In this downtrodden economy, no industry is left untouched by the need to reduce costs. Therefore, it is essential for firms to approach this demand in a forward-looking manner, no matter the urgency placed on immediate results.
Risk management tools and practices provide a company with the opportunity to identify areas where improvements can be made, ranging from the coverage held by a firm to its staffing practices, according to Christine M. Deluca, strategic account manager and managing director for Aon Risk Services.
“By taking these thoughtful and strategic steps forward, you will secure a determined grip on your firm’s future and position your business for continued success,” she says.
Smart Business spoke to Deluca about how companies can identify the areas that need to be fixed and what to do to fix those areas.
In these tough economic times, how can companies meet the needs of a recessed economy?
Several economic issues and indicators are putting cost reduction at or near the top of organizational priorities for 2009. Three key ones are:
- Organizations are struggling with reduced product demand, high costs and limited access to capital.
- Economists suggest the credit market will remain tight; thus, the cost of credit will be high for the foreseeable future.
- Most economists believe that corporate profits will decline in aggregate by as much as 50 percent in 2009.
Operating in such an environment, companies have little choice but to cut capital spending and reduce the cost of sales. Indeed, recent surveys show a significant number of organizations plan to reduce costs and staff aggressively in the weeks ahead. Experts now expect the downturn to last for the next 24 to 36 months.
Unfortunately, many companies address these challenges too late in the game, often by implementing only one solution segment. You need to strategically integrate these various components, so costs are optimized and managed in an appropriate and realistic fashion.
What are some of the critical factors companies should consider while implementing a plan?
Critical factors that should be given consideration in a cost reduction plan include but are not limited to the following:
- Alignment with organizational strategy: Focus on the organization’s mission and values with an integrated approach across human resources, operations and risk management.
- Legal defensibility: Follow established internal policies and adhere to local statutory issues at any given location affected by the strategies.
- Risk mitigation: Identify hidden risks, such as unplanned attrition, sabotage, workers’ compensation and disability claims.
- Metric-driven approach: Continuously monitor exposures and opportunities in a cost-effective manner. Constantly review newly reported losses and changes in property exposures as the minimum.
Ongoing sustainability recognizes and quantifies exposures like accidents and disabilities associated with your organization’s workplace, while addressing new and ongoing claims and anticipating future liabilities. Additionally, the incorporation of a standard planning approach to review future decisions in anticipation of change, coupled with ongoing risk assessment, will support the organization’s goals and interests. This is easily accomplished with the engagement of a specialized advisory service and senior executive-level facilitators.
With these mitigation strategies firmly in place, you’ll benefit from maintained sustainability in the following ways: stabilized productivity; ability to meet continued customer needs or expectations and, therefore, satisfaction, loyalty, revenue and cost of sale; retention or transfer of outstanding employees; management and control over employee morale; and minimized disruption of benefits to current disabled workers.
Predictive analysis projects future impacts and estimates future liabilities through statistical analysis. In order to allow an organization the flexibility to consider a number of options in deciding how best to manage costs, it is useful to engage in actuarial analysis. By reviewing historical losses, trends and expert opinions as to future considerations, you accrue for future balance sheet liabilities.
How can a well-designed plan help mitigate the risks companies face?
A well-designed plan will support significant value creation for the organization, delivering a sustainable approach to ensure that resulting workers’ compensation and disability claims costs are handled proactively, grievances are minimized, productivity is not negatively impacted and customer and shareholder confidence is maintained.
Specific to the above facts, data supports that an organization may have increased costs of 30 percent in workers’ compensation alone. This does not consider productivity issues, unplanned attrition and other costs directly affecting the balance sheet in various ways. Therefore, it is imperative to plan for the cost reductions by incorporating all aspects that may prove costly or that were previously not contemplated as a cost. By benchmarking an organization’s data against its peers, it quickly becomes evident where the firm is thriving and where some additional attention may be required.
CHRISTINE M. DELUCA is a strategic account manager and the managing director for Aon Risk Services. Reach her at (216) 623-4131.
