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 Loss & Accident Management

Every operational loss and accident within a company represents a learning opportunity, so that past mistakes won’t be repeated. In addition the management of operational losses and accidents enables loss reduction targets to be set within a cohesive ERM framework, enabling operating costs and even the cost of insurance to be reduced.

Operational Losses and Near Misses

The management of Losses & Near Misses is considered by some to be the only real method of assessing the effectiveness of risk management. Spend on risk management should have an objective of reducing operational losses. Before a targeted reduction in losses can be set, it is necessary to first record losses so they can be assessed, aggregated and measured. Most organizations today do not know what their level of operational losses are and are therefore unable to undertake a managed loss reduction program.

With an appropriate Loss Management strategy in place, the effectiveness and the return on investment of the risk management process can be assessed in relation to a planned reduction in business loss (both financial and non-financial).

More than simply recording, reporting, and associating the loss with the risk that lead to it occurring, an effective linkage of losses and risks enables analysis of why the loss occurred in the first place.

Typically, a loss event will need to be recovered, both operationally and possibly financially, through insurance. For instance, the loss of a warehouse to fire: the business will need to recover to the operational status quo, as well as finding an alternative operating facility while this is occurring. This requires a managed program of work that needs to be resourced, planned, costed and monitored for completion and success.

Following recovery, an investigation can commence as to why the loss occurred: was it the result of a failed control, human error, act of God, or a deliberate act? What recommendations need to be actioned regarding a) the assessment of the risk of the loss happening again b) the controls in place to protect this risk, and c) what lessons can be learnt from the loss.

The key is to be able to link and manage these separate dimensions as a unified package - understanding how past losses can influence future risks and how risk mitigation now can prevent future losses.

Health & Safety related accidents

It is not enough just to consider financial losses, it is also vital that the same effort is expended to deal with Health and Safety incidents and accidents. These are losses that affect your most valuable assets and stakeholders, your staff and your customers.

Furthermore, most countries have regulatory requirements involving occupational health & safety e.g. the Health & Safety Executive in the UK, or the OHSA in the US, Canada, and Australia. This leads to a compliance driver that cannot be ignored.

Companies need to record and report on significant accidents, from fatalities through to losses of more than three days employment. In the UK the legal requirement for reporting fatalities is 24 hours and is also associated with an increasingly firm interpretation of the Corporate Manslaughter Act.

This can be carried out as a compliance activity but in order for this process to add value, businesses need to start using safety risk as one factor alongside the other more traditional business factors when making decisions. The days of safety being managed in isolated silos are past.

Where operational losses can inform risk based decision-making in a financial context, incidents and accidents should be informing risks from a health and safety perspective.
By recording accidents and near misses alongside risks, sorted by site, by severity or by root cause, businesses can understand where appropriate targetted action in the right areas, addressing the right causes, will reduce their risks of having a bad accident in the future. Put bluntly, this helps reduce the chance that a business will find its CEO in hand cuffs.

Bringing together the history of accidents and the risks for the future enables companies to understand the costs of the actions versus the likely benefits they will bring. This will enable businesses to decide and justify what they are going to do, ensuring they manage their safety risks in accordance with industry guidelines such as ALARP (As Low As Reasonably Practicable), while at the same time providing demonstrable Return on Investment for the company.

The ability to aggregate this information by site, by accident type, by severity and cause enables better understanding of the significance of the issue and provides the ground work for determining the trade-off of undertaking remedial actions to address any centralized causes.

Active Risk Manager has the ability to aggregate risk, loss and accident information and quantify it alongside scenarios for mitigating the risk going forward. This puts our customers in a unique position to assess the return on investment of undertaking any actions, and then monitoring the success of these actions in managing the risk. This gives them a measurable Return on Investment from carrying out the risk management activities that were previously seen as a compliance burden.

Active Risk Manager is the only risk software application that can deliver this true integration of Loss and Risk management. Click to download our "Closed-Loop Risk Management" product strategy document, describing our philosophy on how to use an evidence based model (losses) to close the risk management loop.

Benefits that an integrated Risk & Loss Management can bring:

• Bring together all risk and loss information, a single source of truth, to allow the organization to create the most cost effective remedies across the enterprise.
• Monitor losses for early and reliable warning signs of systemic causes of risk allowing the business to tackle that root cause. 
• Enable continuity and recovery plans to be assessed for effectiveness(ie how well did they help the business recover after the loss event?) Learning lessons to use again in the future.
• Reduce reputational damage: with early warnings and good planning a major incident can be more effectively managed 
• Review the insurance policies that are required globally, working with insurance brokers to reduce premiums based on a targeted reduced loss profile (managed and more importantly proven through an effective ERM methodology).
• Take a fresh look at your insurance costs: Use the ERM process to drive targetted loss reductions, demonstrating reduced risk exposure, which insurers can use to offer a more competitive premium.
• The ability to benefit from an efficient and effective process for recording, monitoring, managing and reporting on occupational health and safety related incidents.