When you’re running a business, risk is everywhere you look. It’s with the clients you choose, the cases and work you take on, and the running of the business itself. Because risk is around every corner, a law firm needs to have updated and firm risk management practices to help mitigate and avoid these concerns.
Risk is the uncertainty caused by an event that may affect the achievement of objectives, particularly business ones. The management of risks that a law firm is exposed to involves decisions about avoiding negative impacts and pursuing a positive impact on future business opportunities. Effective risk management mitigates losses and can contribute positively to the competitive ranking of a law firm. By updating risk management practices, your firm will have fewer surprises to deal with, improved planning, protection for lawyers, and an enhanced reputation.
Law Firm Risks Identified
For the majority of law practices, managing risk is an evolving discipline whose elements are at various stages of maturity. The primary risks that a law firm is exposed to are: IT risks, like confidentiality, security, and access management; financial risks, such as financial transparency, anti-money laundering, and firm investments; practice management risks, like client relations and professional responsibilities; strategic risks, such as firm governance, marketing, and reputation; operational risks, like recruiting and employment; and environmental risks, such as natural disasters.
Loss prevention (a practice management risk) is an area that many law practices focus the risk management spotlight on. They are traditionally concerned with mitigating legal incidents, ensuring IT systems are adequately protected, and preventing malpractice claims. This focus will continue to become more important. The American Bar Association’s profile of legal malpractice claims demonstrates that larger claims are growing in both directions—dollar wise and frequency. This trend isn’t expected to stop as lawyers may overlook risk procedures in their scramble for work.
How to Improve Your Law Firm Risk Management Practices?
To showcase just how valuable your law firms’ risk management procedures are, communicate and consult with your employees. Make your risk management procedures explicit, built trust in them, and demonstrate how they add great value to your law practice. To accomplish these objectives, proactive communication is imperative. It will play a leading role in their implementation and adherence.
Speaking of being proactive, law practices should identify possible risks that could negatively affect their business objectives. This risk identification will help you realize what to watch for. When you list each risk that could occur, identify their source, an incident, a consequence, what caused it, any existing controls you have in place, when the risk could strike, and where it could occur. This identification will show you what risk management procedures you may have to think more about and work on.
Law firms are exposed to several different types of risks which could hurt their profits, clients, and reputation. To avoid these risks from occurring, every possible one should be clearly identified, discussed, and planned for.