Risk is a difficult word to define because it is used in so many different
ways. In general, however, there are two main constituents in any definition of
risk:
To this we can add a third factor:
While risk itself is often unmanageable because it is outside our control, it is the fact that something must change before disaster occurs that makes risk management possible, because we can influence the factors that must change.
For example, there is always a risk in a law firm of negligence, but that risk occurs only when there is a lapse in professional standards. It is possible to influence factors that may contribute to, reduce or remove a lapse in professional standards. A simple example is to ensure proper supervision over junior lawyers and paralegals.
In England, law firms use several methods to reduce the prospect of a lapse in professional standards. One simple method is the use of computer systems to track and call up any file that has not had any activity in the last (say) six months. Often, a file which is not moving is an indication that the lawyer handling it has become 'stuck' and does not know how to proceed. Especially in litigation, it is a disaster in the making.
Another method is the random selection of files on a regular basis for peer review, by someone other than the lawyer's supervising partner. In fact, even partners' files are subject to peer review by their fellow partners. These are simple processes to help ensure that the firm's standards and processes are maintained across the board.
Each firm has to develop its own systems, appropriate to its size and make up, to ensure that professional standards are maintained or exceeded in every area. Simple processes like having an effective diary system for limitation periods may be critical. Well-documented procedures are another, and to this end the Lexcel system has much to commend it. In England, many insurers give a discount on professional indemnity premiums to firms that carry the Lexcel mark, which certifies that they have in place appropriate procedures.
Risk is the possibility that the positive expectations of a goal-oriented system will not be realised (Dr M Haller) or, more simply, it is the probability of loss.
The extent to which a person feels threatened by a particular risk is subjective, it depends on the person's knowledge of the risk (no one feels threatened by a risk they have never thought about), the degree of their risk aversion etc. However, this may bear no relation to the objectively-assessed probability of its occurrence.
'Risk management' is the identification, measurement, control and financing of risk which threatens the existence, the assets, the earnings or the personnel of an organisation or the services it provides.
On this basis, every law firm should objectively carry out a risk management
exercise to identify and evaluate its exposure to risk, to take steps to control
the risk whenever possible, and to transfer (by insurance) the risk it cannot
afford
to carry.
Stanley Jeremiah
Goodwins Law Corporation