and staff. Common areas in which risk management plans are used are policies regulating the service of alcohol, employment, membership and environmental practices, workplace safety, disaster planning, and the use of club vehicles, watercraft or facilities. Although known risks can be readily managed, the unknown or unanticipated risks are the most problematic.
A club should engage in an annual risk assessment where club management identifies risks and analyzes the likelihood of a particular risk occurring and the potential impact such a risk would have on the organization. A solid risk management plan that addresses all potential loss areas can help minimize potential claims and reduce criminal and civil liability. When completing a risk assessment, a club should look at changes in areas such as the economy and industry, as well as in regulatory, legal and operating environments.
The risk management process begins by identifying the factors that support or impair a club’s ability to manage risk, whether that risk comes from a liability lawsuit, identity theft or fraud. Annual review of club practices combined with a strategic approach to identifying exposures before they become an issue will help a club better understand and predict potential liabilities and will help minimize the adverse effects of risk.
Also, club leaders should understand the history of the club’s losses and related expenses, the costs of preventing and controlling these losses, the nature and cost of insurance, and the internal administrative expenses required to keep a complex program functioning. Historical data is extremely valuable in completing a risk assessment as it allows the club to track its actual performance against the goals it sets, to identify trends, and to forecast future performance. Often historical data will provide an early warning of emergent areas of risk.
Risk also will be better identified when the club implements effective channels of communication to carry important information down, across and up through the organization. Above all else, the club should create a workable system for employees to communicate information upstream, because employees have the best grasp on daily club operations and are not present at board meetings.
To obtain the full value of any risk management program, the club should first:
- Develop a policy on risk management
- Determine what controls are already in place
- Evaluate the alternatives available to eliminate or reduce identified risks or pass these risks on to an insurance company for a known premium
Developing a Risk Management Plan
There are four steps a club should consider when evaluating the club’s exposure to potential risks:
- Identify specific areas of potential loss. Survey or interview department heads for their perspective on potential losses. Examine the club’s insurance history for loss trends. This investigation will help identify potential exposures not readily apparent. Then, determine what facilities or activities in the club are potentially dangerous.
- Evaluate risk thoroughly. Determine the cost to replace the club’s assets, to cover the lost revenue from business interruption, and to pay claims in the event of injury to members or employees. Some risks will be minor and can be self-insured. Other risks, such as acts of terrorism, floods or earthquakes, either may not be insurable or might be cost prohibitive.
- Determine the best method for covering risks. If the club decides to self-insure substantial risk, the board should decide how the club will pay for any potential losses. Large businesses set aside funds to cover such losses; clubs, however, rarely have the reserves to self-insure and usually choose to transfer the risk to traditional insurance.
- Establish controls. In addition to appropriate insurance coverage, the board should review employee policies and training programs, volunteer training programs, membership and admission policies, as well as club bylaws, rules and operating practices to determine where it can institute control.
A club that takes the time to identify, evaluate and prioritize risk properly and completely will more easily be able to monitor and update the club’s risk management program in the future.
For additional information on risk management and assessment, see Club Governance Guidelines: A Path to Organizational Excellence.
For more information on managing risk at your club, please see the accompanying article, Risk Management Checklist: High Risk Areas.