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Building a New Facility? These 7 Risk Mitigation Mistakes Could Cost You.

When it comes to managing risk, there are four options: accept the risk, ignore or dismiss the risk, transfer the risk, and lastly, mitigate the risk.
By: | July 24, 2018 • 6 min read

When it comes to managing risk, there are four options: accept the risk, ignore or dismiss the risk, transfer the risk, and lastly, mitigate the risk.

“You can’t insure away all your risk,” shares David Nugent, Manager of Code and Project Services for TÜV SÜD Global Risk Consultants (GRC).  “Sophisticated companies understand that meaningful risk mitigation is crucial to long-term success. Managing a host of property, safety and environmental exposures usually requires spending money on improvements to aging facilities and equipment.”

But, if executed without thorough planning, renovating or building a new facility can introduce unforeseen safety risks or, at the very least, waste precious budget dollars. When building a new facility or retrofitting an old one, making any of these seven critical mistakes can result in significant losses:

1. Not prioritizing your Capital Expenditure (CapEx) investment to ensure maximum risk reduction.

Budgets for maintaining or upgrading property and equipment are limited, and as such these dollars should be maximized by choosing the projects that will have the most significant impact on reducing the risk profile. Most importantly, projects should be planned with the primary goals of reducing safety and environmental threats. Capital improvements without risk reduction offer little return on investment.

“There’s no point in making improvements if they don’t reduce your risk,” Nugent explains. “Prioritizing where to spend your budget is determined through an enterprise risk assessment.”

“The first place to look would be those exposures that present the greatest threat to safety. Injuries or loss of life are completely unacceptable. Next, look at the top environmental exposures. Finally, examine the building codes in your area to see if you’re at risk of incurring government penalties.”

2. Not involving local authorities with jurisdiction in the planning process.

Building codes vary by jurisdiction, and failure to adhere to these codes could result in costly fines or extra expenses to adjust construction plans. Involving local authorities early can help to spot and resolve potential issues and avoid change orders.

“Code officials who have legal responsibility to their jurisdiction — like the fire marshal or the building code authorities — have to know what changes you plan to make to your facility and how you operate your plant,” Nugent shares.

“In some countries, they’ll shut you down on the spot if your projects violate local codes. Involving these people as stakeholders can reduce unnecessary complications during and after completion of the project.”

3. Not involving all internal stakeholders in scoping projects.

The CFO, risk manager, health and safety professionals, and the business unit manager in charge of the facility should all be involved in planning construction projects. Their input helps to set goals that are not only meaningful, but achievable.

“These people all need to be mindful of the enterprise risk evaluation and have some say in it. Only if all of these groups buy in to a project does it get the funds needed to execute it,” explains Nugent.

Insurance carriers should also be consulted to ensure the facility meets any risk management standards dictated by a policy.

“They’re the ones that are insuring some of the risk. They have to accept the risk, and it may have an impact on your premium and the conditions of your policy.”

4. Bungling bid documents through lack of detail.

Change orders cost time and money. Detailed blueprints should clearly define what improvements are taking place. Project plans are also what contractors bid on, so clear and specific plans are necessary to ensure that bidding contractors understand the scope of work and quality expectations from the get-go.

“Preparing detailed drawings with associated specifications that clearly define what improvements you’re making should help avoid change orders that delay project timelines and incur expenses for extra time and labor,” Nugent shares. “These documents may also act as a defense in the future if a construction defect is discovered due to a contractor’s shoddy execution.”

5. Hiring contractors that lack local expertise.

The best-laid plans go to waste without a skilled contractor. Comparing multiple bids line by line is a best practice, as is selecting a contractor with knowledge of local building codes. Contractors experienced with their jurisdiction’s building regulations can help ensure compliance, and may also be able to leverage relationships with local suppliers to get better pricing.

“Itemize work plans and marry up the bids — at least three — against the prepared specifications to ensure that contractors are bidding on what they were asked to bid,” explains Nugent. “A very critical piece here is selecting the right contractor with a good reputation who will adhere to your contract.”

6. Unknowingly buying and installing counterfeit equipment.

Untrustworthy distributors may sell counterfeit materials of lower quality. The problem is most common overseas, as the stringency of quality assurance varies by nation. Not only does this cheat the client out of limited budget dollars, it also increases the risk of defect.

“If you’re installing counterfeit equipment, it may look right, but it didn’t go through a battery of tests to check its quality. There’s a leap of faith there by assuming that the equipment you’re installing is properly listed or approved,” Nugent points out. “If you introduce counterfeit equipment into the mix, then all bets are off.”

Best practices include: ordering materials directly from the manufacturer, having them delivered directly to the job site, and thoroughly testing the materials for quality.

7. Overlooking environmental exposures created by capital improvements.

Any new construction project or lasting building improvement must consider the impact to the surrounding environment. Case in point: when one chemical facility broke out in fire, the newly-installed sprinkler system extinguished the flames and prevented extensive property damage — but, it also washed toxic chemicals into a nearby river, which further impacted downstream communities for miles.

“Chemical companies should be aware of changing zoning laws in their immediate area, as residential occupancies can encroach on the property line of the plants,” says Nugent. “Companies should take that into consideration and perhaps augment their protection scheme to reduce the risk to nearby residents who are just innocent bystanders.”

The Right Way to Do Things

Mismanaging the retrofitting of old facilities or construction of new ones can have severe consequences, including anything from regulatory action, business interruption, reputation damage, environmental damage, and even injury and loss of life.

Relying on engineers that can manage the spectrum of project planning helps to identify and avoid costly issues before it’s too late. TÜV SÜD GRC’s engineers are uniquely positioned to help avoid these errors.

With an average 25 years of experience from diverse technical backgrounds, including time with carriers, TÜV SÜD GRC engineers possess a unique mix of industry-specific expertise and the risk awareness needed to maximize budgets for the greatest risk reduction.

“Our people come from all walks of life in the risk world and the engineering world, and that’s what they bring to the table,” Nugent shares. “Experience enables them to see projects through from concept to completion.”

It all begins with an enterprise risk assessment, identifying goals, preparing bid documents, and working with local legal counsel and procurement teams. This process continues all the way through management of the project itself, including adherence to budget and quality standards.

“Insurance entities and independent engineering firms may do pieces of this, but we are unique in handling the entire process in-house,” concludes Nugent. “No one else has that capability.”

To learn more, visit http://www.globalriskconsultants.com/services/code-and-project-services.html

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with TÜV SÜD Global Risk Consultants. The editorial staff of Risk & Insurance had no role in its preparation.




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4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]