By David DeMoss
One of the main obstacles preventing risk management systems from having more of a priority in the hospitality industry is the perceived lack of measurable return on investment (ROI). All business owners want an ROI on everything they spend time or money on.
So how do you measure the return on something that never takes place? It’s probably more appropriate to use the term ‘savings on investment’ rather than return on investment. Proactive risk management systems are set up to prevent issues from occurring or getting out of control, thereby saving you money.
The problem can be that if the system is working, it can seem as though your company is spending money on nothing, because nothing is happening. No lawsuits, out of control claims, fines or penalties.
Oddly enough, ownership can start to think they are wasting their time and money on the risk management systems, and think that they don’t need them, because nothing ever happens. So they stop doing the things that kept them free of issues, thinking they are saving a little money.
What they are missing is the fact that much of risk management is aimed at protecting from severity, not just frequency. Some exposures won’t produce problems regularly, but when they do, it can be very expensive and time consuming if you are not prepared.
Here are some examples of what effective proactive risk management can protect you from (your savings on investment):
- A mishandled employee issue will cost $5k-$50k for an EPLI deductible. More if no EPLI coverage.
- An OSHA inspection can easily cost over $100,000.
- Having a Department of Labor Wage and Hour investigation can easily cost thousands.
- Out of control claims will cost thousands in additional premium and will stay with you for years on your loss runs.
- No risk transfer system in place can cost millions in claims and lawsuits.
- Improperly trained employees can cost you thousands in lawsuits, claims and fines.
Those are just some of the tangible costs that good systems can protect you from. There are other costs that are harder to measure, but still very important to consider:
Changing key personnel without systems in place can cost thousands in payroll, lost documents and lost projects
- The man hours, payroll and aggravation to deal with lawsuits, inspections and runaway claims can be extensive
- Not having administrative tools that provide good organization can cost thousands in lost documents, lost records, fines and penalties
- Staying in front of compliance needs rather than rushing at the last minute, or responding late, can save thousands in payroll, dropped projects and fines
- Having well prepared management staff allows more time to spend on guest issues. Happy guests = higher occupancy and rate
So how do you measure the value of a good risk management program? Assuming a good program prevents only ONE of the issues mentioned above, per year, and you can see the ‘savings on investment’ is huge.