Risk management in and of itself is not a new concept, although the term risk management is more prevalent today than ever before. One of the earliest mentions of risk management is from the 1920s, when businesses used the concept to more effectively manage insurance and business losses. Historically, risk management has been primarily handled by someone at the executive level, often used by chief financial officers to determine appropriate levels of insurance coverage, for example. However, today’s safety managers are finding that some of the risk management concepts can also be used at the production level to reduce the probability of accidental and business losses there as well.
Risk management is really just a specialized form of management. It incorporates the basic tenets of management, including the processes of planning, leading, organizing, and controlling personnel and processes in order to meet the objectives of an organization. Risk management also incorporates decisional aspects, which focuses on the following:
1. Identifying and analyzing potential loss exposures.
2. Brainstorming some potential solutions.
3. Selecting and implementing the chosen solution.
4. Following up to ensure that the solution is effective.
1. Look for potential loss exposures
Loss exposures are, very simply, anything that is exposed to a loss. Your car is an exposure. The building you work in is an exposure. You are an exposure. In order to achieve the goal of reducing workplace risks, you must establish a plan for eliminating employee injuries and illnesses by making the plan a part of daily operations. The plan should not only consider the organization’s immediate needs, but should provide for ongoing and long lasting employee protection. And, once the plan is designed, it must be properly implemented. As a result, the system will enable you to anticipate, identify, and eliminate the conditions or procedures that could result in workplace injuries and illnesses.
Developing a safety and health system begins with an evaluation of the workplace that consists of two primary steps. The first step is to perform a comprehensive survey or audit, and the second step is to perform an assessment of existing safety and health systems currently in place. An initial survey or audit includes such factors as:
an evaluation of workplace conditions with respect to mandatory requirements and regulations, as well as safety and health procedures that are generally accepted by industry;
an examination of what, how, and where dangerous materials are used;
direct observations of employee work habits and practices, or standard work procedures; and
discussions with employees and supervisors concerning any safety and health problems that they have experienced.
Some methods you can use to identify potential loss exposures include:
examining previous loss histories;
distributing surveys and questionnaires to employees;
performing personal facility inspections and audits;
reviewing flowcharts of your organization’s operations; and
seeking outside advice from risk management and loss control experts.
2. Brainstorm potential solutions
Brainstorming potential solutions might just be the heart of the entire risk management process because it is here that some of the most critical decisions must be made. And, even though these are risk management techniques, keep in mind that some of these techniques can be used by safety managers as well. There are four primary ways to prevent losses in any workplace; these include avoiding the exposure, incorporating effective loss prevention and loss reduction techniques, segregating the loss exposures, and transferring the risk of the exposure to someone else.
Avoiding potential exposures
Avoiding potential exposures can be accomplished in two ways: by choosing not to become involved in a particular activity, or to cease a particular activity. For example, let’s assume that your company is considering expanding its construction operations by purchasing a quarry, then performing blasting operations to acquire crushed rock for roads.
Further examination might reveal that no crew members have experience with blasting, making the risk for injury potentially astronomical. For this reason alone, you may decide not to undertake this new operation. But what if you’re already involved with blasting operations and personnel are continually getting hurt. One option may be to better train those involved with the blasting, hopefully reducing the number of injuries. Or, you might determine that the risks are far greater than the revenues experienced, thereby deciding to discontinue blasting operations all together, or subcontracting the job to some other company.
Loss prevention and loss reduction
Loss prevention incorporates pre–loss strategies, which reduce the frequency of workplace accidents and injuries. For example, providing personal protective equipment (PPE) and then training workers in its proper use is a form of loss prevention. By using the correct type of PPE for the job, we help reduce the frequency of workplace injuries, or possibly eliminate them altogether.
In contrast to loss prevention, loss reduction is a post–loss strategy that assumes that an accident has already occurred, but seeks to reduce the severity of that injury. Training workers in first aid is one example of a loss reduction technique because the sooner first aid is applied to an injured worker, the less severe the injury is likely to be.
Segregation of loss exposures
There are two ways to segregate loss exposures: separation and duplication. Separation does just what it implies; it separates assets in such a way that damage to some of the assets will not render your company helpless. For instance, let’s say that your company is the chief supplier of raw lumber to a local furniture manufacturer. If fire destroys your warehouse, not only are you out of business because you are unable to supply the necessary raw materials, the furniture manufacturer will not be able to manufacture furniture until they are able to find another supplier.
In this case, your company could practice segregation by owning two warehouses, dividing the raw materials between the two. This way, if warehouse number one is destroyed, raw materials can still be supplied from warehouse number two. This enables your company to stay in business while the other warehouse is replaced.
Duplication is also self-explanatory, and simply refers to duplicating critical machine parts or data, then storing the extra parts or backup computer disks at an off–site location.
Transfer of risk
The final risk control method involves physically transferring the risk of completing some task to someone else, as in the blasting operations example. The transfer of risk is accomplished through some type of business contract, which essentially transfers the risk and liability of the activity from one entity to another.
3. Select and implement the solution
It is difficult to make a lot of changes to a business at one time; improvements are more manageable if they are assigned a level of importance, and completed in a logical order. Priorities for correcting identified safety and health dangers can be established on the basis of severity of the danger, the probability of injury and illness, the time needed for correction, and the required amount of employee training.
A criterion for prioritizing corrective activities can be derived from:
the results of the safety and health survey or audit;
a review of your company’s injury and illness records; and
available time and resources.
The implementation of the action plan begins with the action step that has been assigned the highest priority. Open communication with employees is crucial to the success of the plan, and their cooperation depends on their understanding of what the safety and health system is all about, why it is important to them, and how it affects their work.
Any good management system requires a periodic review to ensure that the system is operating as intended. Every so often, examine each element in your safety and health system to determine what is working well, and what areas need improvement. Identifying necessary improvements provides the basis for new safety and health objectives for the coming year, and developing and implementing new action plans for those improvements will ensure continued progress toward an effective safety and health system.
That, in turn, will reduce safety and health risks, and should help increase your company’s level of efficiency and overall profitability. Remember, an effective safety and health system is really a plan that is put into practice. The system can be kept on track by periodically checking its progress.