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Risk Assessment
Road Map
06/2009
Has something gone wrong with a
current activity?
Or, are you considering a new
activity?
The Incident Analysis
Approach
The Difference Between
Incident Analysis and Risk Assessment
Incident Analysis: Risk Assessment:
• Establishes a cause • Focuses on
for an incident that identification of
has already potential exposures to
happened. prevent incidents from
• Focuses on analyzing happening.
the reasons for the • Breaks business
incident and decisions down into bite
development of sized pieces to enable
strategies to prevent pre-planning for loss
future incidents. control and mitigation
strategies.
If something has gone wrong with an
activity, you may want to analyze the
incident (what went wrong) before
moving forward.
Why Analyze Incidents?
• To establish cause and
prevents future incidents.
• To determine ALL causes
and contributing factors to
the incident.
• To identify corrective
actions.
• To assess the risks of
future activities.
Identify Systems Failures/Causes
• Rarely a Single Cause.
• Be Objective, Consistent.
• Avoid Blame Finding.
• Systems/Causal Factors.
– Management
– Equipment
– Environmental
– People
Systems Contributing To An
Incident
Management People
INCIDENT
Equipment Environment
Management
•Policies & Procedures
•Training & Other Resources
•Accountability Practices
People
•Training
• Level of experience
• Moral or morale
• Competency
• Past incidents
Equipment
•Maintenance Records
–Repairs
–Modifications
•Availability of Proper Equipment
Environment
•Distractions
•Visibility
•Conditions
•Hazards
•Terrain
•Other Users
Recommend Corrective Actions
• Based on specific systems
failures/causes.
• Plan and recommend changes that will
prevent further incidents of this nature.
• Analyze the risks associated with the
changes.
• Follow up to ensure changes
are instituted and maintained.
The Risk Assessment
Road Map Process
What is Risk Assessment?
A strategic approach to
planning, at all levels
and across all
functions of an
organization, that
identifies exposures of
activities and assists in
making risk adjusted
business decisions
every day.
GET RID OF SILOS
What is the
specific
activity?
What is Your
Agency’s Appetite
for Risk?
What is a Risk Appetite?
• Risk appetite is the degree of
uncertainty an agency is willing to
accept to reach its goals.
• Risk appetite is a key factor in
evaluating strategic options.
• Risk Assessment helps
management consider risk
appetite when setting goals that
align with overall agency strategy,
and managing risks related to that
strategy.
Work with your agency’s management to
decide:
• What is your agency’s risk
tolerance?
• How much or what are you
willing to risk to accomplish
the mission or activity?
• How much can your agency
afford to lose in any one
occurrence or in the
aggregate?
What Does Your
Agency Do?
(Mission, Goals,
Objectives)
Does the activity
fit the Agency
mission, goals,
objectives?
If the answer = No
Take to management
for consideration
Management decides yes = Move on
Management decides no = Stop
If the answer = Yes
What could go wrong?
Who could be harmed?
Make a list - write it down.
These are your loss exposures.
What could happen?
• Could there be bodily injury,
property damage or other
liability exposures caused
by this service or activity?
• Is there any impact on
workload? Could there
be any damage to our
systems?
What is Risk?
The danger or probability of loss.
Loss Exposure
Possibility of financial loss as
the result of a particular peril
striking a thing of value.
Components of a Loss Exposure
The type of value exposed
to loss.
The peril that causes the loss.
The extent of the potential
financial consequences of that
loss.
Values Exposed to Loss
• People
• Property
• Freedom from Liability
(Alleged Wrongdoing)
Perils Causing Loss
Natural Perils:
Human Perils:
Economic Perils:
Potential
Financial Consequences
Make sure that you don’t give away the farm!
THINK ABOUT
WHAT CAN GO
Wrong!
Why is this important?
An unrecognized loss exposure
cannot, except by chance, be
effectively managed.
Is this your agency?
Methods Of
Identifying Exposures:
• Previous contracts of similar type and
their outcomes.
• Standardized surveys/questionnaires
• Financial statements
• Records and files
• Loss Reports/Claims
• Flowcharts
• Personal inspections
• Experts
Rate the Risks of Loss and
Weigh the Value of
Opportunities
Rate the severity of the risk of
each potential loss exposure.
How bad can each loss be?
What could it cost?
Rating the Severity of Loss Exposures
Rating Severity Description (Risk)
1 Insignificant No injuries; low financial loss
2 Minor First aide treatment; minor financial loss
3 Moderate Injuries; loss of operations; moderate financial loss
4 Major Extensive injuries; loss of operations; major financial loss
5 Critical Death; major loss of operations; huge financial loss
What is the likelihood that
each of these potential loss
exposures will happen?
Rating the Likelihood of Occurrence
Rating Descriptor Likelihood Description
(Probability)
1 Rare 1 – 10% May occur only in exceptional
circumstances
2 Unlikely 11 – 25% Could occur at some time
3 Possible 26 – 75% Might occur at some time
4 Likely 76 – 90% Will probably occur in most
circumstances
5 Almost 91 – 100% Is expected to occur in most
Certain circumstances
Determine the risk rating/level of risk
for each potential loss exposure.
Severity
INSIGNIFICANT MINOR MODERATE MAJOR CRITICAL
ALMOST M H E E E
Likelihood
CERTAIN
LIKELY M M H E E
POSSIBLE L M H E E
UNLIKELY L L M H E
RARE L L M H H
Risk Rating (RR) = Level Of Risk
• E = Extreme Risk - involve senior
management immediately, emergency
situation, consider not doing the activity.
• H = High Risk - management attention
required for business and policy decisions,
risk control, insurance types and limits, etc.
• M = Moderate Risk - management should be
kept informed of risk control, insurance types
and limits, etc.
• L = Low Risk - manage by routine
procedures, insurance types and limits could
be flexible.
Now That You Have Rated The
Risks Of Loss.…
Think About The Value Of
OPPORTUNITIES
EXPLOITING OPPORTUNITIES
• What opportunities will be missed if the
activity is not done?
• What is the upside and downside of
these opportunities?
• By considering the full range of potential
events—rather than just risks—the risk
assessment process ensures that
management can identify and take
advantage of positive events quickly
and efficiently.
Weighing the Value of Opportunities
Rating Value Description (Opportunity)
1 Insignificant Minor budgetary, funding, or resource gain; Little
or no gain in public and/or client relations.
2 Minor Low budgetary, funding, or resource gain; Some
gain in public and/or client relations.
3 Moderate Moderate budgetary, funding, or resource gain;
Adequate public and/or client relations.
4 Major Major budgetary, funding, or resource gain; Good
public and/or client relations.
5 Critical Huge budgetary, funding, or resource gain;
Excellent public and/or client relations.
If RR = E or H
If the Answer = No
Is the
Activity
Necessary Management
? Business Decision
No = Stop
Management Decides
Yes = Move On
For Each Thing
That Could Go Wrong…
What Tools Are Available To
Manage the Risks?
Statutory Immunities:
Research Statutes
Do any
immunities
apply to the
activity?
No = Move on to Loss
Prevention/Risk
Control Measures
Statutory Immunities
If the Answer is: Yes
Do you have a
What are the legal opinion
limitations and/ on statutory
or exclusions? immunities?
No = Management Yes = Move on to Loss
business decision Prevention/Risk Control
on legal opinion Measures
Loss Prevention/
Risk Control Measures
What are Loss Prevention/
Risk Control Methods?
Avoid the risk altogether.
Prevent the frequency of loss.
Reduce the severity or cost of loss.
Segregate to prevent one event
from causing loss to the whole.
Contractually transfer the risk.
Avoid Exposure
Entirely eliminates
any possibility of
loss. It is
achieved either by
abandoning or
never undertaking
an activity or an
asset.
Loss Prevention
Reduces the frequency or number of
losses.
Loss Reduction
Lowers the severity or cost of a loss.
Segregate Your Losses
Arrange your agency’s activities and assets to
prevent one event from causing loss to the
whole.
- two methods -
Separation
Separate activities and assets among
several locations.
Duplication
Provide a duplicate or stand by for use in
case assets or activities suffer a loss.
Contractual Transfer of Risk
GOAL:
To insure that a contractor is
responsible for claims arising out
of his or her acts, and has some
way to pay for these losses.
Develop Risk Control Measures
Specific to the Situation
• Personal protective equipment.
• Housekeeping, repair, and maintenance.
• Inspections.
• Tools and equipment.
• Policies, procedures, and process.
• Supervision.
• Contract management and administration.
Which
measures
best fit the
mission,
activity, and
RR?
How can the
measures be
implemented
? Who will
implement?
Who will be
responsible
for making
sure the
measures
are
followed?
Who will be
responsible
for ongoing
monitoring?
Did you
choose Yes = Move on to select
Contractual appropriate Contractual
Transfer? Transfer Contract
Clauses
No = Go to
State’s Self – Insurance or
Commercial Insurance
Contractual Transfer –
Contract Clauses
• Independent Contractor
• Indemnity/Hold
Harmless.
• Insurance and Bonds.
• Warranties.
Will you Will you Will you
use a use a require
contract? template? insuranc
e or
bonds?
Yes = Move on to Contractual Transfer
No = How will the state be protected?
Re-evaluate the situation. Figure
out how the state will be protected.
Talk to management.
Coverage Assessment
What kind and
how much
insurance or
bonds?
Your World has changed!
9-11-01
Where Does Risk Assessment, Insurance,
Bonding and Indemnification Fit in the
Contracting Process?
• At the inception of an idea, your agency
should perform a risk assessment of the
activity.
Common Types of
Insurance Coverage
• Commercial General Liability
• Automobile Liability Coverage
• Professional Liability
• Workers’ Compensation
• Builder’s Risk Coverage
• Excess Liability Coverage
• Pollution Liability Coverage
• Tail Coverage
What Does
General Liability Insurance
Really Cover?
General Liability Insurance
Myths
• Insurance covers ―the
indemnification provided in the
contract.‖
– FALSE
• General Liability insurance will
cover your entity if the contractor’s
work is done ―negligently.‖
– FALSE
• There is ―contractual liability‖
coverage in a General Liability
policy.
– MOSTLY FALSE
Commercial General Liability
(CGL)
Insurance covering ―Third Party‖:
Bodily injury.
Property damage.
Limited Contractual liability.
Products and completed operations.
May also cover personal and
advertising injury liability.
CGL Policy Definitions
Bodily Injury: The injury of physical
tissue by an outside force, bodily harm,
sickness, or disease.
Personal Injury: Libel, slander, false
arrest, and invasion of privacy.
CGL Policy Definitions
(Continued)
Products & Completed Operations:
Insurance covering the contractor for
damage or injury to third parties
resulting from something the contractor
made, repaired, or installed. The
damage to third parties resulting from
the service would be covered not the
contractors actual product.
CGL Policy Definitions
(Continued)
Contractual Liability: A portion of
Commercial General Liability coverage that
allows limited coverage for liability
assumed under the contract. The coverage
allowed by Contractual Liability includes:
Liability assumed under an ―insured
contract‖.
Liability that the insured would have in
the absence of the contract or
agreement.
What is an “Insured Contract”?
Per the CGL Policy Definitions, an ―Insured
Contract means:
• A contract for a lease of premises.
• A sidetrack agreement (a railroad term).
• Easements.
• Agreements required by municipalities as a
result of ordinances (not for work done for
municipalities.)
• Elevator maintenance agreements.
• Liabilities that ―would be imposed by law in
the absence of any contract or agreement.‖
Current Case Law
• Id. at 479. A tort claim, where there is a
contract between parties, may only proceed
where there is some kind of obligation owed
by one party to the other beyond the duties
that the contract imposes.
• Id. at 477. Examples of such relationships
are those between lawyers and clients,
doctors and patients, or trustees and
beneficiaries. The court has called these
―special relationships.‖
Jones v. Emerald Pacific Homes, 188 Or App 471, id at 477 & 479
Special Relationships
Only Exist When:
• One party has relinquished control over
the subject matter of the relationship to
the other party; and
• Has placed its potential monetary
liability in the other’s hands.
Will you require
Additional
Insured and No
other clauses?
Re-evaluate the situation. Figure
out how the state will be protected.
Talk to management.
How Much Insurance Should
Be Required?
Use the risk rating to set
insurance and bonding limits.
Severity
INSIGNIFICANT MINOR MODERATE MAJOR CRITICAL
ALMOST M H E E E
Likelihood
CERTAIN
LIKELY M M H E E
POSSIBLE L M H E E
UNLIKELY L L M H E
RARE L L M H H
E = Extreme Risk:
• First, consider not doing the activity.
• If you must, you will need to decide
how much a potential loss could
cost?
• In general, risks at this level warrant
more than $1.5 million per person
and $3 million per occurrence in
coverage for Bodily Injury (BI) and
Death. In addition, if property
damage is an exposure, add
$100,000 per single limit and
$500,000 per occurrence.
H = High Risk:
• Could a potential loss cost in excess of
$1.5 million per person and $3 million per
occurrence in coverage for Bodily Injury
(BI) and Death? Ask for more coverage.
In addition, if property damage is an
exposure, add $100,000 per single limit
and $500,000 per occurrence.
• Make sure your assessment considers all
costs of potential losses.
• Risk Management would not recommend
limits of less than $1.5 million per person
and $3 million per occurrence in
coverage for Bodily Injury (BI) and Death.
In addition, if property damage is an
exposure, add $100,000 per single limit
and $500,000 per occurrence.
M = Moderate Risk:
• Standard limit of insurance is $1.5 million
per person and $3 million per occurrence
in coverage for Bodily Injury (BI) and
Death. In addition, if property damage is
an exposure, add $100,000 per single
limit and $500,000 per occurrence.
• Assessment should consider all costs of
potential losses.
• If assessment reveals potential loss in
excess of $1.5 million per person and
$3 million per occurrence in coverage for
Bodily Injury (BI) and Death and in
addition, if property damage is an
exposure, add $100,000 per single limit
and $500,000 per occurrence, your risk
may actually be high (see H for High
Risk.)
L = Low Risk:
• If risk is minimal, this is the area where coverage and
limits may potentially be flexible.
• Standard limit is still $1.5 million per person and
$3 million per occurrence in coverage for Bodily Injury
(BI) and Death. In addition, if property damage is an
exposure, add $100,000 per single limit and $500,000
per occurrence.
• In the case of minimal risks, the agency could make a
business decision to lower the limits of coverage.
• Risk Management would not generally recommend
insurance limits of less than $1.5 million per person
and $3 million per occurrence in coverage for Bodily
Injury (BI) and Death. In addition, if property damage is
an exposure, add $100,000 per single limit and
$500,000 per occurrence.
• If the risk assessment reveals only minute risk, agency
could make a business decision to waive coverage.
Always Remember
• Don’t rely on insurance or bonds to
cover all of the risks associated with
your contract.
• Many times outcome based statements
of work, contract administration, and
supervision are far better risk control
measures to protect the state’s
interests than insurance or bonds.
• Insurance and bonds should be thought
of as the safety net that catches us
when everything else goes wrong.
For More Details on
Insurance Types and Limits
See Smart Contracting
Toolkit on our Web site at:
http://www.oregon.gov/DAS/
SSD/Risk/SmartContractingT
oolkit.shtml
The State’s Self-Insurance or
Commercial Insurance
Does management
Does self- want Risk Mgmt to buy
insurance
No commercial insurance
cover the
activity
for the activity?
and/or
people?
No = How will the
agency pay for losses
resulting from the
activity?
Yes = Move on to evaluate Self-
Insurance or Commercial
Insurance Coverage
Evaluation of State Self-Insurance or
Commercial Insurance Coverage
Which kind What are the
of coverage exclusions
and what and
are the coverage
limits? Does the requirements For
For Self- ?
agency meet Commercia
Insurance
Coverage, see
the coverage l Insurance,
the State of requirements Contact
Oregon Self- ? Andrea
Insurance Peters in
Handbook Risk Mgmt
If Your Agency:
• Has no statutory immunity for the activity.
• Has not decided to use loss prevention/risk
control measures to minimize or mitigate
the risks.
• Has not contractually transferred the
liabilities associated with the activity to
another party.
• Does not have self-insurance coverage for
the activity.
• Has not purchased commercial insurance
coverage for the activity.
How will the agency pay for losses resulting
from the activity?
The Point?
• Knowing the risks associated with
your agency’s operations that should
be keeping you awake at night.
• This insight provides your agency
with the ability to plan for proactive
loss prevention actions rather than
just reactive loss reduction reactions.
Risk Assessment is Not
Rocket Science
At times, people tell us
that the Risk Assessment
Road Map process is too
simple…..
Our Answer . . .
If Risk Assessment is so
simple, why aren’t you
doing them?
One More Tool
• Risk Assessment is just one more tool
to enhance your agency’s business
decision-making tool box.
• This tool also gives your agency
a method of documenting the
rationale for your business
decisions.
• Risk Assessment Roadmap Toolkit:
http://www.oregon.gov/DAS/SSD/Risk/RiskAsse
ssmentRoadmapToolkit.shtml
Contractual Risk
Assessment Example
Bybee Bridge Project
What is the scope of the
contractual activity?
What is the overall activity?
Replacement of the Bybee Bridge
What are the activity components?
• Demolish existing structure
• Remove debris
• Design of new structure
• Construction of new structure
When and where does the activity take
place(s)?
• Bybee and McLoughlin Blvds,
Portland, Oregon
• 1/26/04 through 11/30/04
Who will be performing the activity?
• Capital Concrete Construction, Inc.
• Various sub-contractors
Will the contractor interact with
others, i.e., public, staff, etc.?
• Yes, there will be interaction with various
ODOT and City of Portland employees,
the public and sub-contractors.
Will there be any hazardous
materials involved?
• Yes – oil, gasoline, paint, chemicals,
debris, construction site runoff, etc.
What are the potential
loss exposures
associated with this
activity?
• Bodily injury
• Property damage
• Environmental damage
• Design flaw
What could go wrong? / Who
could be harmed?
- Bodily injury and/or illness to third party.
- Damage to third party property.
- Pollution from refueling or maintenance
operations.
- Structure destroyed due to vandalism
- Runoff contamination.
- Demolition improperly performed.
- Faulty construction due to improper
design or materials.
- Collapse of structure due to faulty design.
Is there any impact on workload or
damage to our systems?
- Delay in bridge completion due to faulty
construction or design
- Environmental cleanup
- Additional costs for repair or re-design
of bridge
Rate the Severity of Each
Potential Loss Exposure.
(How bad can each loss be?
What could it cost?)
Bodily Injury: Insignificant to Minor (1-2),
Hundreds to Thousands
Property Damage: Insignificant to Moderate
(1-3), Hundreds to Thousands
Environment: Minor to Critical (2-5),
Thousands to millions
Design Flaw: Minor to Moderate (2-3),
Thousands to millions
What is the Likelihood That
Each of These Potential
Losses Will Happen?
Bodily Injury - Unlikely (2)
Property Damage - Possible (3)
Environmental Damage – Likely (4)
Design Flaw – Unlikely (2)
Determine the Risk Rating
or Level of Risk for Each
Loss Exposure.
Bodily Injury: Low Risk
Property Damage: Low to High Risk
Environment: Moderate to Extreme Risk
Design Flaw: Low to Moderate Risk
Weighing the Value of Opportunities
Rating Value Description (Opportunity)
1 Insignificant Minor budgetary, funding, or resource gain; Little or
no gain in public and/or client relations.
2 Minor Low budgetary, funding, or resource gain; Some
gain in public and/or client relations.
3 Moderate Moderate budgetary, funding, or resource gain;
Adequate public and/or client relations.
4 Major Major budgetary, funding, or resource gain; Good
public and/or client relations.
5 Critical Huge budgetary, funding, or resource gain;
Excellent public and/or client relations.
What Could Be The Opportunities
On This Project?
• Possible funding from other entities i.e.
federal government, cities, counties, etc.
• Good public perception for widening and/or
fixing a deteriorating bridge.
• The opportunity of avoiding liability that could
arise from the collapse or failure of the
deteriorating bridge.
• Economic stimulation, and the opportunity to
utilize minority, women, or emerging small
business
Determine Non-Insurance
Risk Control Measures
• Involve the community at the earliest stage to
determine concerns. Address concerns,
examples include: detours, closures, access to
emergency services when the bridge is closed,
ways the environment will be protected, etc.
• Communicate to the public through various
methods, to include the web, TV and radio
stations, newspapers, neighborhood meeting, etc.
• Identify potential pollution sources from materials
and wastes that will be used, stored or disposed
of on the job.
• Use best business practices to address
pollution issues, such as using one area for
vehicle parking, refueling and routine
maintenance. Insure that wastes will be
disposed of properly. Require recycling of
wastes when possible.
• Close access to the work site for phases of
the construction that pose hazard to the
public, such as demolition.
• Verify that all of the contractor’s employees
are properly trained and/or certified as
required for the scope of work.
• Require the contractor to maintain
on-site MSDS sheets.
Assignment of Insurance
and Bonding Coverage
Bodily Injury: Low Risk - CGL/Automobile
Liability
Property Damage: Low to High Risk -
CGL/Automobile Liability
Environment: Moderate to Extreme Risk -
Pollution Liability
Design Flaw: Low to Moderate Risk –
Professional Liability
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