Why is analyzing losses important to risk management?

Peter Dion , March 09, 2016
Hint: loss analysis can help your profit margins

Line of Business Director-Liability

Peter Dion is Line of Business Director-Liability for North America. Peter has 30 years... About this expert

wet floor sign

While some companies view accident and injury losses as a cost of doing business, in reality, they represent an opportunity to improve profitability. Loss analyses must be completed carefully. Identifying and correcting the right loss drivers (causes) is critical, otherwise your company could expend valuable resources without making a positive impact (preventing a recurrence and saving money).

Loss analysis is a systematic approach to identifying the underlying causes that lead to accidents and/or injuries. Only when the underlying causes are identified and corrected can future losses be mitigated. Knowing the underlying causes of less serious accidents/injuries is also important, because frequency can lead to severity, resulting in a more costly accident or injury.

In addition to investigating visitor accidents and injuries, more than 1.4 million businesses are required to post their OSHA Annual Summary of occupational injuries and illnesses. Completing proper loss analysis of worker accidents and injuries not only helps fulfill this OSHA requirement, it is good for business.

While most companies investigate injuries, many firms assume they are identifying loss causes when they are actually identifying loss symptoms. Often injuries are attributed to symptoms, such as a worker’s inattention or mistakes instead of an underlying system failure. Thus, companies correct and improve symptoms (such as employee training), yet the underlying system failure remains hidden. When a similar accident or injury occurs, companies are surprised how this could have happened, but continue to implement the same “fix” (more training) over and over again. They do not realize that recurrences happen and related loss costs increase because the underlying system failures have not been addressed.

Let’s look at a typical scenario. Inside the doorway of an office building, visitors keep slipping on a wet floor surface. A number of people are injured, one person seriously. For a given year, the loss cost total is $250,000. Believing water being tracked into the building during inclement weather is the loss cause, the company installs floor mats. One dry-weather day, a visitor slips and falls, fracturing his pelvis. At the inner doorway, water droplets are observed on the floor. This time a more thorough investigation reveals that an overhead pipe is slowly dripping. What the company believed was a housekeeping issue turned out to be a maintenance one.

A systematic approach to loss analysis to identify underlying loss causes

  • Gather all the facts pertaining to the accident/injury.
  • Identify the system problem (may be more than one) that contributed to the accident/injury. Why did it happen?
    • Management system: Policy enforcement, hiring practices, maintenance, staffing, supervisor training, prior corrective actions, adequate resources.
    • Employee systems: Protective equipment, not following procedures, experience level, health issues, etc.
    • Equipment systems: Guarding, tool selection, warnings, maintenance, etc.
    • Environmental systems: Ergonomics, lighting, warnings, maintenance.
  • Which of the above system failures were most likely the underlying cause(s)?
  • What corrective actions can be implemented to eliminate or mitigate the above failures to prevent a similar accident/injury from occurring in the future?

In our earlier scenario, if the company had initially identified the environment and equipment system failures, they could have prevented some of the fall accidents and the fractured pelvis injury from occurring, potentially saving hundreds of thousands of dollars and boosting business profits.

 


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