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T he COVID-19 pandemic’s impact on the economy, construction, and business operations, along with the growing array of exposures confronting AEC firms has left many of them looking for new ways to strengthen their risk management and insurance initiatives. Enterprise risk management provides a formal process for firms to examine their critical risks in context, and implement cost-effective risk management and risk-financing solutions. Using ERM to strengthen your firm

Rob Hughes

In recent years, more AEC firms have looked into enterprise risk management, or ERM, to address their need for a more holistic and sophisticated process to identify, assess, quantify, and manage the increasingly complex risks they face. ERM offers a way to address critical risks as part of an integrated, strategic, and firm-wide process. It can provide a wider context for evaluating critical business decisions, including whether to expand into new disciplines or geographic markets, whether to take on different types of projects, or whether to acquire or merge with other design firms. Using ERM, design firms engage in a robust process to optimize protection against their most serious potential exposures while achieving efficiencies in their insurance program and driving down their overall cost of risk. Implementing ERM starts by educating the firm’s senior leadership and gaining their buy-in. ERM initiatives often require firm-wide participation in an ongoing process, so they are most likely to

succeed when leadership understands the value they bring and becomes fully engaged. Next, designate an ERM team to organize the effort and keep it on track. The ERM team reports directly to leadership and typically includes a cross-section of firm management, administration, and key thought leaders. Every AEC firm has its own risk profile and appetite, which may be related to its disciplines, project mix, geographical distribution, financial structure, and compensation practices. A firm’s risk appetite may also be reflected in its investment in risk management, as well as portion of overall risk transferred through insurance versus self-insured. Ultimately, a firm must determine its “risk appetite” or how much risk it is willing to take to achieve its growth and sustainability objectives. Note that this can evolve over time, depending on the firm’s financial strength, economic conditions, market forces, and other factors.

See ROB HUGHES, page 4


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