Expert Commentary

Safety Excellence by Design—Integrated Risk Management

This article looks at the risk of injury to an organization's employees, and ways to avoid that outcome. It will also provide the risk manager a better understanding of the core drivers of these losses. Part 2 outlines some tools and techniques with which to assess the effectiveness of the safety management process.


Construction Safety
May 2006

Every business faces the possibility of accidental loss of property, income, liability, and injury to its employees. Risk management professionals are responsible for managing these risks. Those of us who are in the risk management business know all about exposure avoidance, loss prevention, loss reduction, segregation, and contractual transfer—to name a few. When it comes to managing the risk associated with employee safety, the risk manager usually looks to the safety department or safety manager to address that area.

Traditionally, safety management meant complying with the governing safety standards as promulgated by the state or federal jurisdiction. From this flows safety programs, processes, and procedures designed to meet the requirements of these regulations. Most safety programs are about the prevention of injury and/or illness to the organizations employees. The basis for this effort is the safety program. The safety program starts off with a statement professing to value the employee and wanting to provide them with an injury free workplace (no one will argue with that!). The body of this program usually is a regurgitation of safety standards. Some of the more developed programs may also include specialized subprograms dealing with driving for the company, substance abuse, work practices, etc.

The basic structure of most safety programs goes back to the three Es: engineering solutions, education, and enforcement. This structure was created by the National Safety Council as a simplification of H.W. Heinrich's 10 axioms for safety management. Virtually all safety standards fall into one of these categories. The engineering solutions address the physical conditions and the protection of employees from exposure to hazards in their physical environment. Education deals with providing the employee with training about the standards and the use of the protective system. And enforcement deals with site inspections and getting the workers to comply with the safety standards.

There is a downside to all of this—most incidents that may cause employee injury do not come from the physical environment, but from the actions of the employees. A research study of thousands of accidents completed in Heinrich's time (1930s) found that:

  • 88 percent of injuries resulted from actions of employees;
  • 10 percent of the accidents were traced to causes from the physical environment; and
  • for 2 percent of the accidents, the cause could not be ascertained.

So the traditional safety program's emphasis on conditions does not focus on the behavior of the employees and therefore has limited impact on controlling the cost of risk! More recent thinking, which will be addressed later, is that ultimately, the greatest driver of incidents, injuries, and losses are the systems, climate, and culture of the organization.

Traditional Safety Program Shortfalls

A recent study by the University of Tennessee of a large population of contractors indicated that approximately 6-7 percent of the estimated cost of construction went into insurance-related expenses and costs. These same contractors reported a 1.5 percent profit from their operations. It would seem rather obvious that even a small reduction in the insurance expenses and/or cost would significantly improve these contractors' profit picture. Though contractors understood this, they did not have a clear picture of how to go about changing this reality.

The other shortcoming of traditional safety management, in general, deals with metrics. Presently, performance is measured by how many incidents occur over a period of a year, with the two major measures dealing with frequency and severity of the incidents. These numbers are then compared to industry averages published by the Bureau of Labor Statistics. These metrics are outcome measures (historical), with the organizational metrics being compared to a mediocre standard. Also, these metrics do not provide real-time information with which to manage. They do not tell you what needs correction, and more importantly they do not assist in strategy deployment.

The lack of safety performances is a symptom of a failure in the organization's management system! So a paradigm shift is in order. Organizations need to look at safety holistically, as an integral part of the organization's policies procedures and operations, and not as an independent function. If the organization is serious about keeping its employees' injury free, then they not only need to look at the employee, but also the physical environment, the human dynamics, the systems, as well as the organizational culture, and climate. All of these in one way or another influence the decisions the employee makes which sometimes leads to an incident, injury, or loss.

Typically, strategies to improve safety performance start with a review of past losses. This analysis then establishes the interventions for the coming year. These interventions usually consist of more training, emphasis of certain program elements, or more rigorous inspections. In the short term, some improvement is inevitable, but in the long run, the results never live up to expectations. Some of this is because the improvement strategy is based on history and the future is never exactly the same. The data analyzed, may not give a true picture of all the contributing causes. The focus is on the worker and not on the system and culture.

Performance Management

Having established that safety performance management requires some major structural changes, let us look at how performance is managed in the rest of the business.

Up to the early 1990s, business was also managed predominantly by one set of metrics—financial. Traditional financial measures did not provide management with the information they required to meet the challenges of the changing business environment. Not only did financial metrics not provide them with a true measure of performance, but also did not help them in managing effectively. This started the quest for a "better" measurement system.

The first of the organizational scorecard concepts, the Balanced Scorecard (BSC), was introduced in 1992 by R.S. Kaplan and D.P. Norton. This spawned many different scorecards, which are in use by many of the Fortune 1000 companies in one way or another. The need for a better mechanism to manage the business became necessary because of a change in our economy. We are moving increasingly from a predominantly manufacturing to a service industry economy. There are also globalization influences as well as increasing customer demands, escalating competition, and time compression. Everything has to be "faster, cheaper, and better."

Dr. Kaplan maintains that, "In the same way that you can not fly an airplane with just one instrument gauge, you can't manage a company with just one kind of performance measure." The BSC technique still utilizes the financial "outcome" measures that have served business well for hundreds of years—but complement it with operational measures that look at different aspects of the organization at the same time and allow managers to successfully manage. The balanced scorecard groups metrics into four critical groups, or perspectives:

  1. The customer perspective
  2. The internal business perspective
  3. The innovation and learning perspective
  4. The financial perspective

The Balanced Scorecard

The Balanced Scorecard

Central to management is the question of what are we trying to accomplish, what is our vision, our picture of a future state. Once that is stated, we must ask what differentiating activities do we have to engage in to turn that future state into reality? That is our strategy. The next step is to establish objectives for how we are going to get there. And, of course, we will need measures and targets to tell us how we are doing. Part 2 deals with these measures.


References:

Kaplan, R.S. and Norton, D.P., "The Balanced Scorecard—Measures that Drive Performance." Harvard Business Review (Jan.—Feb. 1992): 71-79.

---, "Putting the Balanced Scorecard to Work." Harvard Business Review (Sept.—Oct. 1993): 71-79.

---, "Using the Balanced Scorecard as a Strategic Management System." Harvard Business Review (Jan.—Feb. 1992): 75-85.

---, "The Having Trouble with Your Strategy? Then Map It." Harvard Business Review (Sept.—Oct. 2000): 3-11.


Note: The illustrations, instructions, and principles contained in the material are general in scope and, to the best of our knowledge, current at the time of publication. No attempt has been made to interpret any referenced codes, standards, regulations, principles, or concept. All of this information is public knowledge, and readily available in books and trade journals.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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