Total Cost of Risk Analysis

Every organization spends money to limit, reduce, or eliminate risk through transfer, financing, and loss control, which doesn’t even include the cost of losses that occur despite an organization”s best efforts. Often times, these costs, which include insurance premiums, risk retention costs (i.e., deductibles and self-insured retentions), and risk management administration expenses are managed on an individual basis, which makes it extremely difficult, at best, for an organization to determine how the total of how much it’s spending on managing its risks and the losses that are being incurred. In addition, without such a metric, it makes it almost impossible for chief decision-makers to determine if resources are being used in alignment with their overall risk management approach.

For years, the risk management community worked to develop a comprehensive performance-based metric to measure an organization”s aggregate quantifiable costs related to all components of managing its risk. Accordingly, the metric developed that is most widely accepted is called “Total Cost of Risk,” which is basically the total of all costs incurred on an enterprise-wide basis to manage risks, plus any losses that are incurred.

At HBRA, we provide the qualitative and quantitative analyses to help our clients determine their Total Cost of Risk, as well as identify the major components that comprise it, which provides the ability to:

  • benchmark risk management and risk financing performance over a period of time;
  • identify imbalances in risk management approaches;
  • provide insights as to whether risk profiles support overall strategic objectives;
  • highlight potential exposures; and
  • identify areas to more effectively and efficiently manage risks, as well as reduce costs.

The resulting report not only presents the quantifiable aspects of an organization’s Total Cost of Risk, including the major components thereof, but also provides practical and constructive recommendations to potentially help better allocate resources, reduce liability, advance risk management initiatives, and reduce cost.

Contact us to learn more about how an analysis of Total Cost of Risk can help you, as well as how the HBRA Network can help you better manage your risks!