To manage risk, companies can draw on two key risk management areas. The first is the use of risk controls or those solutions that prevent and mitigate risk. The second is the use of risk finance solutions which provide capital in the event certain risks manifest and cause damage (financial loss) to organizations. These two risk management areas feed each other. Those solutions that are utilized to prevent and mitigate risk (the risk controls) reduce the likelihood and severity of claims against the risk finance solutions.

From a risk finance perspective, the claims made against the risk finance products are a rich source of data which can be utilized to create new and improved risk controls. The interplay between risk controls and risk finance is a virtuous cycle of risk management, and organizations involved in the construction sector may benefit by ensuring these two risk management areas are closely linked to improve the risk management platform their organizations and for projects they are part of.

Reprinted courtesy of David Bowcott, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.