Essential Elements Of A Loss Control Program

Risk management is essentially a process to manage uncertainty. To understand this approach it is necessary to realize that this process is a decision making model with five key steps.


"Carelessness does more harm than a want of knowledge."
- Franklin

Let's start this article by being honest with ourselves and ask the question "When do you take action with loss control issues?" When I have asked this question, the typical answer was "when an accident occurs or a problem develops."

Now let's be realistic -- to take action after an accident or problem surfaces does not support the principles of either good management or common sense. This is reactionary management or crisis management. The accident has occurred, the problem has developed, the loss has occurred, and the resource is lost! To best manage resources, you must be proactive in your approach.

There have also been a number of significant changes in recent years which have increased the financial exposure and impact upon fire departments. These changes within the legal and social systems have forced us to change the way we operate our fire departments. Legislative trends first in the Occupational Safety & Health Act of 1970 and related subsequent legislation on the state and national level are most significant. These have transcended into labor agreements, employee liability lawsuits, and expansion of insurance agreements and premiums. The risk of accident and loss therefore is one of the most significant issues facing the fire department today. This is both a moral and financial exposure. As a result, it is no longer important, but now mandatory that fire departments take the necessary steps to prevent accident and loss, which result in loss of budget funds or other drains on municipal resources. To the fire department, this instills you to develop, implement, and maintain a comprehensive loss control program.

Loss Control has long been recognized as a functional part of the Risk Management Program of business (and let's face it, the Fire Department is a type of business). We saw in the last article that there are seven elements which are necessary for a loss control program. Each of these elements must be integrated into the comprehensive risk management system of the fire department. The risk management process has five steps. At each step, the various elements of the loss control program play a role in managing risk and loss.

THE RISK MANAGEMENT PROCESS

Risk management is essentially a process to manage uncertainty. To understand this approach it is necessary to realize that this process is a decision making model with five key steps. The goal of this activity is therefore to control the impact of uncertainty of losing wealth, profit, or value. This is achieved through two common techniques -- risk control to minimize losses and risk financing to restore losses.

Step 1

Before any loss control efforts can truly be undertaken, you must first identify and analyze your loss exposures. The identification is achieved in two ways -- by type of loss and by method of identification. There are four essential types of losses:

  • Property Loss - for example, physical loss of the property or the loss of its use
  • Net Income or Budgetary Loss - for example, a loss requiring rental of equipment impacts on the budget
  • Liability Loss - personal injury, negligence, and visitor injury, among others, present a real loss exposure
  • Personnel Loss - through the loss of service, overtime, and similar issues

Each of these can and should be identified. Typically, the identification process uses one of four methods: the generic or specific questionnaire; and analysis using flow charting; personal inspection of the facility, process, or operation; and analyzing financial statements. In addition, other methods may be used to identify the loss exposure.

Once the identification process has taken place, it is time to analyze the exposure. The loss analysis is typically done using a loss history to summarize the data found into a system which can easily be interpreted into an action-taking activity. This is done in two distinct ways; by determining the loss frequency (measuring the number of losses that have occurred or will occur) and determining loss severity (measuring the potential dollar impact of the loss).

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