LOSS CONTROL MANAGEMENT

Managing Risk Through Effective Safety Management Systems

Managers Are Responsible for the Safety and Health of Others

Many managers have the tendency to rationalize accident causes; to focus on the careless or unsafe acts of others; and to avoid blaming themselves. As Dr. W. Edwards Deming (renowned quality consultant) and other management specialists have discovered, as few as 15% of a company's problems can be controlled by employees while as much as 85% can be controlled only by management. In other words, most loss control problems are management problems.

Safety Management Systems as a Part of Loss Control Management

Managers are the human component of management systems. They can be poor managers, effective managers or excellent leaders. Every manager can be assisted by a well-developed management system. Management systems help to maintain consistency. When managers change, the system remains to provide continuity through the transition. Management systems also provide structured paths for improved communication, accomplishment of goals, development of personnel and improvement of business processes. Loss control management can be described as bringing together issues such as quality, environment, security, safety, etc., in an attempt to address all potential loss exposures and address those critical to the operation. It is the systematic practice of identifying potential for loss, assessing the risks, making decisions on appropriate controls, and implementing and monitoring systems to control the loss. See Figure 1.

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Figure 1. Loss Control Management

Safety management addresses a specific part of loss control while providing a degree of synergy and overlap in others. It forms an integral part of the risk management process and, correctly implemented and introduced, will have a profound and desired impact on outputs.

Risk Assessment
Everyone of us has experience in risk assessment. Driving a car involves a high degree of risk assessment. Crossing a busy road, competing in sports, carrying out home improvements, bringing up children, buying a house, traveling overseas, choosing a restaurant and making career moves are all activities involving degrees of risk; risks that we assess in our own way and to differing degrees, but risks nonetheless, which we assess. Risk assessment in the workplace is fundamentally the same. The major difference is that our workplace performance

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LOSS CONTROL MANAGEMENT standards generally demand that we are more systematic in our approach and more defined in our conclusions. One reason that organizations conduct risk assessments is to determine what measures should be taken to comply with the relevant statutory provisions. The assessment of risk allows the employer to prioritize actions, and to decide which risks may be tolerated, and which require action to control them or remove them. The actions which must be taken following a risk assessment depend on the level of risk and will be driven by the safety management system. There is a great deal of confusion between the terms risk analysis and risk assessment; in fact, even practitioners have used them interchangeably for many years. Analysis refers to the objective process which produces information about the risk as its result. Assessment is the process by which results are considered against judgment, standards and criteria, to show that measures in place are adequate.1 Thus the process of quantifying risk using mathematical techniques is risk analysis; the steps of risk assessment in their simplest form require answers to the following questions: What can go wrong? How serious would it be? How likely is it to happen? What should we do about it?

A suitable and sufficient risk assessment should Analyze the likely outcome(s) of an action or an event Identify the significant risks Assess the chance of the outcome occurring Assess the potential consequences of the event Make a judgment on whether or not the outcome can be tolerated Identify requirements if the outcome, or potential outcome, cannot be tolerated

Management of Health and Safety at Work Regulations, 1992, Offshore Installations.

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LOSS CONTROL MANAGEMENT Provide information on which decisions on prioritization can be based Be appropriate to the nature of the operation and remain valid for a reasonable period of time.

In summary, the question Why risk assessment? should be answered with a positive response. Risk Assessment provides a tangible basis on which to determine Whether or not we can live with and tolerate the risk If we cant, what is cost effective to do about it, and How we can prioritize and program our investment in risk reduction in line with business performance and growth.

The people who can best identify loss exposures, evaluate the risks associated with each, develop plans to control significant risks, implement the required changes and monitor the system are the management team and employees of the organization. Undoubtedly, regulatory authorities, risk analysts and external consultants can assist with the task, but only the managers and employees truly know the hazards and day-to-day risks associated with their specific organization.

Goals of Loss Control Management

Here are five fundamental goals of loss control management (IEDIM): Identify all loss exposures Evaluate the risk in each exposure Develop a plan Implement the plan, and Monitor the system.

See Figure 2.

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Figure 2. Goals of Loss Control Management

Identify all Loss Exposures The first and most important step in managing risk is to identify all exposures facing an organization. This is the only sure way to know what exposures could result in major or catastrophic loss if not controlled. Many elements of a modern safety program make a continuous contribution to the identification of loss exposures: Reviews of past accidents, both in the company and in the industry, including accident investigation work, as well as appropriate data from other sources within the industry. Brainstorming and hazard observations: Both are best carried out by a team with good knowledge of the equipment, materials and working methods in use.

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Use of checklists and inventories such as Lists of hazardous materials and hazardous processes Lists of critical tasks performed List of critical parts Inspection forms Procedures Maintenance logs First-aid logs Etc.

HAZOP - Hazard and Operability Studies, often used in the chemical and oil industries, but a technique which has countless uses in industry at large. FMECA - Failure Modes, Effects and Criticality Analysis. Often used to detect weaknesses in automated safety systems, complementary to HAZOP. Critical Task Analysis - A method to identify tasks which pose the greatest risk, determine the actual loss exposures and control them systematically. Fault Tree Analysis - FTA traces a sequence back from a fault or loss scenario to determine the basic or underlying causes. Event Tree Analysis - ETA. Works in the opposite direction to FTA. ETA takes an event and predicts an outcome.

Sound judgment is probably the most effective risk assessment tool. Evaluate the Risk in Each Exposure Evaluating risk is essential for determining the criticalness of loss exposures and setting priorities for action. Three variables often used in this evaluation are Severity if the exposure were to result in a loss, how severe is the loss likely to be? Frequency how often are people, equipment, materials or the environment exposed to the risk?
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Probability considering all pertinent people-equipmentmaterials-environment-process factors, how likely is the loss to occur? Develop A Plan Having evaluated the risk, and decided that some form of controls should be applied, we have four alternatives before us. Termination Termination of the risk is generally the preferred option if it is not there, then it cannot do us harm. Unfortunately, termination of the risk is all too often not possible. Perhaps you generate electricity, produce oil, refine petrochemicals, run a railway. The very nature of your business relies on carrying potential loss exposures. In simple terms, not all risks can be terminated. Treatment Many hazards can be treated to reduce the inherent risk. Encapsulating asbestos to contain the hazard is one example; covering a noisy compressor might be another. Another method of treatment of risks is to apply controls by using procedures, practices, rules and regulations. A comprehensive network of activities which recognize, evaluate and control potential losses is essential to effective loss control systems. Training, education and supervision are all valuable aspects of the treatment of risks. Toleration Managers must decide when to tolerate the risk. Sometimes we treat risk in order that it may be brought down to a tolerable level; sometimes the risk does not warrant any treatment at all and we simply tolerate that risk. Transfer of Financial Risk Even with the best means of treatment, organizations find that they are still liable for considerable financial risk. Insurance is one way to transfer some risk, but in so doing we do not transfer all financial and legal liabilities. Claims result in increased insurance premiums. Also, there is the money that organizations have to pay prior to any claim being settled by the insurer. Another option is to transfer risk through contracted agreements. One such example could be the leasing of an automobile; the dealer retains the ownership; however, the customer paying the leasing company owns the risk (risk has MODERN SAFETY MANAGEMENT
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LOSS CONTROL MANAGEMENT been transferred from dealer to customer). That person then (typically) transfers the risk again to an insurer. After considering the Four-T approach termination, treatment, toleration and/or transfer our strategy will be biased heavily towards treatment, but a combination of the four Ts will be used. Implement the Plan A plan yields results only when it is converted into work. This involves key aspects of performance management such as goals - objectives - responsibilities - accountability - follow-through. Implementation is facilitated by applying management principles and techniques. Monitor the System This means to measure, evaluate, commend and correct individual and organizational performance. Figure 3 summarizes a loss control management process, showing the goals of loss control management.

Attributes of a Safety Management System

There are many attributes of an effective management system. Among the important ones for this course, we should discuss Fundamental truths and guiding principles Management functions Sources of loss (and control) Specific professional vocabulary Safety culture, and Follow-up and monitoring.

Lets begin.

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Figure 3. A Loss Control Management Process

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Fundamental Truths or Guiding Principles Almost every discipline has certain fundamental truths or principles that guide ones actions. While many principles have special value during the implementation of any program or project, the following have been selected as those that have proven to be of special value in the implementation of a safety or loss control management system. Most of them have ongoing value as a leader strives for never-ending improvement. 1. The Principle of Reaction to Change - People accept change more readily when it is presented in relatively small amounts. The Principle of Behavior Reinforcement - Behavior with negative effects tends to decrease or stop; behavior with positive effects tends to continue or increase. The Principle of Mutual Interest - Programs, projects and ideas are best sold when they bridge the wants and desires of both parties. The Principle of Point of Action - Management efforts are most effective when they focus at the point where the work is actually done. The Principle of Leadership Example - People tend to emulate their leaders. MODERN SAFETY MANAGEMENT
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2.

3.

4.

5.

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LOSS CONTROL MANAGEMENT 6. The Principle of Basic Causes - Solutions to problems are more effective when they treat the basic or root causes. The Principle of the Critical/Vital Few - The majority (80%) of any group of effects is produced by a relatively small (20%) number of causes. The Principle of the Key Advocate - It is easier to persuade a group of people when at least one person within their own circle believes in the proposal well enough to champion the cause. The Principle of Minimum Commitment - It is easier to gain approval and commitment for a portion of a system than the entire project or program. The Principle of System Integration - The better new activities are integrated into existing systems, the higher the chance of acceptance and success. The Principle of Involvement - Meaningful involvement increases motivation and support. The Principle of Multiple Causes - Accidents and other problems are seldom, if ever, the result of a single cause.

7.

8.

9.

10.

11. 12.

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Apply It!
Your instructor will assign one of the following scenarios to your working group. Using the list of fundamental management principles, select the three principles which would best help your group to achieve its goal and write the number of each in an adjacent box.
Scenario Principles (Number)

1. International Fabrications Industries (IFI), is losing profits and your group has been formed as a task group to look into the problem and make recommendations on how to correct the situation. 2. Three thousand loss exposures have been identified in a systematic risk assessment of your organization. You have been formed as a problem-solving team to recommend how to deal with the list. 3. People at IFI are not wearing PPE as they should. You have been selected as a focus group to improve PPE usage.

4. IFIs training program is not producing the desired results. You have been appointed as a working group with the goal of improving the training program. 5. IFI is purchasing a new piece of equipment and you have been assigned to a committee to write the safety rules for its use.

6. Many employees are complaining about strains and muscle aches in a particular area of the plant. You have been formed as an ergonomic work group to evaluate the problems and recommend solutions.

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LOSS CONTROL MANAGEMENT Management Functions Henri Fayol (1841-1925) was one of the early distinguished pioneers and contributors to the management movement. He defined the functions of management as forecasting and planning, organizing, commanding, coordinating and controlling. Over the years other great management thinkers made minor adjustments to that list of functions. Forecasting and coordinating have been combined into other functions. Commanding has been replaced with directing or leading. These changes reflect the changing role of management through the years. Today the functions of management are listed by many organizations as: Planning Organizing/Administering Leading/Directing/Empowering Controlling It is the fourth function that we need to clearly understand. Controlling is what we do to the work process. It is like the control loop in a process, which monitors temperature or pressure, etc., and makes adjustments to the process to keep it within certain pre-determined levels. A simple example is a thermostat which monitors the temperature in a room and turns the heating/cooling system off and on to keep it at a preset level. Management control is the same process but is applied to work processes. Sources of Loss and Control In order to better understand the circumstances which lead to the causes of uncontrolled incidents, it is helpful to consider the four major components in the total business operation that provide their sources. These components are People Equipment Materials, and Environment

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LOSS CONTROL MANAGEMENT referred to collectively as PEME. The key to understanding PEME concept is to appreciate that you cannot look at any of the components of PEME in isolation. Organizations often make the mistake of trying to look at risks to people or risks to the environment independently, ignoring the interdependence of PEME relationships. All four of these components (shown in Figure 4) must relate or interact properly as a system or problems may be created which could lead to loss.

Figure 4. PEME Relationships

People - This component includes leaders at all levels, employees, contractors, customers, visitors, suppliers, the public; the human element. Experience shows that the human component is involved in a large proportion of accident/incident causes. However, people does not simply mean the employees who are involved in the incidents. The old concept that 80%, or more, of accidents are caused by the faults of workers comes under more and more critical scrutiny in the light of modern knowledge and experience. To understand the people aspect as a source of loss, one might ask: What do people do? Is it critical, hazardous, difficult, complex, stressful, physically demanding?

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LOSS CONTROL MANAGEMENT How will the people interact with the environment? With any existing operations? What is the existing management system? What are the inherent risks relating to bringing people into this environment? Will the environment harm them? Will they contaminate or harm the environment?

There is increasing evidence that as much as 85% of people problems involve things that only management can do something about. Managing the people component, and the interactions of people with the other components of the system, is a major means of effective control. Equipment - This component includes all the tools and machines that people work near and with: fixed machines, vehicles, materials handling devices, hand tools, protective equipment, personal gear and so on. These items that people work with are a tremendous source of potential injury and death. As such, they have long been a target for laws concerning mechanical safeguarding and operator training. More recently, this concern has expanded to include greater emphasis on ergonomics or human factors engineering. This involves designing work and the workplace to fit the capabilities of human beings their sizes, reaches, ranges of movement, perceptual capabilities, response patterns, stress limits and so on. Failure to recognize these substandard physical conditions in the past usually led to the classification of accident causes as unsafe practices. The major goal is to design the equipment and environment to make the people functions more natural and comfortable, and to prevent confusion, fatigue, frustration, overloading, errors and accidents. Consider the following: Will the equipment harm people? Will the equipment harm or contaminate the environment? Will the environment harm/damage the equipment? Will the people harm/damage the equipment? What are the risks relating to the interaction of people and equipment in this environment?

Materials - This component includes raw materials, chemicals and other substances that people use, work with and process. MODERN SAFETY MANAGEMENT
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LOSS CONTROL MANAGEMENT They are another major source of accident loss. In many companies, material handling injuries account for 20 to 30 percent of all their injuries. Likewise, much property damage involves materials that spilled, corroded, burned or exploded. When determining the loss potential from materials, ask Will these materials harm the environment? Will the environment harm the materials? Will these materials harm people? Will people harm the materials? How will the materials interact with the equipment? How will the materials interact with other materials? What are the inherent risks of introducing materials into this environment with people and equipment?

This subsystem has gained greater management attention in recent years, prompted by society's increased emphasis on occupational health. Rarely do we find a modern manager who is unaware of Material Safety & Health Data Sheets (MSDS) and safe handling practices for hazardous materials. No manager is doing a satisfactory job of controlling accident losses unless he or she is effectively managing the safe, proper handling of materials. Environment - This component includes all parts of the surroundings: Buildings and enclosures that surround people, equipment and materials Fluids and air which surround other components Chemical hazards such as mists, vapors, gases, fumes and dusts Weather and atmospheric phenomena Biological hazards such as molds, fungi, bacteria and viruses Physical conditions such as light, noise, heat, cold, pressure, humidity and radiation.

This physical environment represents the source of causes of an ever-increasing number of diseases and health-related conditions. It not only is involved in accidents and occupational illness problems, but also in other losses such as absenteeism, poor quality products and services, and loss of productivity. Of course, more and more attention must be given to the external
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LOSS CONTROL MANAGEMENT or public environment that can be so adversely affected by air, stream and soil pollution from the facility. The environment can also include such things as the organizational structure, management philosophy, the market in which the business operates, the political and social climate, and many other non-physical factors. The four major components or subsystems in the total organizational system (People, Equipment, Material, Environment), individually or in their interactions, are the major sources of causes that contribute to accidents and other loss-producing events. All four should be carefully considered when investigating such incidents, and especially when developing and implementing corrective and preventive measures. Effective managers manage the total system. Specific Loss Control Vocabulary To better understand skills and techniques involved in managing loss control, it seems logical to discuss a few of the terms which are basic to loss control management. Just as doctors and lawyers have their own professional vocabulary, so do managers. Because safety management is a distinct profession, it has many specialized terms with specific meanings. In many cases, the functional meanings of loss control terms are not found in the dictionary. Functional definitions evolve from experience. They become a sort of shorthand for effective communication among members of the profession. Of course, the professional should always be cautious about how she/he uses that special vocabulary when communicating with people outside the profession. While operating managers do not need to become safety specialists, they do need to know terms such as these: Loss - Avoidable waste of any resource Control - Compliance with standards or requirements Risk - Chance of loss Risk Evaluation - An assessment of the probability and severity of results if a hazard should result in loss

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LOSS CONTROL MANAGEMENT Hazard - A condition or practice with the potential for accidental loss Safety - Control of accidental injury or damage Accident - An event which results in unintended harm or damage Incident - An event which could or does result in unintended harm or damage Loss Control - Anything done to reduce loss from the pure risks of business. It includes The prevention of loss exposures The reduction of loss when loss-producing events occur The termination or avoidance of risk. It may not include speculative risks, such as those which are assumed when purchasing stocks or making other financial investments with the intent to gain -- but with the possibility to lose. Management System - The leadership and structure that ensure work is done in a consistent manner over time; an organizational strategy for the use of information Loss Control Management - The application of professional management skills to the control of loss from the pure risks of business.

The Safety Culture Safety/loss control management is a vital part of business; if not managed properly it can be extremely costly, not only in human terms, but in monetary terms as well. Who will help identify all our loss exposures? Evaluate the risks? Develop, implement and monitor the work done? Traditionally the work has been done by the safety manager or the specialist, and there is no doubt that each has a part to play. Safety experts have their tasks to perform as advisors or mentors. They help ensure that all employees play an active part. For some this is undoubtedly a cultural change. However,
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LOSS CONTROL MANAGEMENT if we are to address the problem in a realistic way it must be a team effort, beginning at the most senior level of the organization and permeating through to every manager, supervisor and employee. If each plays his or her part, and everyone has roles and activities clearly identified from the outset, the goals of loss control management become achievable. The problem seems to be that, while all managers may agree that safety is part of their job, (i.e., they are involved), many are not really committed. Some see commitment solely as doing some training, having an occasional audit, etc. Commitment also means that when an employee uncovers a hazard that requires production to stop for 30 minutes to correct the risk the manager stops production. Commitment is shown when supervisors are given time to carry out work-site inspections, or employees given time to attend safety meetings. In this context, management commitment means understanding, belief, enthusiasm, energy planning, organizing, directing, controlling. In other words, commitment is not a once in-a-while thing it is an everyday requirement; part of the culture; a way of life! A number of significant studies have been made to determine the components of successful safety and health programs. The results of these studies have been reported in the Journal of Safety Research and publications of the Businessmens Roundtable. Some studies were done by governmental agencies, such as the National Institute of Occupational Safety and Health and others by major universities, such as the University of Nebraska and Stanford University. A major study was also done by the Industrial Accident Prevention Association of Ontario, Canada. These studies, and the practical experience they reflect, provide the best guide for identifying the activities which get the desired results. Components such as the 20 program elements shown in Figure 5, when properly done, have been repeatedly proven to achieve optimum results, not only for loss control but also for quality, production and cost control.

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Figure 5. The Management Work to Reduce the Probability of Loss

Follow-Up and Monitoring An essential part of the loss control process is to constantly monitor the system and follow-up on issues that are raised. While measurement alone does not ensure success, it does provide a clear indication of against specified targets, aims and objectives. To be truly effective, the monitoring process should measure the control aspects; measurements of outputs alone have limited value. Follow-up must be addressed in a timely and appropriate manner. Managers must demonstrate commitment by action. Most effective program activities are proactive and require controls to be established. From the outset, many areas will require follow-up. Failure to follow-up implies a lack of commitment which is quickly perceived throughout the workplace. A sample follow-up procedure is shown in Figure 6.
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Does Safety Have a Price?

Undoubtedly there is a cost to safety and there is some choice of when and how that price will be paid. We can do nothing at all, in the hope that accidents/losses will not occur, or that regulatory authorities will not uncover noncompliance. This obviously leaves a lot to be desired (and operating outside the law really should not be considered as part of the choice). Secondly, we could consider compliance with minimal legal requirements, assuring that we fully understand what those requirements are, that we monitor the introduction of new regulations, and introduce them on a timely basis, correctly interpreting their intent. The third option is to take the bull by the horns and introduce a loss control management which addresses our operations, hazards and risks in a structured, proactive manner. This third option requires that we recognize that safety is not an expense; it is an investment -- with a financial return! If you think control is expensive, try having accidents. In the USA, the National Safety Council estimates that, on average, each losttime accident costs more than $15,000. Compound that amount with property damage costs, process losses, etc., and the figures soar to astronomical heights. A reduction in losses of just a few percent can often offset the total investment made to establish the control system. Safety, then, becomes a strategic tool for profitability. At the same time that we are reducing pain and suffering, damage to property, and harm to the environment, we are increasing profitability through the reduction of financial losses. This win-win approach has a direct and positive result on the bottom line! There is undoubtedly a price (initially) for safety. The question is when do you want to pay and how much. The do-nothing approach will cost; eventually, minimum compliance will cost, in a spasmodic and sometimes very expensive way. The proactive approach also has a price, but you control the budget.

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Apply It!
Using the worksheet below, mark the categories of losses known to have occurred during the past year and write your best estimate of costs accrued by your organization for each category. When you have completed your estimates, sum the total on the bottom line. This is probably the tip of the iceberg of the total accident costs.
Mark This Column for Losses You Have Had Show Your Estimated Annual Monetary Loss

People Losses 1. Insurance and medical costs 2. Workers compensation costs 3. Accident/incident investigation and review time 4. Hiring and/or training replacements 5. Overtime 6. Extra paperwork and processing costs 7. Decreased output of injured workers 8. Time lost by co-workers of the injured 9. Time spent in clean-up and restoration of order 10. Time devoted to implementing and follow-up of corrective and preventive measures 11. Others (specify)

Total, People Losses Property Losses 12. Building repair costs due to accidents 13. Cost of repairing tools, machines, equipment and vehicles damaged by accidents

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14. Raw materials and product damage costs 15. Interim equipment rentals 16. Cost of purchases to replace items destroyed by accident 17. Others (specify) Total, Property Losses Process Losses 18. Production delays and downtime related to damaged tools, machines, equipment, vehicles and facilities 19. Production delays and downtime related to employee upset, shock, concern and lowered morale 20. Others (specify) Total, Process Losses Other Losses 21. Fines and penalties 22. Claims handling, legal expenses and lawsuit losses 23. Expenditure of emergency supplies and equipment 24. Environmental impact losses 25. Loss of business and goodwill 26. Others (specify) Total, Other Losses Total, All Losses

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Corrective Action Follow-Up Procedure

The following procedure is used for the purpose of evaluating a concern and, if corrective action is needed, to follow the concern to resolution. 1. 2. Concerns are identified through observation reports, suggestions, accident investigations, planned inspections or any other mechanism. A classification of A, B, C, I, II or III is assigned to the issued by the individual that identified it as a concern. If the concern is of a nature pertaining to injury to people or damage to property, the corrective action time frame will be A-24 hrs. B-72 hrs. C-168 hrs. from detection. If the concern is of any other nature, I-one month, II-two months, III-three months. These concerns are entered into the computer on the Corrective Action Tracking System. The system is checked daily and before each management meeting. During each management meeting, the agenda will include a status report of current concerns in process of resolution, and new concerns identified since the last meeting. A person will be identified, and notified, that he or she has been assigned the responsibility of evaluating the concern to determine if corrective action is needed. Such an evaluation shall be made after communicating with the person identifying the concern and others having interest and/or knowledge pertaining to the concern. If it is deemed after due consideration that no corrective action is needed, the person identifying the concern shall be notified and rationale presented as to the decision reached. During the management meeting, assignments will be made for corrective actions, if any are necessary, and an allocation of resources will be made for necessary actions to resolve basic causes. If, during the course of corrective action, the person responsible for such action is changed, he/she will be notified. The new person will be changed on the tracking system and notified that he/she is the person accountable. That person will also be informed of the current status of corrections and resources available. Maximum time allowed for corrective action is sixty days. After such time the plant manager will get involved in the management of corrective actions. Maximum time allowed for correction actions is 90 days. Exceptions are when the required resources must be included as a budget item. The concern will remain open and continue to be included in reports of status at regularly scheduled management meetings until it is resolved. When the concern reaches the exception to the 90 days for resolution and must be extended, the person with the concern will be notified on a monthly basis as to the status of corrective actions. After the concern has been resolved, the individual is notified as to the resolution.

3. 4. 5. 6.

7. 8. 9.

10. 11.

12. 13.

Figure 6. Sample Follow-Up Procedure

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