What is Risk Management?

Risk Management is the continuing practice of identifying and evaluating potential risks for financial and other losses, in order to minimize exposure due to losses and mitigate the effects of losses. The government sector is exposed to unique risks because of the nature and scope of government activities. Some government services, such as police and fire, are inherently dangerous and carry a high level of risk. Governments provide a diverse and wide-ranging scope of services and they do not exert total control over their physical environments, so constant monitoring of all government activities is not feasible, which further complicates exposure to risk.

Risk Management in the government sector may be coordinated by a designated Risk Management Department, either as a division within a Finance or Administrative Services Department, or as a separate office. Many smaller government entities do not have a designated Risk Management office, and instead assign the function of Risk Management to an executive or administrative office. A Risk Management program in the government setting generally consists of purchasing insurance or requiring insurance from contractors, loss prevention and control, administering claims, and monitoring litigation.

The purchase of risk insurance is a form of transferring risk. Governments typically carry numerous types of insurance policies, including property insurance, liability insurance, errors and omissions insurance, and workers' compensation. Some specialized forms of insurance have emerged in the market, such as snow insurance and fidelity bonds. Governments may also transfer risk by requiring contractors to carry insurance that protects against loss resulting from accidents or litigation.

Many governments have formed intergovernmental insurance pools as a way of managing the cost of insurance. Risk pools enable multiple governments to make group purchases of insurance. Some insurance pools also function as their members' Risk Managers, offering risk assessments, safety training, and other services.

Loss prevention and control are efforts to reduce the likelihood that a loss will occur. Governments provide safety training and workshops to personnel as a strategy to prevent losses. Loss prevention also includes the inspection of buildings and other physical assets, as well as the placement of fire extinguishers, sprinklers, and smoke detectors.