Think of RM as a profit center, not an expense
October 1, 2010 3 minutes read
Think of RM as a profit center, not an expense
Here's a radical idea: Instead of trying to show management why your department is worthy of respect, go on the offensive and declare that risk management is a profit center every bit as much as that shiny new cardiac center or the plastic surgery clinic.
That approach makes sense when you look at the current activities of a risk management department, says Edwin Foulke Jr., JD, former assistant secretary of the federal Occupational Safety and Health Administration (OSHA) and now co-chair of the Workplace Safety & Catastrophe Management Practice Group with the law firm of Fisher & Phillips in Atlanta. Over the years, most businesses have focused on efficiency and quality, with strategies such as Six Sigma and Continuous Quality Improvement, and as a result they have become more profitable, Foulke says. Health care providers have been following the same path as other businesses, and they are finding that they have exhausted the obvious ways for improving revenue.
"Companies have been able to achieve a lot of cost savings and become more profitable and more competitive, but as you squeeze anything you get to a point where it becomes harder to achieve any more cost savings," Foulke says. "So, the question becomes what areas are left where they can achieve cost savings; there are really only two areas left workers' comp and health care. And risk management is what deals with those two areas."
Risk management traditionally has been seen as an expense on the liability side of the ledger and not as a potential profit center, he says. That is partly because business schools and MBA programs rarely include instruction on occupational safety and health, much less how risk management and safety can improve profit, he says.
Show how you make money
The savings from risk management must be quantified and presented as not just money you didn't lose, but rather money that contributed to the bottom-line success of the organization. In other words, Foulke says, show that risk management actively makes money for the organization, rather than just helping avoid losses.
Risk management's efforts to improve workplace safety by reducing back injuries among nurses, for example, can have significant and direct effects on the organization's bottom line, Foulke says. And it's not just the reduced workers' comp costs because of fewer injuries, he says.
"When you reduce injuries, you dramatically increase efficiency and productivity, because you have that person on the job working instead of home recuperating," he says. "If that person gets injured and doesn't show up for work the next day, his or her productivity is zero, and the organization will spend money to cover for that loss of productivity. If you're eliminating that, you are achieving greater cost savings than just the massive savings in the workers' comp area. That's money right to the bottom line."
Risk management also contributes to the organization's public image, which is an important factor for hospitals and other providers in competitive environments, Foulke says. Worker injuries or deaths, as well as medical errors, can tarnish the hospital's reputation, which can drive away profitable patients, he says.
"The truth is that you cannot have great productivity, efficiency, and quality until you have great safety," Foulke says. "It's a one-way street. If you don't have good safety, people are getting injured, and that is going to impact your organization in all the ways that upper management . . . most focuses on. They will see it impact revenue, profitability, growth, all the important determinants of success, even if they don't read between the lines and see the impact of safety."
The risk manager should make it a priority to show that relationship, rather than hoping upper management will make the connection, Foulke says.
"Unfortunately, we see companies cut risk management and safety and health instead of realizing that they are the people who can help the company become more profitable, even when every other path is blocked," he says.
Here's a radical idea: Instead of trying to show management why your department is worthy of respect, go on the offensive and declare that risk management is a profit center every bit as much as that shiny new cardiac center or the plastic surgery clinic.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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