Compliance Is Not a Risk Management Strategy

by Eric Schmitz on April 28, 2014

Compliance Is Not a Risk Management Strategy

By Peter Zaidel

Risk is an inherent part of business operations. Risk management is an overall strategy to identify and avoid things that could cause losses in the workplace. As part of this strategy, loss control focuses on minimizing potential losses from exposure to those risks.

Risk management and loss control programs are broadly applied in most businesses and manage everything from product quality, to theft, to potential lawsuits. You’ve probably experienced insurance companies using loss control programs to estimate your premiums.

In a dealership, the most visible part of risk management is the safety program. Without a strong safety culture, potential losses are the greatest because they include serious injury and loss of life.

What a Risk Management Strategy Looks Like
The strategy has two basic parts: assessment and framework. Assessment identifies hazardous situations and practices: this means observing the work environment and recording everything from behaviors to materials that could cause an accident. The assessment has to be evaluated, and a framework is built around those findings. Together, the two parts form a plan of effective and sufficient preventative measures. A successful risk management program engages workers.

What a Loss Control Program Looks Like
As part of the risk management program, loss control addresses more specific goals, including:

  • Staying compliant with government regulations and inspections
  • Protecting employees from injury and illness
  • Protecting equipment investments
  • Controlling waste handling costs
  • Employee training
  • Reducing Workers’ Compensation rates

One resource in the field of loss control programs is the book, Removing Obstacles to Safety (Agnew & Snyder, 2008). It sets the foundations for behavior based safety programs, and argues that the ultimate goal of your safety program is to reduce and ideally eliminate injuries. The goal is to keep everyone safe, and to allow every individual to perform the behaviors that ensure personal safety.

Without an effective loss control program, an employer’s Injury and illnesses costs add up. Even injuries that seem minor can have a drastic effect on a business’s profitability. This is because the total cost of an injury can be up to 4 or 5 times greater than the direct cost of treatment and compensation. For example, if $2,500 is paid in direct costs for a minor injury, when indirect costs like time off work and equipment damage are factored in, the total cost of the injury is usually closer to $12,500. Furthermore, the indirect costs are generally not insured, and as a result, are unrecoverable. Using industry statistics, OSHA has developed a “Safety Pays” calculator that determines the total cost of an accident. This calculator can be found at: http://www.osha.gov/dcsp/smallbusiness/safetypays/background.html and can be used to help illustrate the importance of Loss Control to a Safety Committee or a facility’s Controller.

The Difference between Compliance and Risk Management
Because accidents and injuries happen for many reasons, preventing accidents can be difficult. To guide preventative efforts, government regulations were implemented and standardized over time through agencies like OSHA, EPA and DOT. The idea behind the regulations is that government can act independently from market triggers and advance the individual worker’s interest in self-preservation. The cumulative effects of regulations are overall lower public health costs, improved working conditions, and improved standards of living. As workplace conditions change, regulations are constantly updated.

Yet, even the most compliant facilities suffer accidents. In the automotive industry, looking only at dealerships in 2006, there were 71 Fatalities and 80,800 reportable injury cases. These are high numbers for a relatively safe and compliant retail market.

For your risk management strategy to work, safety programs needs to be comprehensive, with multiple goals, including, but not limited to, compliance. A successful integration with company culture and influence over worker behavior is the best measurement of the strategy’s strength, because the overall goal of a risk management strategy is worker safety, not compliance.

Eric SchmitzCompliance Is Not a Risk Management Strategy