There are various steps involved in analyzing property loss exposure. The first step is to locate those things or those properties which have value and are exposed to loss. The property is divided into two categories i.e. real property and personal property. Real property is bifurcated into unimproved land and building.
Unimproved land is all real estate other than all permanent improvements, such land might contains water, mineral resources etc. Some perils that might strike unimproved land do not generally affect other property, so it is important for the risk manager to pay special attention to these perils and unimproved land.
Personal property is also further bifurcated into tangible and intangible property. Tangible property includes money & securities, accounts receivable, inventory, furniture, equipment, machinery, computer equipment, documents and mobile property. These tangible properties are exposed to theft, sabotage, physical damage and many other perils. Now the risk management professionals are looking for a value necessary to replace the function, not the particular piece of the property. Whereas intangible property includes goodwill, copyrights, patents, trademarks etc. The outstanding characteristics of these assets is that they are generally difficult to identify and to value. For risk managers valuing intangible assets on the basis of their extra earning power is much difficult and complicated.
Once the property exposed to loss has been identified, the next step is to identify the perils causing loss. There are infinite numbers of perils which can destroy, damage or results in wrongful taking of property. Perils are broadly divided into natural perils, human perils and economic perils. Risk management professionals must exercise reasons in searching for property perils. Risk managers should also be imaging and considering the devastating effect, a rumor or occurrence could have on the concerned organization.
The next step is to assess the financial consequences of a property loss exposure. There are various valuation standards and the risk manager should be very careful in selecting the valuation standards. Valuation standards include historical cost method, accounting book value, replacement cost value, reproduction cost method, functional replacement cost method, market value method, actual cash value method and the economic value method.
Then after going through all this process the risk manager will decide that which method of identifying the loss exposure and risk will be most appropriate. Applying the best method the risk manager will try to eliminate the risk or will try to reduce the impact of the risk.