David faces a number of risks in the course of his undertakings. They can be categorized in a number of groups with reference to their exposure and possible impact. The first category is that of unrecognized, ignored (by default), or unmanaged risks such as the shotgun’s value ($3000). The recognized risks even though no action has been taken will include the absorption of by policy matters. In David’s case, the medical insurance program serves as a vivid demonstration for the same. The avoided risks are managed by foreseeing and taking the appropriate steps. Here, this category will include aspects of auto accidents that were previously insured against. The reduced risks category will embrace a wide reference to the use of alternative approaches.
At this point, the categorization used above in assessing the possible risk response options available for David will help in formalizing the risk management-planning schedule. Various critics in risk management maintain that a broad subset of risk mitigation strategies in the above categorization are defined based on their causing attributes. They add that the an individual’s financial position requires continuous identification of strategies that are best for each and every risk and later designing specific approaches to implementing the same. The actions and strategies that are most probable in David’s case will include avoidance. Here, David needs to change his financial expense plan to eradicate the risks as well as to protect his financial objectives based on their subsequent impacts (Marcinko, 7).
David could achieve this through changing his scope of operation, adding resources, or adding time and therefore relaxing the popular triple constraint. For instance, David could ensure that he is more careful with his choice of hobbies especially skiing and snowmobiling, which expose his health to a number of infections. Clearly, this would lower his chance of having to fall sick as the risk exposure is eliminated. In addition, he could be more thorough in his driving to eliminate the possibility of a collision, which would mean that the peril would be financially detrimental to his welfare. Further, the $100 deductable amount will necessarily mean that he might not wholly restore his initial financial position.
Transference is the second approach that David could use to mitigate the impacts of the risks therein. Here, David will transfer the impact (financial) of the risks through contracting out various aspects of the undertakings. Transference will go a long way in reducing the risks especially if the contracted insurance firm is capable of embracing steps towards reducing the risk and actually does so (Trieschmann, 32). A good illustration for this is David’s property-liability exposures. The fact that he lives in an apartment worth $10,000 and has a shotgun worth $3,000 only serves to increase the value of the items owned. This way, it is always prudent that David transfers the responsibility of bearing the risk to a third party who is capable and willing to handle it. A recognized insurance firm could be appropriate in implementing this strategy as they have the assets and financial capability to assess the property’s value and insure such risks that surpass the owner’s ability.
Each of the risk strategies needs to be documented even though the levels of details vary depending on the special attributes of each of the exposures (including David's property- liability loss, health, and life). The variables with high uncertainty levels will subsequently benefit from formal and detailed risk management plans which establish a record of all the aspects involved in risk identification, assessment, analysis, planning, allocation, and information systems as well as documentation and progress reports (Harrington 33-97). The aspects, which are relatively smaller and contain minimal uncertainties, could need the documentation of a list of red flag items that are updated at critical progress points across the plan’s development and construction.
David could also develop a contingency, which is amount of time or money in reserve necessary in estimating the reduction of his risks facing overruns with respect to objectives to a level that is acceptable to him. However, not all of his risks are avoidable or can be fully mitigated. If an insurance firm accepts any of his risks, it means that it is prudent for him to maintain contingencies with a probability of the risk occurring (Rejda, 9). Likewise, David will maintain a contingency for his health risks, which will be allocated to the organization in place. The contingency fund will transparent to either party and incentives will be generated to complete the agreement in the exception of spending the entire contingency.
A progressive risk updating and monitoring process will be an ample tool in systematically tracking risks as well as inviting the identification of David’s new risks. This goes a long way in effectively managing his reserves (Choi & Powers 23-98). The approach will also help in ensuring successful completion and achievement of his personal financial goals and objectives. In the event that there is properly documentation, the risk updating and monitoring process is able to capture lessons learned as well as feed risk quantification, assessment, and identification efforts on his future assets.
Choi J., Powers M., Global Risk Management: Financial, Operational, and Insurance Strategies. New York: Emerald Group Publishing. 2002. Pp 23-98. Print
Harrington S., Risk Management and Insurance. New York: McGraw-Hill Companies, Incorporated. 2003. Pp 33-97. Print
Marcinko D., Insurance and Risk Management Strategies for Physicians and Advisors. New York: Jones & Bartlett Learning. 2005. Pp 7-63. Print
Rejda G., Principles of Risk Management and Insurance. New York: Prentice Hall. 2011. Pp 9-78. Print
Trieschmann J., Risk Management and Insurance. New York: Thomson/South-Western, 2005. Pp 8-32. Print