Thanks to the near collapse of our financial system and the lingering recession that followed, we're experiencing some of the worst economic times since The Great Depression. Sales are down for most as consumers hoard their cash, fearful of losing their jobs, their homes, or both.
Layoffs, outsourcing and doing more with less are all strategies businesses are employing to survive. All of these steps carry inherent risks and exposures that need to be carefully managed.
Yet with most organizations desperately trying to find ways to survive until the economy turns around, there are no sacred cows when it comes to cutting costs. Unfortunately, that includes the risk management department.
While the need to reduce expenses across the board is understandable in these challenging times, it makes far less sense if one of the strategies companies employ is to cut back substantially on their safety and loss control programs. Short-term gains will very likely equal long-term losses.
No matter the business, I am seeing resources devoted to employee and customer safety programs suffer.
Whether it is deferring or eliminating training, replacing worn personal protective equipment, or getting by with defective machinery, safety seems to be another casualty of our economic woes.
Risk managers need to fight fire with fire, citing the impact their programs have on bottom-line results in staving off calls to retrench their efforts to keep loss frequency and severity under control.
While cutting safety budges may seem to be an effective strategy in the near term, over the longer run cutting safety will only lead to increased costs and exposure to fines and penalties. Talk about cutting off your nose to spite your face!
It may be easy for business owners to rationalize cuts in risk management and safety programs. Indeed, I constantly hear short-sighted comments from top brass that just do not make sense if one looks beyond the immediate, but fleeting savings that can be achieved. Listen to some of them:
o "We can't afford to do safety training." (Actually, you can't afford not to.)
o "I am trying to keep the doors open." (So is the risk manager, actually.)
o "I can't afford to provide new gloves to my employees. They will just have to make due with the old ones." (Even if injuries and claims soar?)
These strategies are not only short- sighted, but they will cost the company, on average, four-to-10-times more over the long term.
In the end, companies must stay focused on reducing their total cost of risk. The strategy of cutting safety will ultimately increase the cost of risk dramatically, and thus reduce their profits even further.
One of the biggest misunderstandings is that "accidents just happen." This is furthest from the truth. In fact, accidents are caused by events that are not only preventable, they are predictable.
Most businesses are not experiencing "new and improved" injuries (or accidents). Most of the time, they are the same ones over and over again. In fact, near-miss accidents or unsafe actions occur an average of 400 times before someone is injured!
So if accidents are predictable, they are preventable. The old adage is that safety is written in peoples' blood. I prefer to say that lack of safety is written in lost profits.
While it's true that having a safety program is a "cost" to businesses, not having risk management efforts in place will ultimately cost the organization a great deal more.
Increased insurance premiums, additional lawsuits, higher legal fees and lost productivity are all costs that start cutting into the bottom line following a preventable accident.
As for "softer" but no less critical costs, don't forget that employee morale and company reputation all suffer when the workplace becomes hazardous.
These are avoidable costs and will ultimately preserve capital for a company. The costs of injuries and accidents are a huge waste of money!
So if companies have a road map to prevent injuries and accidents, why would they take a shortcut and expose themselves to additional costs and a loss in their standing inside and outside the firm?
The answer is they believe that accidents just happen, and that their safety program is nothing but a cost–a luxury–the firm can reduce or eliminate without much risk.
Informed business owners are going against this trend and realize now is the time to invest in their business. A strong safety program protects your most valuable assets–your customers and employees.
When the economy begins to turn around, you will need a well-trained employee and a loyal customer base. A strong safety and risk management program ensures that will happen.
So while it may make sense to cut back on safety during these tough times, safety needs to be one of the items that businesses keep in place as one of the staples that keeps your business profitable.
Don't let poor economic times put a wrench in your safety program and cost your business more in the long run.
Richard W. Sarnie, CSP, P.E., is senior vice president and chief operating officer at The ALS Group in Upper Saddle River, N.J. He may be reached at rsarnie@als-uic.com.
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