When Economies of Scale Work In Reverse

One of the reasons your company is competitive and successful is simply its size isn’t it? As a leader in the industry your firm is large enough to leverage its buying power to get the best deals on almost anything you need to run the business can’t you. Vendors seek you out not only because they want to sell you their goods and services but because they want the prestige of having your name on their client list. That’s a comfortable position to be in.

But have you ever considered how being as big as you are can have a reverse economy of scale effect? Have you ever considered how a small flaw in the operation or a small waste of resources when spread across the entire operation can have a serious financial impact?

Take for example the cost of a worker’s injury. Of course you can track the expenses associate with that individual claim, but the insurance related costs are not the only costs associated with the injury. There are a multitude of smaller expenses, some which will show up in the financials but in accounts not related to insurance and some that will be more difficult to track but which have an impact none the less.

Consider the following events after an employee has been injured:

1. Time lost by the employee’s supervisor and co-workers when they respond to the accident in an effort to help the injured worker.

2. More time lost as employees mill around watching emergency personnel remove the worker or just chatting among themselves about the accident.

3. Even more time lost by the supervisor and any witnesses to the accident during the accident investigation process.

4. Cost of benefits. The injured worker will continue to receive and the company will continue to pay for all benefits while the employee recovers.

5. Cost of rescheduling. The injured worker’s job didn’t go away just because he did. Another employee (or more) has to be rescheduled to accomplish the injured worker’s tasks often while on overtime.

6. Cost of replacement. If the injured worker will be out for a prolonged period of time, the company must pay for a temporary worker and the cost of training him or her, or pay recruiting, hiring and training costs for a new replacement hire.

7. If equipment was lost or damaged as a result of the accident the company has to pay for the replacement or repair.

8. If equipment was damaged and cannot be replaced immediately, the company suffers a loss of productivity until the equipment is once again available.

On an individual loss this may add up to peanuts but when spread out over the entire work force, these "collateral costs" can become a death of a thousand cuts.

Obviously the way to minimize these costs is to minimize accidents. You probably already have a safety program and a safety committee but those programs are only as effective as the employee’s wiliness to follow them and management’s wiliness to enforce them.

What it takes to have a truly effective safety program is active involvement from the top down. You can talk the talk but nothing of substance will change unless you walk the walk. Senior leadership has to make it clear to every employee and every department head, not just production, of the importance of a safe workplace and its impact not just on the company’s financial performance but on the welfare and quality of life of the workplace.

When safety becomes part of the culture of an organization, productivity goes up and work comp costs go down. Retention rates increase and recruiting, hiring, training and overtime costs decrease. In short a safe organization is a more competitive organization.

Now that you have a handle on the importance of injury prevention, it’s time to look at another work comp nightmare and that’s all of the hidden costs that exist in your self insured plan.

Did you know that thanks to referral commissions between vendors, delayed claims processing, inaccurate claims management and a plethora of other inefficiencies you may be spending at least 10% more than you should on your program?

If you want the details on these hidden costs be sure to signup for the video series http://www.riskmanagementcompetitiveintelligence.com

It will be an eye opening experience and the first step in reducing your overall self insured expense.