Concepts in Loss Control
Loss control may be defined as those activities designed to reduce, prevent or otherwise control accidental events which produce economic or social loss. Loss control is aimed at reducing both the frequency and the severity of losses.
In understanding loss prevention it is important to identify the concepts of physical, moral, and morale hazards. A hazard is a condition which affects both the frequency and severity of losses. Recognizing that control over physical, moral and morale hazard presents one approach to effective loss control, risk managers have organized their activities around a hazard control framework. Thus sprinkle systems may be installed to reduce the physical hazard of fire and driver training may be used to reduce the morale and morale hazard to automobile accidents. Internal accounting controls are employed to reduce the moral and morale hazard leading to embezzlements.
The chain concept it is recognized that loss control may be viewed in a framework of a chain of events leading to loss. Links in the chain are the source of loss, reduction of hazard, minimization of loss, and salvage. Appropriate corrective action may be taken anywhere in the chain.
An illustration of controlling loss at its source is an effort to reduce fire damage in high rise construction. The can minimize the economic loss that might otherwise result. The risk manager should consult with architects on this problem in the very early stages of the project. Fire safety needs to be considered at the design stage for maximum effectiveness, High rise buildings present special problems in extinguishing fires before they can spread, due to difficulties in applying fire-fighting techniques to elevated locations.
Three major fire control problems need to be overcome in high-rise buildings. First- the building must be provided with, appropriate cut-offs t o prevent the spread of fire through openings used for heating flues electrical equipment, telephone systems, and the like. Second steel girders and other material should be covered with fire-protective coating to prevent early collapse from heat. Third, the building should be supplied with venting systems to dissipate heat, a source, of much damage in fires.
Human Vs Mechanical concept of Loss Control
One philosophy of loss control states that it is most productive to concentrate upon the human being in preventing, avoiding, or reducing the consequences of loss. Another philosophy holds that it is best to concentrate on the mechanical or engineering approach — to make the physical, social and psychological environment in which the human being operates a safer environment,
To illustrate, the human approach to loss control would hold that to reduce industrial accidents it is best to enforce safety rule, help prevent unsafe acts which lead to accidents, and to instill loss prevention consciousness at all levels of management. The engineering approach would hold that is most effective to concentrate on having safe mechanical conditions in a plant, such as good lighting, foolproof equipments, good housekeeping, and machine guards.
Haddon’s Energy Transfer Approach to Loss Control
William Haddon’s approach in analyzing the cause of loss offers an interesting risk management guide to developing a formal strategy of loss control. Haddon draws attention to the fact that damages to individual and property are essentially results of unplanned, often rapid releases of energy. Examples include hurricanes, fire, lightning and vehicle.
There are ten strategies in which this energy transfer process may be managed in such a way to prevent or reduce the resulting damage. It will be observed that Haddon’s energy transfer approach contains some of the elements of both the chain concept and Heinrich approach discussed above. An important advantage of Haddon’s concept is that is focuses on the ways in which a common element or force namely energy, may be dealt with, no matter what the particular type of loss may be, thus the concept can be applied to fire, flood, earth –quark, death, disability, and to many other perils which involve energy transfer causing loss to persons or property.
In applying the above strategies, Haddons points out that they need not be employed successive, but rather as many as possible should be applied all at once. A risk manager might be applied all at started for example in a problem of dealing with the peril of fire in a warehouse where fuel supplies are stored. Strategy could not be used unless it is decided not to store fuel on the premise at all but strategy 2 could be employed by reducing the amount of fuel, particularly hazardous fuel stored at any one place or time. Strategy 3 would suggest that fore walls be built around fuel locations and strategy 4 might be used by storing fuel in small containers so as to reduce the concentration of burning if a fire once started. Strategy 5 would suggest that fuel depots be separated from other property to which fire might spread and strategy 6 might result in protecting nearby properties with fire retardant or explosion – proof barriers. Strategy 7 might have application in that storage tanks of floors could be padded so as to reduce the chance of sparks which could ignite the fuel. Strategy 8 could result in having nearby building or other property made out of fireproof materials and strategy 9 could suggest that the nearby properties including the storage warehouse itself be protected by fire and sprinklers system. Finally strategy 10 could be followed in case losses occurred by procedures involving adequate salvage development of more efficient rebuilding techniques or utilization of better replacement materials.
Systems Safety Approach to Loss Control
An approach to loss control which has received increasing emphasis is known as systems safety. Under this concept, a safety engineer conceives of a plant as a total system rather than concentrating on specific loss exposure. Systems safety was first o developed by the U.S Air Force as an engineering discipline to assure the successful completion of weapon systems. Systems safety involves simultaneous consideration of each working part of a plant such as factory layout lightening, noise, ventilation, security, machinery design, and working rules.
Utilizing mathematical techniques, the interrelationships and consequence of possible product defects can also be analyzed and predicted. In this way attention to loss control in a broad context is possible. For example, using systems safety the risk manager can achieve better control over future legal liability suits against the firm for defective products which may be attributed to negligent operations of the plant than would be otherwise possible. It is apparent that the systems safety approach utilizes both human and engineering methods to help prevent loss.
A technique to monitor employee safety performance and to measure the effectiveness of loss control management is known as safety sampling. Steps in safety sampling include: (1) Gather data by month on the number of accidents or other evidence being used to measure the effectiveness, of a loss control program. Assume that the intention is to reduce the number of accidents and that the effectiveness of the program is to be measured by answering; the question. Are the numbers of accident per month within ‘permissible’ limits? (2) Establish a level for permissible accidents assume that the intention is to recognize that the some accidents are inevitable and that random fluctuation in the number of accidents will occur. Management is concerned only when the accident level exceeds some average plus some acceptable range to allow for random fluctuation. If accidents exceed this permissible level, it is to be assumed that the fault is due either to employee carelessness or indifference to the loss control program.
Set up action to be taken once the permissible level is exceeded. For example, it may be decided that the first and second time this occurs; the supervisor will be called in for discussion and asked for an explanation. The third time it occurs, the supervisor will be replaced. On the other hand, a reward system for keeping accidents below the permissible level would also be established.
It is obvious that the calculation of permissible levels of accidents is crucial to safety sampling. The calculation may assume a theoretical probability distribution which accidents tend to follow.
Level of Approach
Loss control and prevention may be approached from several different levels in society (1) Federral government (2) state and local government (3) private insurers and insurer –support associations (4) firms and (5) individual
Federal government activities
Increasingly the government has concerned itself with the problem of safety and loss control. Perhaps one of the most significant pieces of legislation passed in field is the 1970 occupational safety and health act (OSHA) discussed in detail below. This act is sweeping in that it requires employers to maintain a work place free from recognized hazards that can cause death or physical harm to employees. It covers all business firms in interstate commerce except for mining and railroad industries, which are covered by other federal safety laws and programs. Another federal agency under which loss prevention is a major function is the food and Drug Administration which works towards making safer foods and drugs available.
State and Local Government
Hundreds of state and local agencies carry on loss prevention work. To mention only a few there are state and local police force, state fire marshal officers, local fire departments, and water and sewer control agencies automobile accidents prevention agencies including statistical gathering groups), industrial accident commissions, building inspector public health agencies and public school and universities which teach safety training.
Private Insurance Organizations
Many insurance companies and large agencies specialize in loss prevention work for their customers. Prominent among these are insurers specializing in given lines of insurance, such as workers compensation, multiple- peril policies on large risks, credits insurance, glass insurance surely bonding, boilers and machinery insurance and health insurance.
Most large business firms sponsor active loss control programs. Among their activities are safety inspections, maintenance of first- aid offices, drivers training, plant safety education and training, and enforcement of safety work rules, installation of safety equipment and devices, and design of machine and production systems to prevent accidents.
Loss prevention is also a responsibility of the individual who must cooperate in this endeavor for the entire effort to be successful. No matter how careful the design of a plant for safety, how thorough the employee training in safe procedures how excellent the safety equipment provided or how meticulous the safety supervision if the individual employee fails to practice that which he has taught the loss prevention effort may fail.
Loss Control and Insurance
As noted above, insurance organizations are very active in attempting to promote loss control work. Not only is this effort accomplished through support of specialized organizations such as Underwriters Laboratories, The National Safety Council, and the National Fire Protection Association, but other methods are employed as well. Perhaps the chief ways in which insurers work towards loss control other than specialized organizations are (1) policy provisions requiring loss prevention effort on the part of the insured and (2) the rating structure for insurance
Policy Provisions for loss Control
Most property and liability insurance contracts require the insured to pay attention to control his own loss, once accident has occurs, to minimize the severity of loss. For example the basic conditions all the fire insurance contracts suspended coverage (1) while the hazard is increased by any means within the control of knowledge of the insured or (2) while the building is vacant or unoccupied beyond the consecutive days. If a loss occurs, the insured is required to protect the property from further damage. Most types of insurance payments where the injury or accident is caused deliberately by or at the direction of the insured.
Rating Structure for Loss Control
Loss control is encouraged in many lines of insurance through granting of rate credits to the insured for loss prevention effort. A prominent example of this is in the field of fire insurance. The rating system in fire insurance is based on four major factors of construction exposure to loss type occupancy and the rating class of the city in which the building is located. Lower rates are assigned to concrete and brick construction than to frame construction, to properties containing nonflammables that to properties containing flammables and to buildings contained in safe cities than to buildings in an area without fire department protection.
The fire insurance rating structure contains an elaborate system of charges for such factors as flammables shingles, nonstandard stairways or heating systems; poor housekeeping and the like credits are given for loss preventions devices such as sprinkler systems, alarm system, and properly located fire walls. In this way the insured is given positive incentives for installing loss prevention measures and in penalized through higher insurance rates for ignoring features which reduce either the frequency of severity of loss.
Loss control and the government OSHA
The inspection made by compliance officers in relation to loss control may be unannounced. Visits may be made at the request of employees if they believe that an alleged violation of safety existence which threatens physical harm. Employee representatives have the right to accompany an inspector during his physical examination of the plant. If a violation is found a citation must be issued in writing and this citation must be prominently posted by the employer near the place of the violation.
Specific standards for occupational safety and health are issued under the act. The standards may be grouped under the headings (1) Industrial hygiene, (2) machine operations, (3) material handling, (4) medical facilities, (5) personal protection, and [6) giant design and maintenance. Examples of standards in each case during loss control are as follows:
- Under industrial hygiene, the standards set maximum levels of radiation, noise, temperatures and pressure. Thus the workers may not be subjected to more than ninety decibels of noise in each eight- hour day.
- Standard covering machine operations specify among other things that dull saw blades must be immediately removed, that bearings shall be kept free from lost motion and be well lubricated, and that saws shall be sharpened and tensioned by qualified persons.
- Material-handling specifications require, for example, that industrial-powered trucks must be appropriate in size and power for the job they are expected to do, in accordance with detailed specifications under eleven different classes of trucks. Appropriate safety guards, fuel handling and storage, lighting, control of noxious gases, are specified. Drivers must receive acceptable training before operating powered vehicles and the fifteen rules of driving are spelled out.
- Medical facilities specifications require that workers receive prompt care for injuries, either from personnel in a company-maintained infirmary, or from others who have been trained for this purpose if an infirmary is not provided. Where the eyes or body of a worker are exposed to injury from corrosive materials, suitable facilities for quick drenching or flushing of eyes or body must be provided within the work area for immediate emergency use. Pre employment physical examinations arc required under sonic conditions to sec if workers are qualified physically for their jobs.
- Specifications for personal protection include standards for protective devices for workers eyes and face, respiratory tract, head, feet, hands, and ears, For example, the regulations state that cotton stuffed in the ears will not be acceptable, but fine glass wool, earmuffs, wax-impregnated cotton, or earplugs may be acceptable.
- Where hazardous materials are involve specification also regulate plant design and maintenance as It affects stairways, ladders, scaffolding, stands, towers, signs, and various working surfaces, For example, rungs in ladders must be at least sixteen inches long. Accident prevention signs and tags must be color-coded so that red will be used to mark fire protection equipment and cans of inflammable liquids. Orange is to be used on equipment which may cut, crush, or shock the worker. Other colors are specified for different uses
Education and Training on Loss Control
In loss control, the human factor is rarely absent from risk situations. Often carelessness, incompetence, or lack of technical knowledge is either the primary or at least a contributor cause of a loss-producing event. Likewise, the failure of an individual or group to respond in the correct way to a loss situation may contribute to the size of the ensuing loss. Consequently, education and training has a major role to play in less reduction programmed, and should embrace everyone employed by, or associated with the work of, an organization at even stage of its production, distribution and after sales processes, whether it be engaged in the manufacture and/or handling of goods, or the provision of services.
Management Education and Training on Loss Control
Risk control: The aim should be to create in management awareness of the risks to which the organization is exposed and of the ways in which they may be controlled. As noted in Lesson 2, the lead in risk control must come from top management, and though only a few members of the top management team will require a detailed technical knowledge of the various risks and hazards, all should understand and have a commitment to the principle of total risk control. Also, the organizational structure and the division of responsibilities should be geared as far x^ possible to the same end.
The Planning Stage: The need for loss control should be recognized from the initial planning stage of a new project right through to the final delivery and after- sales servicing of products. Management education should cover not merely obvious matters such as employee safety but also the need to build safety into their plan; and product designs. Planning for product, safety becomes increasingly important as consumer awareness and claims for product defects increase. In the case of obviously potentially dangerousgoods and services, safety calls for top priority: Weber for example, recommends that the design departments of motor vehicle manufacturers should include a team of engineers charged solely with the task of minimizing the risk of product defects (Risk management in product liability, in Hand book: of risk management).
Likewise, safety needs to be assigned a top priority during the design stage of say, aircraft, civil engineering projects like bridges and dams and the development of new drugs.
Attention to risk control during the design stages of projects can be equally rewarding in less dramatic ways. For example, by incorporating fire- resistant materials and the separation of hazardous production and storage areas into the original plans for a new factory, a reduction in the fire risk can be achieved at a fraction of the cost, including possibly the disruption of production, involved in making alterations after the plant is operating.
Production Stage of Loss Control: The two groups of risks requiring attention at the production stage are accidents causing injury to persons and/or damage to property, and the risk of producing faulty products owing to reasons other than design defects.
The statistics published by the Health and Safety Executive show that the majority of injuries sustained at work are due to falling or lifting and require no great technical knowledge to prevent. Likewise, the origins of many fires lie in simple hazards, such as smoking, faulty electrical wiring, accumulations of waste materials such as oily rags, and so on. Therefore, there is needed a commitment by management to good housekeeping and regular maintenance of premises and plant in all departments. Essentially, good housekeeping means keeping premises and plant clean, tidy, and well-maintained, and properly guarding hazardous machinery and materials. It is the task of management to provide the necessary cleaning and maintenance resources, to draw up rules, and to agree their enforcement with employees’ representatives. Good house -keeping achieves more than improved safety: it can also improve the morale of a work force and reduce losses from wastage and spoilt work.
The prevention of major hazards usually calls for the use of technical knowledge, which if not available within the organization should be brought in from consultants. Even a well-designed plant can be operated in a dangerous fashion, possibly because of inadequate attention to maintenance or the introduction of a foreign material into a process. Top management should make it clear to ail superiors that the safety standards and rules that have been laid down for the operation of a plant must not be waived, even temporarily, in order to maintain production.
The elimination of product defects during manufacture falls within the role of quality control. The more vital is a product or a component to the safety of users or other persons, the more rigorous should be the system of quality control employed. The continuous testing of products can be very costly, particularly when it involves destructive testing, so that the methods and standards of testing employed are decisions for top management. However, unless the highest technical standards available for particular products are used, a firm will have little defence against claims arising from product defects.
After-sales Usage and Servicing in Loss Control: The need for safety procedures and rules does not finish with production. Goods need to be delivered safely to customers in good condition and properly labeled, with clear instructions for use and without imperiling others during delivery. In some cases after-sales servicing will be required too. Therefore transport and servicing managers should be included in the management education programmes. They will need to know of any particular hazards associated with the carriage, use and servicing of the product. Moreover, it is desirable that there should be some system whereby information regarding defects revealed during after-sales servicing is fed back to the design and production departments.
Security: Loss control is not merely a matter of dealing with risks that may result in injury to persons or loss of or damage to property. There are other risks that also may jeopardize the existence of an organization and therefore need to be brought to the attention of management. The three notable examples are defalcation, industrial espionage, and credit risks.
In all three cases the key to risk control lies in the laying down and enforcement of security procedures by management. The increasing use of computers for accounting, design, and other purposes has probably increased the potential for large scale losses owing to the dishonesty of employees or other persons, and so attention needs to be given to computer security covering both the integrity and security of programmes and records. The procedures should cover the ways in which jobs are to be performed and systems of check.
Finally, management awareness of risk should lead to the preparation of contingency plans for coping with actual or potentiality severe loss situations. Such plans should embrace both salvaging operations and plans for carrying on the business of the organization, following the occurrence of a loss.
The success of salvaging operations (and under this heading would fall the minimization of both personal injuries and property damage) depends upon there being available at all times both a number of people trained to deal with emergencies, and the necessary equipment. There is little point, for example, in having available first aid. boxes, or the equipment and supplies for stripping down and cleaning smoke or water damaged machinery, if no one knows what to do – and vice versa.
The severity of interruption of a loss is not necessarily directly proportional to the severity of the property damage. There are many recorded instances of relatively small property losses resulting in prolonged stoppages of production. Therefore in preparing a contingency plan to deal with interruptions to the organization’s business, the first steps should be to identify;
- All potential sources of loss-producing events which may disrupt operations;
- Interdependences between different pans of organization itself; for example, would damage to one process or storage area disrupt all production of one or more of a firm’s products?
- Dependencies upon individual suppliers or customers;
- Alternative sources of supply or outlets, where any of the above dependencies exist.
It may be feasible to make some changes immediately that could reduce the potential impact on the business of any incident, such as the duplication of key items of plant or power supplies. Likewise, by holding larger stocks of raw materials and parts, (perhaps distributed between two or more buildings), or by finding another supplier, it may re possible to reduce the vulnerability of the business to a breakdown in supplies from a sole supplier. In all of the foregoing cases management would have to decide whether the extra costs involved were a reasonable price to pay for the reduction in risk.
The actual contingency plan would deal with proposed responses to loss situations. It would set out the steps to be followed under various circumstances and assign responsibilities for various tasks. Some things may need to be arranged well in advance of a loss occurring; for example, mutual assistance arrangements may be made with competitors whereby if one suffers a major loss of production facilities, other will assist in the manufacture of its pro-duct(s).
Ensuring that people know what they are supposed to do will help to minimize losses, in that delay and possibly conflicting actions by different people, should be avoided. Radcliffe, for example, emphasizes the importance of having plans for handling the risks of kidnap and ransom (‘Political risk management’, Foresight, vol. IV, no 10). Criminals rely for success on surprise and the uneasiness of victims, families, and employers. Therefore, potential victims and their families should know what to do if such an event occurs. The plant should specify which members of the management team are to be notified, who will be responsible for lulling the police, calling in a consultant for handling negotiations with the kidnapper(s), helping the victim’s family and making decisions during the course of those negotiations.
The Training of Employees
There are several fundamentals in the training of employees, notably:
- They need to be aware of the hazards to which they may be exposed in the course of their work and what steps they can take to minimize the risk of injury to themselves and fellow employees;
- Training may be required regarding the use of special clothing and equipment provided for their safety;
- Instruction for all employees as to what to do in emergencies, for example, upon the outbreak of fire, breakdown of plant, and especially the breakdown of safety devices;
- Training of some employees to deal with emergencies until expert help arrives, for example, the training of first-aid and fire fighting teams;
- Instilling a sense of safety – consciousness in all employees, both in relation to the way they carry out their work and in the avoidance of defects in the firm’s products. The aim should be to instill in each employee a sense of responsibility towards fellow-employees, customers and the general public.
Education and Training of Contractors, Suppliers, retailers and Servicing Agents
Frequently the integrity of an organization’s operations can be jeopardized by people other than its own employees, notably:
- Sub-contractors who undertake work on its behalf;
- Suppliers of components;
- Contractors who may perform work on its premises and plant.
For example, training schemes may be provided for servicing agents and their employees. Besides providing technical training in the after-sales servicing of the principal’s products, instruction may also be given about the nature of any special hazards associated with those products, and steps to be taken to report and remedy any potential defects. Suppliers of components that may affect the safety of the completed product likewise can be made aware of the potential consequences of supplying faulty parts and, perhaps, quality control systems and standards can be mutually agreed with them. Finally, anyone comes to work on a firm’s premises, particularly if they may bring hazardous materials or equipment on to the site, should be informed about major risks and any special hazards in the vicinity of where they may be working.
Procedural devices to reduce risks are closely associated with, and have largely beer, covered by the above sections on education and training. Therefore, it is sufficient to add that it is responsibility of management:
- To devise procedures to reduce both the probabilities of loss-producing events occurring and the severity of those events that do happen;
- To ensure that employees are not only trained to carry out those procedures, but that instructions are observed;
- To instruct other people coming on to sites under their control, or involved in handling their products, in safety procedures.
There is a wide range of physical devices available to reduce the probabilities and/or severities of many types of risk. They may be thought of as falling into two broad categories:
- Active devices which continuously operate to reduce the probability of the loss-producing event occurring;
- Passive devices which come into operation when a particular situation arises.
Into the first category fall such devices as thermostats on boilers and refrigerating equipment, guards on power presses and other hazardous machinery, overload switches on electrical equipment, and security locks and window bars. Passive devices include security and fire alarms, sprinkler installations, automatic fire doors and vents.
Doherty usefully summarizes the three approaches to loss reduction in the following table (‘Risk reduction through loss prevention’, in Handbook of risk management.
Table 7/1. Devices to control loss
|Physical devices||Procedural devices||Educational and training|
||1 Course in security, fire prevention, safety and first aid for all staff2 Specialist course for key staff3 Education of management on productivity of security|
||4 Automatic switch off devices for machines if faults develop.5 Safety guards for hazardous machinery and plant.6 Security locks, bars and catches on windows.7 Overload and other devices.8 Safety valves for pressure vessels.||1 Procedure for immediate notification and inspection of faults to ascertain if any hazard exists.||1 Clear instructions for notification of faults.|
||1 Appointment of first aid officers-internal fire brigade.2 Stand by equipment, stocks and alternative sources of power services.||
Loss Control is a very important aspect in any business and should be invested in a lot and given the attention it deserves.