What Does Risk Management Mean as it Applies to Property Management?

What Does Risk Management Mean to Property Management

Property Management is a multifaceted role; most people would not assume all of the various components that are included in it. Risk management is just one of these focuses, however it is very important.  The synergy between property and risk management is due to the overarching impact that risk has on everyone’s lives. Risk management can be seen as a focus in many people’s jobs, but especially when working within real estate.

What is Risk Management?

Risk management is a process involving the identification, assessment and control of threats to a businesses earnings or income. The risks could stem from many different places, ranging from financial uncertainty to natural disasters. Risk management requires you to accommodate and plan for the unexpected. This involves creating contingency plans, securing emergency budgets and explaining risks and issues with you business or clientele as a whole.

This is a common practice as it makes a working environment safer and secure for the business and its customers. Businesses with risk management controls increase the overall stability of a business and its operations, this in turn decreases a lot of legal liabilities. Businesses that invest heavily in risk management practices tend to be much more informed about potential investments and make well-informed decisions.

What is Property Management?

Property management is the general overseeing of residential, commercial or industrial real estate by a contractor or third party. They must take care of all the day-to-day repairs and on going maintenance, property security and the upkeep of properties. This can be for many different housing projects and buildings at any one time, so it can get very busy.

Most property managers will work for owners of large-scale investment properties. These are usually premises like apartment and condominium complexes, private homes, shopping centres and industrial parks. This is due to property developers want to continue investing and creating more spaces, they need more focus on the next project.

Other responsibilities of property managers include; screening potential tenants and vetting their references, drafting, signing and reviewing leases, collecting rent, property maintenance and arranging any repairs, landscaping or snow removal and devising budgets for property maintenance.

There are also many unofficial factors associated with property management that have become the norm. A property manager needs to be on call almost all the time to ensure any emergencies are taken care of, this is not specified but is expected. They also have to build a rapport with their clients to ensure the best service is experienced and tailored to each one. Most importantly, they must understand the risk involved with renting out any space and how it can impact themselves and their company.

Risk Management vs. Property Management

Risk Management vs. Property ManagementFor some people this may seem like a strange concept, but risk management is a huge factor within the restraints of property management. A key concept that property managers must understand is risk versus reward. This means that if a tenant wants to get a pool on the premises, the property manager cannot only see this as a reward, they must identify all the possible risks associated with this action and weigh out the pros and cons.

There are three ways that property managers should identify and address risk; avoidance, control and risk transfer. When discussing avoidance we mean the actuality of removing the risk and the potential impact it may have on the property. Using the example of the pool, the property manager will have to decide if it will actually add any value to the property and how much it will cost in insurance. The avoidance stage is to nip the risk in the bud and make the informed decision of yes or no to any possible risk.

The control aspect of the decision process helps to make the risk more feasible and logical. It aims to bring the control back to the property manager or team and give them the upper hand if any possible risk were to occur. With regards to the example of a new pool at a property, the control aspect may call for a coded, locked fence around it. This would remove all possible issues of younger children or adults falling in when it is not in use or they are not being supervised.

The last aspect of the decision making process when dealing with risk is risk transfer. This means what is the most prevalent way of actually dealing with a risk, with the least amount of impact from the property management team. In essence this means to move ones risk over to someone else, like an insurance team. Using the same pool example, the property manager would purchase insurance against any accidents with the pool. This means the risk is then transferred over to them, alleviating the property manager of the task.


Risk management is a prevalent concept that is experienced in all forms of business practise. Risk management within property management is extremely important and can be the difference in massive profits, or huge pay outs to your tenants. In previous times the risk would be held to the person the purchased the item. So if the people renting the home bought a pool, they would be the sole owners of any risks or rewards that come from this.

In these modern times, everyone is liable to risk and the best way to defend yourself is to ensure you have good insurance policies. This is especially relevant within the property management field. Making well-informed decisions on the risks in question at the time they arise can also make managing them easier. If a tenant wants to upgrade their home or has an issue or fault, it is at that moment the property manager must be thinking of the possible impacts of this. This can help them strategies and come up with a proactive solution for all parties, especially their own firm.


Please enter your comment!
Please enter your name here