What is the Cost of Failure?

By:  Robert Avsec

Following one of my last posts How Good are Your Organizational Risk Reduction Tools?) one of my

Shelka Czako, CEO & Co-Founder, Mega Health at Work Inc., Ontario, Canada

LinkedIn colleagues, Shelka Czako, left the following comment:

Great article! Another option may be performing an Instantaneous Cost of Failure analysis and educating the leaders on the whole process that would help shift the operations from reactive into proactive mode.

Well Shelka only got my curiosity up with that comment, so we arrange to chat by phone today and it was a very informative and interesting exchange of ideas, and not just about ICOF analysis.  It turns out that an ICOF analysis is a very good fit with the Enterprise Risk Management concept that I discussed in Reducing Organizational Risk in Your Department and it’s a good tool for helping managers to become more proactive in their approach to risk reduction.

Case Study

Take a firefighter who injures their knee in the course of duty, that is, a worker’s compensation injury.  Following said injury there will most likely be some sort of investigation to determine:  what happened; why did it happen; and how do we keep it from happening again?  The firefighter will get the appropriate medical care and rehabilitation as necessary and return to full duty at some point. The worker would also get monetary compensation for what was charged in nursing homes. And only then—when all the medical bills are in, overtime for coverage added up, etc.—will the department have any idea of how much that incident cost.

In reality what we have is an instantaneous failure, that is, a failure to keep a firefighter safely, effectively, and efficiently on the job.  Using the ICOP analysis process, departmental managers should be able to proactively—before the failure occurs—determine what the total cost of this failure means to the organization.  Using historical data from similar injuries in the past (or by making conservative educated guesses in the absence of historical data) each department manager calculates what the cost of this type of failure would be for their unit:

Besides the monetary costs for medical treatment and rehab, such an injury “costs” many hours of staff time. Those costs (hours x hourly wage of person doing the work) need to be part of the total cost for a worker’s compensation injury to gain a true appreciation for its impact on the organization.

What Would We Gain?

I’d venture to say that the individual managers of those units in most fire departments have little or no idea of what the other costs are for this type of injury.  For most, it is still probably atypical for the information to move between “silos”.  (This behavior is exacerbated when functions, e.g., Human Resources or Finance, are provided by personnel outside of the fire department, for instance, another department within the municipal government).

By conducting an ICOF analysis, a department’s leader would provide an objective process that can help break down those informational “silos” so that all managers:

• See the total picture;
• See and appreciate how their information affects that picture; and
• See and appreciate how the information from other divisions affects that picture.

That’s how I see it.  What do you think?  Drop me a line and let me hear you!

CEO & Co-Founder, Mega Health at Work Inc.

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