No Compromise

July 31, 2009 | Last updated on October 1, 2024
6 min read
Perry R. Brazeau Senior Vice President, Manager, FM Global (Canada Division)
Perry R. Brazeau Senior Vice President, Manager, FM Global (Canada Division)

Although some analysts say the economic slump is decreasing in its intensity, dreary profit reports continue, as do staff layoffs. Corporate budgets remain tight, balance sheets fragile, supply chains stressed and many risk managers expected to make do with less. That can put you somewhere between a rock and a hard place. Now is a great time to become even more resourceful and vigilant: in today’s fiscal environment, should you have a sizable insured loss, there are likely to be business repercussions that no amount of insurance will cover.

The economic downturn has brought with it many new risks; several relate to the unintended consequences of recent unprecedented job cuts. Many companies are still trying to figure out how to use fewer people and keep their businesses sustainable. Lower staff counts with increased pressure on productivity often results in employee responsibilities being stretched to tasks they might not have previous experience doing, thus raising the risks of something going wrong.

Furthermore, when it comes to people and risk management practices, studies by commercial and industrial property insurer FM Global continue to show that 70% of all property losses are caused by people rather than by economic conditions or industry.

The good news is that companies can ensure their reduced workforces will not lead to sacrifices in an organization’s ability to manage risk. Increased risks stemming from the poor economy can easily be identified, better understood and dealt with — often at a minimal cost.

Let us examine some of the common areas of increased risk often seen during difficult fiscal times and some affordable solutions.

LACK OF STAFFING

Every company has senior employees who, given their longevity with an organization, are best acquainted with an organization’s risk management practices. Unfortunately the most tenured employees are often the first to be cut when layoffs begin. With organizations under pressure to slim down staffing, those lucky enough to keep their jobs are frequently left to pick up any slack. More likely than not, less experienced employees may be left to handle production, maintenance or emergency response, which can lead to potential errors in judgments and actions, despite their best intentions. Misuse of equipment or improper maintenance, for example, can lead to costly property losses such as fires, explosions and equipment breakdown.

It therefore becomes paramount to make sure less-experienced staff members are aware of your risk management procedures. Proper employee training and communication is of the utmost importance.

Human element programs, which help educate employees about the common causes for frequent and/or severe losses within that organization and ways to prevent such calamities, typically can be offered by an organization at little to no cost.

Given the current freezing of travel budgets and related restrictions on attending conferences and seminars that help keep people’s skills sharp, it can be a great time to examine the benefits of online training courses and seek out such offerings. Courses designed to help organizations address common costly human factor hazards can take less than one hour to complete. They can be accessed any day, at any time, from any computer connected to the Internet. Such curricula can be incorporated into in-house training programs; often there is no limit to the number of employees that can register. Best of all, managers can track an employee’s course performance and progress. Training, supported by top management, can also be a big benefit to an organization that relies on an increased use of contractors.

CONTRACTORS

Along with today’s layoffs come new means for human error to sneak into the risk equation. Companies trying to reduce their expenses often hire outside contractors for maintenance and repair jobs that an organization’s employees might have previously handled. However, such reliance on contractors, combined with a lack of supervision of their activities when they are doing work at your site, can be a costly recipe for disaster. It takes just one contractor to make a mistake or cut a corner for things to go terribly wrong.

FM Global studies have revealed that a fire or explosion due to a contractor’s oversight(s) can average US$1.3 million per incident. That is often because contractors are usually the most unfamiliar with your business or facilities. Moreover, contractors are usually hired for maintenance and repair activities that require the use of open flames, or generate heat such as welding, cutting brazing and torch-applied applications. Many contractors also often have a mindset that they must work efficiently and get on to their next customer job quickly in order to maintain profitability.

To start, pay close attention to a contractor’s insurance policies. Then look at their safety and loss records. Ensure the written agreements you have with your contractors indicate they agree to accept responsibility for any damage due to their actions or lack thereof. Developing formal policies and procedures on contractor management can be very effective in this regard, along with establishing protocol for selecting, inducting, managing and supervising such workers. Assign someone in authority to be accountable for ensuring that the policy and procedures are followed, audited regularly and updated as necessary.

When contractors arrive on site, ensure they sign in and sign out and that you know where they will be working on site. Sit down with them and go through your organization’s internal safety procedures. Be sure to monitor their work the whole time they are on site to ensure it is done properly and safely. Contractors are less likely to cut corners when they are being observed and their work is being documented. Such steps are simple but often overlooked.

You might be thinking that, ironically, the very staff reductions that often cause the need for contractors also make for a shortage of staff to monitor the contractors. However, the lessons learned from contractor-related losses show that you really cannot afford not too.

IDLE FACILITIES

In today’s recession, many companies have idle or underused facilities that must be shut down to save costs. Such facilities may be empty or full of valuable production equipment. In either case, such property should not be neglected. One might think there is less risk or need for insurance when a facility is not operational. But in fact you potentially could be at greater risk from such threats as fire, arson, theft or vandalism if you are not paying attention to these facilities. The average fire loss at an idle facility is upwards of US$700,000, according to FM Global studies — not something most companies would want to deal with in good times or bad.

Furthermore, many idle facilities often contain flammable liquids, wood pallets and/or highly combustible materials, making it necessary that fire protection remain operational.

Another precautionary measure is to notify your fire department if a facility will be sitting idle for a period of time. In addition, ensure you have a security crew or maintenance worker making regular rounds to curb the potential for vandalism and to keep an eye on any building deterioration that would increase a facility’s vulnerability.

Overall, history shows the majority of losses caused by these risk factors are preventable. The solutions to mitigate such perils are simple, inexpensive and have an unlimited upside — especially important when times are tight. Budgets for risk improvement may be constrained, but getting the most out of your risk management dollar may never have been more important than during these hard times.

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Every company has senior employees who are best acquainted with the organization’s risk management practices. Unfortunately, the most tenured employees are often the f irst to be cut when layoffs begin.