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Management Essay on Risk Management

Research Brief 4204 - Risk Management

Introduction
The Royal Society for the Prevention of Accidents (2002) report around 800 occupational fatalities on the roads per year, and they have set up a campaign entitled Management of Occupational Road Risk (MORR) to combat this. Estimates suggest that one in four road accidents in the UK are work-related. A proposal has been made for a system to report road accidents involving people who are driving whilst at work. The task in hand is to analyse the proposed reporting system and assess the risks it poses and its potential costs and benefits.

The analysis will require knowledge of risk management. A risk is an issue which may put something in jeopardy and prevent it from being a success. Crockford (1986) defines the main features of risk management as identification, evaluation, minimisation and the mitigation of a risk. The main processes involved in a risk management differ from project to project but Grey (1995) adds the practice of identification of stakeholders [1], success measures and assessment of likelihood and impact of the risk.

Discussion

Methodology
The main success criteria for any project such as this one are to be cost-effective, on-time and of quality. There are many different methods to assess and manage risk. One such is the likelihood and consequence method outlined by Grey (1995) which is a quantitative technique that represents risks in terms of the probability and impact they will have financially should they happen. However, these particular techniques are beyond the means of this task and hence a simpler cost-benefit analysis defined by Mishan (1982) as a decision-making process that aims to minimise potential financial risk and maximise success.

Therefore in order to assess this project it is important to ensure that a good balance between the cost and benefit of something is found in order to satisfy all criteria listed above such as time and cost alongside managing the risks involved.

Typical occupational driving risks
In a case study regarding business road travel King (2001) writes of accident risk factors to the individual as being legal compliance, weather and third party involvement. Further factors include driver error, insurance issues [2], health, fatigue, drink and drugs influence and mobile phone use [3]. Accidents may range from a scratched arm to multiple fatalities and written-off vehicles. Using the probability-impact approach the probability of a minor accident is perhaps medium-to-high with low-to-medium impact in terms of liability and compensation etc. However, whilst a major accident is less likely it has a high impact value and so can be incredibly damaging to a business both financially and in terms of life-loss.

These insurance and liability issues are highly important to organisations and can, depending upon the nature of the accident, have enormous implications upon the business. When considering that many occupational road accidents involve the actual payload - or the saleable product then it is vital to improve safety. Hence, it is crucial to limit and attempt to contain these risks as much as possible.

Cost-benefit analysis
The main benefit of road accident reporting is that it permits processes to be put in place to ensure that the accident does not reoccur. It acts as a risk management tool in that, as stated before, it can identify and aim to minimise potential risks. The first item to focus upon should be the actual system that is implemented to store the information on. The system would take the form of either a computer-based database, or simply in old-fashioned paper file form. Either way the cost of this to the business would be small. The main costs are in the implementation stage. Wright and Lupton (1999) argue that the accident report form is vital as without a suitable one the whole process is pointless due to a lack of quality information. Reporting permits information regarding accidents to be built up. This information can be used to uncover areas or sources of accidents. This may be for example the use of a mobile phone. The data collected is used to devise methods to minimise the risk of the accident happening again. For example they may ban the use of mobile phones whilst driving.

Even minor accidents have a bearing upon the operational performance of an organisation. Delivery dates are now hugely important and failure to meet them often incurs large financial penalties. Say, a driver is involved in a minor accident causing no detectable damage. The time spent dealing with the incident may mean late delivery causing financial penalty. This may be the fault of the driver but to avoid blame they may withhold this from their employer and blame it upon traffic. If they did report to their employer then perhaps something could be done to avoid a repeat. Hence, it is vital to meet these deadlines and operate as efficiently and risk-free as possible. Whereas previously drivers may not have reported accidents they felt were minor or indeed may get them into trouble, a reporting system should encourage this act. Hood and Jones (1996) encourage a blame-free approach to risk-management whereby the mistake is simply accepted and attempts are made to ensure it is not repeated. This promises better working conditions for the driver and minimised risk for the employer in terms of operational performance.

Insurance and legal issues are of utmost importance on the roads and this is especially true of business organisations. Williams et al (1995) write that organisational use of motor vehicles represents major exposure to liability through driver negligence. Reporting of incidents is vital to maintain records and adopt a suitable insurance policy. A system to record accidents would dramatically increase compliance to legislation in adhering to road tax, MOT and motor insurance. Many people -whether they are aware or not - drive to, from and at work without adequate insurance. The enforced reporting of road accidents at work would mean increased vigilance on behalf of the company in ensuring that all of its employed drivers were adequately covered. Again, the consequence of an accident could be crippling financially without insurance. However, there are clear benefits. A more compliant and legal approach to road use would dramatically reduce the risk of penalty that may be incurred both in breach and compensation terms. Moreover, a reduction in accidents or ideally an accident-free period would result in reduced insurance premiums in the longer term thus representing a financial benefit.

A study by Kircaldy et al (1999) found that the main factors behind road accidents were gender, recklessness and safety consciousness - all human behavioural factors. A more intangible cost to the company may be the unwillingness of the employees to modify their behaviour to accommodate the reporting system. This change represents a risk as the work of Beer et al (1990) explains that change programmes often fail. Unless they are correctly organised and used then they actually do the opposite to their intention and inhibit the requisite change. This may result in decreased quality of performance however, in the longer term should the change process be managed successfully the benefits would outweigh this intangible short-term cost.

Resultant methods to minimise risk
The reporting system should encourage participation with the goal of enabling sources of risk to be highlighted and eliminated. So how can these risks be minimised? The Health and Safety Executive (2002) describes a number of methods that can be used;

· Compulsory rest breaks are used to offset the risk of driver tiredness and have only a small bearing on cost.
· Vehicles should be regularly maintained to reduce risk of faulty machinery. This incurs a medium-level cost especially if work done through contractor. However, long term maintenance is more economical than replacement vehicles.
· Mobile phones only to be used whilst stationary. Regular breaks ensure that important messages can be accessed and so these two policies work together to minimise risk and cost.
· Driver training courses are compulsory promoting defensive driving and accident awareness to counter-act reckless driving. The cost of these is again medium level but again the long term improvement in driving performance should be apparent and outweigh this cost.
· Journey scheduling gives drivers a set route and easily achievable checkpoints not only in terms of route but in time also.

There are other methods including health and eye tests, drink and drugs awareness to name but a few. All represent either a tangible or intangible measure of risk management.

Conclusion

In summary the proposal of a road accident reporting system would be highly beneficial. The cost of implementation and maintenance would be comparatively small in relation to the benefits it would provide including the facility to highlight areas that constitute high-risk potential accidents. In turn many methods can be used to help to reduce these risks such as those outlined for instance driver training schemes.

To put the argument into context Coca Cola Enterprises (2002) revealed that their programme of road risk management using a reporting system had reduced their associated costs by £250k over the first year from an initial input cost of £200k. They expect their costs to fall further in future years and furthermore noted more intangible benefits such as improved worker morale.

The implementation and usage of a road accident reporting system would act as a cost-effective risk management tool in enabling road risks to be identified and techniques to be put in place to minimise them. Costs involved are relatively small and they represent improved performance and savings not only in financial terms but sometimes in human terms as well.