The Prouty Matrix and Risk Management

We're hosting a webinar on Friday, August 10th, at noon CST, titled, "The Stand Alone Risk Management Solution."  If your company or your client's company is large enough (It has either $10 million in gross revenue, or 25 employees, or is in a high risk industry) please sign up at this link.

When putting together a risk management strategy, it's difficult to know what risks to avoid, what risks to take on, and what risks to shift.  The above matrix, called the Prouty Risk Matrix, helps companies make those decisions.

The matrix has two columns.  The left side ranks the probability of risk occurring from rare to very likely while the top ranks the cost of those risks from trivial to extreme.  You'll also notice the different colors to the boxes. 

Green boxes -- labeled "low" -- are risks that the insured will take onto their income statement.  Why?  Because the combination of their occurring and then the resulting cost is favorable to the insured.  

Yellow boxes -- labeled "medium" -- are risks that the insured will insure.  Why?  Because they're at worst likely to occur and when they do occur the cost associated with them is higher.

Red boxes -- labeled high -- are completely avoided because they have a high probability of occurring and when they do happen, they cost a great deal of money.