6 Essential Loss Control Strategies
By Casey Bean & Chris Huber
Risk is present in every organization around the globe, which is why we believe having a formal risk management program is so important. What does that mean? It means that every organization should develop a practical way of identifying, monitoring, and managing risks that could negatively impact the organization. The first key step is to identify the risks that arise from what you own (property), what you do (liability), and who does it (personnel). We also believe all organizations should thoroughly analyze their business risks, which can’t be insured. After you’ve identified all your insurable risks, they should be analyzed to determine the likelihood and severity of a loss. After the identification and analysis are complete, it’s time to utilize one, or a combination of, the following six essential loss control strategies aimed at reducing the possibility of a loss and/or limiting the severity.
- Avoidance. By choosing to avoid a particular risk altogether, you can eliminate potential loss associated with that risk. For example, builders can choose to shut down construction operations in inclement weather; manufacturers can choose to halt production of faulty products before selling them to customers. Although risk avoidance is a simple method for controlling losses, this strategy isn’t always practical because it can result in lost revenue potential.
- Prevention. Accepting that certain risks are unavoidable, you can implement preventative measures to reduce loss frequency. For example, installing video surveillance cameras can prevent the frequency of theft in stores. Lowering a highway speed limit can reduce the number of automobile accidents on a specific road. Loss prevention measures break the sequence of events leading to a loss and thus make a loss less likely to occur.
- Reduction. Reduction measures can be applied before and after a loss occurs to minimize the severity of potential losses. For example, erecting firewalls to limit damage from a fire is a pre-loss measure; activating a fire detection/suppression system is a post-loss measure. The physical and financial impacts of a loss are reduced by implementing this strategy.
- Separation. By isolating loss exposures from one another, you can minimize the adverse effects of a single loss. For example, storing inventory at two separate warehouses will minimize losses if one facility is destroyed. Separation of exposure units can reduce a business’s dependence on a single asset, activity, or person, making individual losses smaller.
- Duplication. Keep backups, spares, or copies of critical property, information, or capabilities in reserve to use when a primary asset is damaged or destroyed. For example, store information on a backup server to use if the original server fails. Like separation, duplication can reduce a business’s dependence on a single asset, activity, or person, making individual losses smaller.
- Diversification. Spread loss exposures over numerous projects, products, markets, or regions. For example, a business can enter into different geographic markets. If one market becomes too competitive, the other markets may still generate enough profit for the business to continue operations. Diversification prevents a single event or series of events from destroying a large percentage of the organization’s assets.
Loss control is necessary to ensure long-term sustainability and profitability, but building a customized loss control and risk management strategy may not be your business’s primary focus. At BKS-Partners, our goal is to help you build a risk management culture and program that is custom designed for your unique organization. Realizing that risk management is not your primary business, we tailor our approach to your unique culture by designing processes that are simple enough to execute, yet effective enough to achieve results. Click here to learn more about our Risk Mitigation Services platform.