Pre-Loss Objectives<\/strong><\/p>\n\n\n\nImportant objectives before a loss occurs include economy, reduction of anxiety, and meeting legal obligations.<\/p>\n\n\n\n
PREPARATION FOR POTENTIAL LOSSES IN MOST ECONOMICAL WAY: The first objective means that the firm should prepare for potential losses in the most economical way. This preparation involves an analysis of the cost of safety programs, insurance premiums paid, and the costs associated with the different techniques for handling losses.<\/p>\n\n\n\n
REDUCTION IN ANXIETY: The second objective is the reduction of anxiety. Certain loss exposures can cause greater worry and fear for the risk manager and key executives. For example, the threat of a catastrophic lawsuit because of a defective product can cause greater anxiety than a small loss from a minor fire.<\/p>\n\n\n\n
MEETING ANY LEGAL OBLIGATIONS: The final objective is to meet any legal obligations. For example, government regulations may require a firm to install safety devices to protect workers from harm, to dispose of hazardous waste materials properly, and to label consumer products appropriately. Workers\u2019 compensation benefits must also be paid to injured workers. The firm must see that these legal obligations are met.<\/p>\n\n\n\n
Post-Loss Objectives<\/strong><\/p>\n\n\n\nRisk management also has certain objectives after a loss occurs. These objectives include survival of the firm, continued operations, stability of earnings, continued growth, and social responsibility.<\/p>\n\n\n\n
SURVIVAL OF FIRM: The most important post-loss objective is survival of the firm. Survival means that after a loss occurs, the firm can resume at least partial operations within some reasonable time period.<\/p>\n\n\n\n
CONTINUATION OF OPERATIONS: The second post-loss objective is to continue operating. For some firms, the ability to operate after a loss is extremely important. For example, a public utility firm must continue to provide service. Banks, bakeries, and other competitive firms must continue to operate after a loss. Otherwise, business will be lost to competitors.<\/p>\n\n\n\n
STABILITY OF EARNINGS: The third post-loss objective is stability of earnings. Earnings per share can be maintained if the firm continues to operate. However, a firm may incur substantial additional expenses to achieve this goal (such as operating at another location), and perfect stability of earnings may be difficult to attain.<\/p>\n\n\n\n
CONTINUED GROWTH OF THE FIRM: The fourth post-loss objective is continued growth of the firm. A company can grow by developing new products and markets or by acquiring or merging with other companies. The risk manager must therefore consider the effect that a loss will have on the firm\u2019s ability to grow.<\/p>\n\n\n\n
DISCHARGING SOCIAL RESPONSIBILITY: Finally, the objective of social responsibility is to minimize the effects that a loss will have on other persons and on society. A severe loss can adversely affect employees, suppliers, customers, creditors, and the community in general. For example, a severe loss that shuts down a plant in a small town for an extended period can cause considerable economic distress in the town.<\/p>\n\n\n\n