ASSE 2014- Risk Managers are from Mars.pptx
Risk Managers are from Mars, EHS Professionals are from Venus-‐ The EHS Professionals' Role in ERM Erike Young, MPPA, CSP, ARM Director of Environment, Health and Safety Deputy Director of Enterprise Risk Management University of California, Office of the President eyoung@ucop.edu EHS Manager Job Summary Provide professional knowledge and exper3se in the administra3on and support of environmental health and safety programs. Responsible for the overall coordina3on and implementa3on of environmental health and safety programs to assure compliance with regulatory agency guidelines and ins3tu3onal policies. 3
EHS Job Summary in ERM OrganizaMon To provide professional knowledge and exper3se in the administra3on, integra3on, and support of environmental health and safety programs at all levels of the organiza3on. In coordina3on with the risk manager, develops environmental health and safety programs that reduce hazard, opera3onal, strategic, reputa3onal, and compliance risks in support of the strategic objec3ves and mission of the organiza3on. 4
QuesMon? Imagine for a moment that you are interviewing to be hired as the new EHS Director for an organiza;on. Would you prefer an organiza;on that, while deemed highly compliant with OSHA and EPA regula;ons, lacks senior level support or a posi;ve safety culture and has a high injury rate; Or an organiza;on with senior level support, posi;ve safety culture and few if regulatory viola;ons, but is not fully compliant with OSHA and EPA regula;ons that it has evaluated as unlikely to occur? This is essen3ally the conflict between compliance-‐based and risk-‐based programs. 5
Fire ExMnguishers Cal/OSHA Title 8 CCR 6151 e) Inspec;on, Maintenance and Tes;ng. ― (1) The employer shall be responsible for the inspec;on, maintenance and tes;ng of all portable fire ex;nguishers in the workplace. ― (2) Portable ex;nguishers or hose used in lieu thereof under Subsec;on (d)(3) of this Sec;on shall be visually inspected monthly. (d) Selec;on and Distribu;on. ― (1) Where portable fire ex;nguishers are provided for employee use, they shall be selected and distributed based on the classes of an;cipated work place fires and on the size and degree of hazard which would affect their use. ― (2) The employer shall distribute portable fire ex;nguishers for use by employees on Class A fires so that the travel distance for employees to any ex;nguisher is 75 feet (22.9m) or less. 6
How the Safety and Risk Management Departments view each other } Risk Management views EHS’s job as: ◦ Compliance ◦ Doing inspec;ons/audits ◦ Accident inves;ga;ons ◦ Focused on employee safety } EHS views Risk Management’s job as: ◦ Buying insurance ◦ Se\ling claims ◦ Analyzing loss data ◦ Access to resources ◦ Risk managers/actuaries don’t give credit for safety ini;a;ves 7
Is this Bad or Good? Two departments trying to accomplish the same goal with different budgets and personnel • Inefficient • Expensive • Confuses Management on the value of both departments ― Reduces the value of each department • Different Metrics ― Payroll hours vs. FTEs 8
“Can’t we all just get along” Integrate the best of both EHS Professionals and Risk Management to form a more cohesive dept. • Look at Enterprise wide risk ― Ensure controls are implemented effec;vely • Be\er evalua;on of cost of losses and controls ― Improves risk financing 9
How to Make this Happen In order to integrate RM and EHS Professionals, the EHS Professionals professional must ini;ate the ac;on by building rela;onships with Risk Managers and their staff and show the value “EHS Professionals” brings to the table • Speak the RM language • Be able to talk about losses in financial/RM terms • Speak more intelligently about risk financing • Show how the “EHS Professionals model” is more effec;ve in reducing risk 10
EHS Professionals & Risk Management Viewpoints EHS Professionals – That science and art devoted to the recogni;on, evalua;on and control of [hazards], environmental factors or stresses, arising in and from the workplace, which may cause sickness, impaired health and well being or significant discomfort and inefficiency among workers and/or ci;zens of the community (NSC, Fundamentals of Industrial Hygiene, 3rd Edi;on) Risk Management – is the process of making and implemen;ng decisions that will minimize the adverse effects of accidental and business losses on an organiza;on. (Fundamentals of Risk Management, 3rd Edi;on, Volume 1) 11
EHS Professionals vs. Risk Management Steps EHS Professionals (Develop Program/
process) Iden;fy/Analyze Hazards Property Liability Personnel Automobile Business Interrup;on ―
―
―
―
―
Develop methods to eliminate/
control hazards Risk Management process Iden;fy/analyze risk exposures Exam feasible alterna;ve risk management techniques Select the best RM techniques Implement chosen techniques Monitor Results Hierarchy of controls Implement those methods Monitor Results/Make Changes 12
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ANSI Z10 Summary Characterized by integra;on of safety management into opera;ons, con;nual improvement and systemic elimina;on of underlying root causes of deficiencies. Major Elements • Management leadership & Employee par;cipa;on • Planning • Implementa;on of the Occupa;onal Safety & Health Management System (OSHMS) • Evalua;on and correc;ve ac;on • Management Review 14
ERM Frameworks and Standards ISO 31000:2009-‐Scope is to enable all strategic, management and opera;onal tasks of an organiza;on throughout projects, func;ons, and processes to be aligned to a common set of risk management objec;ves 15
Enterprise Risk Management for the EHS Professional The best EHS professionals understand risk management, and the best risk managers understand EHS. ERM is essen;ally the marriage of the two disciplines as it requires the risk and safety managers to collaborate in iden;fying and controlling a broad array of risk exposures in support of the organiza;on’s strategic plan and mission. 16
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TradiMonal RM vs. ERM TradiMonal ERM • Reduce poten;al claims • Concerned with pure risk • Risk op;miza;on • Concerned with global array of and specula;ve risk UNIVERSITYOFCALIFORNIA
• Focused on preven;ng or reducing poten;al hazard or opera;onal losses risks • Focused on strategic, financial, opera;onal, hazard, compliance, environment, human capital, reputa;on, and technology risks 18
Types or Risk Exposures in ERM } Hazard risk ◦
risks related to accidental losses, such as workplace injuries, liability torts, property damage, and natural disasters. } Financial risk ◦
risks related to financial ac;vi;es, such as pricing, asset valua;on, currency fluctua;ons, and liquidity. } OperaMonal risk ◦
risks related to opera;ons, such as supply chain, customer sa;sfac;on, product failure, or loss of key personnel. } Strategic risk ◦
risks related with an organiza;on’s long-‐term goals and management, such as partnerships, mergers, and acquisi;ons. } Compliance risk ◦
risks related to viola;ons of or nonconformance with laws, rules, regula;ons, prescribed prac;ces, internal policies, and procedures, or ethical standards. } ReputaMonal risk ◦
risks related to the trustworthiness of business. Damage to a firm's reputa;on can result in lost revenue or destruc;on of shareholder value. 20
What type of Risk is this?
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What type of Risk is this?
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Why organizaMons are going ERM? Increased Profitability-‐ Monitors systemic risk inherent in the organiza;on that can adversely affect its long-‐term financial outlook Reduced VolaMlity-‐ Exams areas that could affect cash flows Improved Ability to Meet Strategic Goals-‐Iden;fy risks that would impede growth and achievement Increased Management Accountability-‐ Managers become responsible for the risks they oversee Management Consensus-‐ Crea;ng a corporate culture that embraces risk as an addi;onal component Stakeholder Acceptance-‐Managers’ understanding that the way they manage will have a posi;ve impact on the organiza;on 23
What happens when Risk Management and Safety Work Together? Cost of Risk per $1,000 OperaMng Revenue 40.00 35.00 30.00 25.00 $20 $36.92 15.00 $10 10.00 5.00 $18.46 $111 $32.25 $31.41 $68 $73 $81 $75 $15.11 $14.84 $14.44 $14.76 $1.28 $1.27 $1.26 $135 $29.68 $30.22 $52 $73 $15.88 $14.84 $35.90 Total Including Indirect Costs 20.00 $99 $94 $146 $104 Cost Avoidance (in $millions) $17.95 Direct Costs -‐ Ex Uninsured Legal $31.76 Uninsured Legal Costs $32.02 -‐ 2003-‐04 2004-‐05 2005-‐06 2006-‐07 2007-‐08 2008-‐09 2009-‐10 2010-‐11 24
UC Case Study E R G O N O M I C S A N D I N J U R Y P R E V E N T I O N 25
Terms to Know • TCOR • Loss run • IBNR • Loss development • P&L • ROI • Claims adjuster • TPA • WCRIB • Actuary 26
How does risk financing work? • Actuarial study performed to calculate funding requirements and rates ― Study uses most recent 4 years of loss data excluding most recent ― Typically does not credit loss preven;on efforts • Funded at confidence level determined by organiza;on • Loss development is key to a healthy fund balance ― 95% of costs paid by year four ― Rebates/assessments calculated 27
Rebates/Dividends vs. Safety ROI • What is an insurance rebate/dividend? ― Monies returned to organiza;on as determined by actuary • Where does rebate/dividend money go? ― Opera;ons • What por;on of rebates/dividends should be considered as part of the Safety ROI? ― Loss costs below expected (50%) confidence level 28
How to Fund Injury ReducMon Efforts through your Workers’ CompensaMon Program • Start with the premise that… ― “Workers’ Comp insurance is a fund for failure!!” • Actuaries assumed that “new” safety ini;a;ves would have 3:1 ROI that would be realized over 5 years. ― Actuaries credited 20% of expected ROI over 5 years • Any dividends/rebates are reinvested in safety • Example ― $1 million WC rate addi;ve ― Expected ROI over 5 years is $3 million ― $600,000 ROI credit given for each year ― Net cost to operaMons in 1st year is $400,000, not $1 million 29
Be Smart
About Safety
Analysis of Return on Investment by 30
BSAS IniMal Concept & Goals Concept • Developed as a funding mechanism to invest in new and innova3ve loss preven;on and loss control measures with the goal of reducing the cost of risk as it relates to employee safety • Not intended to supplement program budgets Funding Currently funded at 10% off each loca;on’s workers’ compensa;on base accrual rate 31
BSAS IniMal Concept & Goals (cont) RaMonale for Program Provides the loca;ons with funding for loss preven;on and loss control programs that were not available prior to the incep;on of BSAS Has a direct impact on the loca;ons’ WC accrual rate • Inves;ng in loss preven;on and loss control will reduce the loca;ons’ core premiums, as the actuary provides a rate discount to those loca;ons par;cipa;ng in the BSAS program Inves;ng in loss preven;on will lead to a reduc;on in claim frequency, which in turn will have a posi;ve effect on a loca;on’s severity and overall claim exposure Inves;ng in employee health & safety through loss preven;on and loss control is a sound business decision 32
Risk/Loss Profile Driven Strategy: Proposals by Project Purpose 2005-‐2010 Other Stress/EAP 10% Lab Safety 2% 2% Ergonomics -‐ Programs/Staffing 27% Outreach 2% Inves;ga;on 3% Return-‐to-‐Work 4% Safety Equipment 5% Safety Training 5% Wellness 10% Mul;ple Areas & General Safety Programs/Staffing 22% Ergonomics -‐ Equipment 7% Ergonomics -‐ Training 1% 33
Funding AllocaMons: Proposals by Project Purpose 2005-‐2010 Ergonomics -‐ Programs/Staffing
Ergonomics – Equipment
Ergonomics – Training
Multiple areas/programs
$18,898,407 5,207,470 478,297 14,966,834 Wellness
7,013,829 Safety Training
3,764,493 Safety Equipment
3,160,637 Post-‐Injury & Return-‐to-‐Work
2,966,562 Incident/Accident Investigation
2,046,003 Outreach & Marketing
1,594,119 Laboratory Safety
1,288,691 Stress & Employee Assistance
1,263,965 Other
7,030,067 34
University of California “Be Smart About Safety” (BSAS): Analysis Methodology Evaluated BSAS projects funded and implemented FY 2005-‐2006 FY 2006-‐2007 FY 2007-‐2008 Control data valued as of 6/30/06 Experimental data valued as of 6/30/08 35
Claim Profile Results Workers’ CompensaMon Program StaMsMcs FY 05-‐06 Losses FY 06-‐07 FY 07-‐08 FY 08-‐09 FY 09-‐10 $22,349,394 $22,887,092 $26,071,261 $22,373,304 $24,141,225 Claims 9,121 9,328 9,861 9,301 9,172 Frequency 1.18 1.14 1.11 0.97 0.94 Severity $2,450 $2,454 $2,644 $2,405 $2,632 Loss rate $0.29 $0.28 $0.29 $0.23 $0.25 Frequency – Number of claims per $1,000,000 payroll Severity – Average cost per claim Loss rate – Cost of claims per $100 payroll 36
ParMcipaMng LocaMons Workers’ CompensaMon Program StaMsMcs Changes in Claims Count by Claim Type FY 2005-‐2006 to FY 2009-‐2010 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 4,256 1,157 2005-‐2006 4,107 1,130 4,029 1,158 3,758 987 3,582 1,055 2006-‐2007 2007-‐2008 2008-‐2009 2009-‐2010 Indemnity Medical First Aid 37
ParMcipaMng LocaMons Workers’ CompensaMon Program StaMsMcs Changes in Incurred by Claim Type FY 2005-‐2006 to FY 2009-‐2010 $20,000,000 $17,584,192 $15,982,971 $15,380,107 $15,548,042 $14,325,596 $15,000,000 $10,000,000 $5,000,000 $0 2005-‐2006 2006-‐2007 2007-‐2008 2008-‐2009 2009-‐2010 Indemnity Medical First Aid 38
ParMcipaMng LocaMons Workers’ CompensaMon Program StaMsMcs Change in Frequency (claims per $1,000,000 payroll) UC 2006-‐2007 WCIRB 2007-‐2008 2008-‐2009 -‐2.4% -‐4.3% -‐4.1% -‐5.2% -‐8.8% -‐8.6% *Ul;mate losses, UC losses limited to $100,000 per claim. 39
ParMcipaMng LocaMons Workers’ CompensaMon Program StaMsMcs +15.3% Change in Severity (average cost per claim) +14.3% +12.4% +11.5% +8.6% +6.3% 2006-‐2007 2007-‐2008 UC 2008-‐2009 WCIRB *Ul;mate losses, UC losses limited to $100,000 per claim. 40
ParMcipaMng LocaMons Workers’ CompensaMon Program StaMsMcs +10.4% Change in Loss Rate (cost of claims per $100 payroll) +9.1% +9.7% +2.9% +1.9% 2006-‐2007 2007-‐2008 UC WCIRB -‐3.3% 2008-‐2009 *Ul;mate losses, UC losses limited to $100,000 per claim. 41
Funding vs. Injury Metrics Ergonomics Claim cost not fully developed.
Multiply by 2.71 for Ultimate Loss.
$7,000,000 $6,000,000 $5,960,414 $6,241,194 $5,000,000 $4,000,000 $3,661,206 $3,053,996 $3,000,000 $2,000,000 $1,000,000 $-‐ 2006-‐2007 2007-‐2008 BSAS Ergonomics Spending 2008-‐2009 2009-‐2010 Ergonomic Injuries Incurred @ FYE * Incurred as of fiscal year end. 42
Funding vs. Injury Metrics Ergonomics $7,000,000 $6,000,000 1,600 1,444 1,422 1,400 1,200 $5,000,000 1,000 967 $4,000,000 724 $3,000,000 800 600 $2,000,000 400 $1,000,000 200 $-‐ -‐ 2006-‐2007 2007-‐2008 BSAS Ergonomics Spending 2008-‐2009 2009-‐2010 Ergonomic Injuries Count @ FYE 43
Analysis Conclusions Campuses inves;ng in ergonomics-‐related programs showed strongest improvement Average 5:1 ROI Increases in first aid claims indicate employees are repor;ng problems and injuries earlier Marke;ng of safety and general awareness may assist in improving safety culture 44
Be Smart
About Safety
Student Housing & FaciliMes Management • SituaMon: Custodians and groundskeepers injured while emptying trash into dumpster – Li{ing, bending and reaching to put trash into receptacles – $117,110 cost over past 5 years • SoluMon: Purchased 35 new containers • “Foot Pedal” modifica;ons will give users – Mechanical advantage for easy opening and access – Ability to use two hands for dumping and closing lids • Total project cost $28,678 BEFORE:
Pitch-top
dumpsters
50”-56” high
AFTER: 39”
dumpsters
modified for
mechanical
advantage
Be Smart
About Safety
Work StaMon Ergonomics • SituaMon: Employees at several office work loca;ons experiencing pain & discomfort • SoluMon: 144 ergonomic evalua;ons completed at individual employee work sta;on sta;ons in 2007-‐2008 • Be Smart About Safety funded 50% (up to $500 per person) for injury preven;on for these 144 employees • Cost avoidance example: $30-‐40K for just one carpal tunnel injury • Total 2007-‐08 BSAS funds expended: $33,864 Be Smart
About Safety
VMTH: Fork Lip Pivot Boom • SituaMon: Past prac;ce was for three or four employees to manually handle 1800 lb downed cow to keep it on its feet • Projected back surgery cost >$60k for injured worker • SoluMon: Purchase of pivot boom • Pivot boom cost: $2,900 Be Smart
About Safety
Shoes for Crews • SituaMon: Food Service employees experience over 700 slip/fall injuries per year with associated direct WC cost in excess of $7 million • SoluMon: Provided 2 pairs Shoes for Crews non-‐slip shoes to 4,000 food service employees annually. Shoes for Crews provides warranty which will pay up to $10,000 of WC claim if employee slips/falls while wearing shoes. – UC Irvine – 1 to 2 slip/falls per year w/program – UC Los Angeles – 120+ slip/falls per year w/o program • Annual cost of $300,000 funded through WC Fund • Expected direct WC annual savings in excess of $1.5 million Finding Money to Fund Safety Program • EHS, Risk Manager and Actuary need to work together • Workers’ Compensa;on Rate Addi;ve • Select an addi;onal % as part of WC rate for new loss control programs • Pay it Forward – Fund from WC Loss Fund • Must be able to demonstrate ROI to actuary • Fund programs with largest poten;al ROI first • Ergonomics, Slip/fall preven;on 49
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Tools to Take Back With You • Associate in Risk Management Designa;on • www.armstudygroup.com provides on-‐demand course material. • Risk-‐Based Budget Changes Tool • Workbook will help you consider the risks involved and decide among your op;ons for reducing your budget. Considers ERM risks/benefits and provides a risk score. • h\p://www.ucop.edu/riskmgt/erm/risk_assessment.html 51
EHS Job Summary in ERM OrganizaMon To provide professional knowledge and exper3se in the administra3on, integra3on, and support of environmental health and safety programs at all levels of the organiza3on. In coordina3on with the risk manager, develops environmental health and safety programs that reduce hazard, opera3onal, strategic, reputa3onal, and compliance risks in support of the strategic objec3ves and mission of the organiza3on. 53
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