Most businesses should practice active risk management in at least some capacity, acknowledging and analyzing the core risks that could threaten the integrity of the business. But while many people see risk management as a tedious chore for compliance, it’s important to recognize that effective risk management can improve your bottom line.
How Risk Management Improves Your Bottom Line
These are just some of the ways that a better risk management approach can support your business and make it more profitable:
- Preventing fatalities. Every business owner with even a trace of a conscience wants to make a proactive effort to prevent fatalities because loss of life is always a tragedy. Losing an employee is also bad for the business directly, in a financial sense, because the employee lost is probably a skilled, productive worker that will no longer be available for this or future jobs.
- Minimizing turnover. Suffering a workplace fatality means you’ll need to find a replacement for the lost worker; depending on the skill level and experience of this worker, this may be both time-consuming and expensive. Additionally, upon witnessing or hearing about a job-site fatality, other employees that work for your organization may be more likely to leave and find another job. If your workplace doesn’t feel safe, or if employees don’t feel that you’re adequately practicing risk management, you’re going to suffer from higher employee turnover. Proactively analyzing risks and eliminating hazards can keep employee turnover low.
- Reducing legal and medical costs. According to the National Safety Council, the cost of a medically consulted injury in 2021 was $42,000, while the cost of a fatality was $1,340,000. These figures include expenses such as wage losses, medical expenses, administrative expenses, and employer costs but do not include all property damage costs. Neglecting risks on your job site can have massive financial consequences for your business. It’s much better to work proactively, spending less money to make sure these incidents never occur.
- Reducing insurance costs. When an organization has a workplace fatality, it usually faces much higher insurance premiums. You’ll be able to keep your insurance costs low if you practice proactive risk management and keep your job-site free of fatalities and injuries.
- Reducing safety costs. Practicing efficient risk management also allows you to keep your safety and injury prevention costs under control. Instead of hemorrhaging money for personal protective equipment (PPE) you don’t need or recklessly spending money to change a plan that’s perfectly fine as is, you can strategically focus your safety spending on the areas that matter most. You can identify the biggest hazards on your job-site, then work to eliminate them or address them, without spending additional money in the process.
- Preventing work interruptions. When an employee experiences a significant injury or worse, if they die on the job-site, productivity understandably comes to a halt. Depending on the circumstances, activity may be shut down for the day or for several days. Addressing job-site risks means you can prevent these workplace interruptions.
- Improving employee morale. Don’t discount the value of employee morale; when employees feel better about their workplace and more optimistic about their careers, they’re much more likely to show up for work, they work harder, and they generally contribute to a better workplace environment. Making employee safety one of your top priorities should have the downstream effect of improving employee morale.
- Improving your organization’s reputation. Finally, understand that risk management can improve your organization’s reputation with others. If your construction business has never suffered a job-site fatality, you can mark it and advertise it as safe, professional, and reliable. You should have a better chance of attracting quality clients and maintaining steady work.
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Improving Your Risk Management Approach
So what steps can you take to improve your approach to risk management?
- Be proactive. Risk management only works effectively if it’s proactive. You need to analyze risks and potential hazards before they do any significant damage, rather than only making changes after an incident occurs.
- Hire a professional consultant. There are many informational resources that can guide you in an independent approach to risk management and safety improvement, but you’ll likely see more comprehensive, measurably better results if you work with a professional consultant.
- Make safety the top priority in your company culture. Make sure safety is treated as the highest priority in your company culture, from the top-level decision makers to your newest entry-level employees.
When your business takes risk management seriously and proactively invests in keeping your employees safer, you’ll see a cascade of different financially beneficial effects. From saving money to attracting better clients and achieving higher rates of productivity, savvy business owners understand that the fruits of a risk management investment are lucrative.