Managing Risk in Today's Downsizing Economy

• By David Ferguson
• Mar 01, 2009

Today's business climate in the United States is definitely challenging. The dizzying pace of change brought on by plummeting sales figures and higher costs for just about everything has resulted in a crunch on operating budgets not seen in decades. The question of what to do about balancing business performance in a tough market brings a plethora of both challenges and opportunities.

A key cost that is frequently overlooked during hard times is increased incidence of injuries due to a number of discernable factors. A few examples:

• Employees fail to maintain proper injury prevention practices.
• Fear of layoff may prevent employee self-reporting of minor injuries. This minor injury may escalate into a major injury that requires surgery and/or long-term disability.
• When job stress levels increase, mental distractions also increase. Too often, these can lead to an increase of what had been very avoidable injuries.
• Management may inadvertently increase risk levels by cutting back on injury prevention programs.
• Failure to proactively manage injuries can result in a simple first aid case escalating in value from $100 to $100,000.
• Employee workers' compensation fraud may occur for a myriad of reasons. The meltdown of many financial markets that severely damaged employee 401{k} plans may well become a factor for many employees who believe they have lost everything. Some of those employees may develop what is called displaced aggression and look to blame just about anyone for their new troubles. Those individuals affected by displaced aggression may become distracted or reckless in the performance of their job duties, resulting in very serious or exaggerated workplace injuries.
• Alcohol and drug use may increase along with an increased potential for domestic violence.

And while workers' comp claims are just one of the challenges during hard times, there are others:

• Increased injury treatment and unemployment costs
• Unplanned expenses
• Organizational structures that are no longer justified given a downturn of business
• Theft of business supplies, equipment, and/or inventory; misuse of company property; and unjustified expenditures

What to do? Just as an organization expands during prosperous times, the methods used during lean times should be implemented on a case-by-case basis. However, the challenge becomes more difficult during the lean times.

Why is this so?

• Questions of which functions are really needed may become clouded due to loyalties, friendships, or intra-organizational bonds.
• Hunkering down and doing nothing is the wrong approach. Shifts in business status demand that changes are made.
• Deciding how to proceed toward creating a leaner organization can paralyze even the best companies.

So what about your organization? When business is running smoothly and profits are strong, no problem. However, if strategic decisions need to be made, make them and help those who are affected understand why those decisions are necessary. It is known that employee involvement helps organizations to make better decisions. Consider the impact and value that quality and safety circles have made on productivity over the years. Enormous gains have been made in preventing costly accidents and costly rework by use of these techniques. My father always told me that even though there wasn't enough time to do something right the first time, there always seemed to be enough time to do it over.

Use of Enterprise-wide Risk Management (ERM), Motorola's Six Sigma, and Deming's PDCA (Plan-Do-Check-Act) processes can add significant value to the process of strategic realignment from hard times to better times. In each of these processes, quality management principles have shaved millions of dollars of expenses off the bottom line in a variety of industries. And as priorities are changing, it is critical that remaining employees know how they will fit in and be measured against new goals and objectives.

What is important? The following tips posted by Tammy Erickson on Aug. 28, 2008, in Harvard Business Publishing, focuses attention on this issue.

"Hard Times Demand Teamwork -- Not an MVP"

"Significant research has shown that groups make better decisions than individuals, that there is wisdom in crowds. Rather than personally grabbing the ball during a downturn, leaders need to tap into the wisdom and, perhaps even more importantly, the energy of the entire organization.

During a downturn, a leader's role is to do three things:

1. Ask great questions. Challenge the organization to meet goals that are intriguing, complex and important…

2. Build relationships and trust…

3. Challenge the status quo… Encourage brainstorming…. Don't cut training."

Good advice, indeed.

What functions are critical for the organization? In addition to income-producing tasks, keep those functions that directly have value and can have positive impact on the company's bottom line. Remember, saving money through loss prevention is the same as making money. Blanket cuts of staff across the board can have devastating financial consequences for the organization. If the function's value is not clear or not needed, then eliminate.

Examples of things to consider are these: Can duplicate jobs in different departments be consolidated? Are some jobs required for legal compliance reasons (ffr example, tax accounting and IRS reporting requirements, EEOC compliance, injury prevention, environmental compliance and other labor law requirements)? If so, keep them. By weighing the financial risks of intended actions on a case-by-case basis, the decisions become easier and more cost effective to make.

What About outsourcing? While some functions can be outsourced, others should not. Outsourcing regulated compliance programs can go horribly wrong. Management of these risks is a daily, hourly effort that cannot be handed off to the proverbial lowest bidder.

Attitude and Communication

A key to seeing the big picture can be found in your attitude.

"Keep A Positive Attitude. Times are hard. Your nerves are on edge. You're feeling the pressure.... Let's think about this. If you called up a company about business and the representative says, "It will be great to be finally getting some new clients" or "Things have been horribly slow around here lately" are you going to trust them with your project? No." (from Vishal P. Rao in an undated Creativepublic.com article titled "Dealing with Business Slow Downs")

And let's not forget to encourage our employees to talk about the real impacts of hard times. While job losses and uncertainties are a reality for many, the importance of having someone to talk to about these things is critical. Supervisors, Human Resources staff, or employee assistance programs may help employees to cope. Remember, we are all in this together!

Patricia Ruth Jette, a Hyde Park psychologist, recently said almost every patient seenin a week needed to talk about his or her fears about the economy. Couples, especially, argued about their investments, as well as the day-to-day issues of the cost of food, gas, and other expenses. "There is a lot of fighting over money that wasn't there before," Jette said. "It's scary for me. It's scary for everybody." (from the article "More couples huddle, haggle over finances," by Boston Globe staff writers Jenifer B. McKim and Nicole C. Wong, Oct. 13, 2008)

What about employee stress? The importance of managing stress during organizational challenges cannot be overemphasized. Inadequate communication is frequently the reason for added costs of stress claims to the company during these hard times. Management's involvement with employees and listening to their concerns is paramount during hard times. Communicate, communicate, communicate. And remember, in injury prevention, the documentation and the paperwork shall set you free!

The following news item from the National Safety Council is telling:

"Work-Related Stress Emerging as Major Global Occupational Health Hazard. Growing Need for Risk Assessment, Prevention Strategies…Illness and injury resulting from job-related stress are an increasingly costly downside of a changing[ workplace]"

To summarize, management should be asking questions, lots of questions. Employee involvement can help to solve many of the challenges that businesses face in hard times. Stay positive, and when it's time to take action, do so. Remember that stress can become a consequence of inadequate communication, so use of an EAP or other HR assistance may help.

There is much written about how to manage these challenges. We just need to act appropriately when the time comes.