The Fallacy of What

Jeff Marshall


June 1, 2014

RM0614_fallacyofwhatCommon risk management wisdom is that, by measuring the results, we can determine the success of the process. But are we measuring the right things?

In workers compensation programs, medical costs and indemnity payments (lost wages) are the most frequently measured criteria. Programs slice and dice this information by age, gender, job description and number of days lost to injury, but the measurement ultimately boils down to the dollars spent, days lost or number of injuries sustained.

However, there is a fallacy in this process that is highlighted when business with multistate existences perform state-to-state comparisons. Consider two employees of the same company, each earning the same wage, who sustain the same injury on the same day. The only difference is that one of the employees is subject to the Washington state workers compensation law while the other, living and working 10 miles away, is subject to Idaho's act. The Washington facility accommodates the injured worker with light duty work for seven weeks before the worker returns to full duty. The Idaho worker takes 11 weeks to return. Since the Idaho worker's temporary total disability (TTD) rate was only $606 per week, the lost wage portion of the claim totals $6,666. The Washington worker's TTD rate of $1,164 per week, on the other hand, results in an $8,148 payout, even though that employee returned 35% sooner. An executive reviewing the results would, in all likelihood, applaud the Idaho facility for saving money relative to the Washington facility even though the Washington facility's performance in terms of getting the worker back on the job was superior.

Measuring lost time may not be much better. A sample of 10 claims from the company's facility in San Antonio, Texas, reveals an average of 103 weeks of TTD per claim-20% better than the 124 weeks of TTD occurring at the facility in Cimarron, New Mexico. In congratulating the Texan facility for its stellar performance, the bean counters again get it wrong. Texas caps its TTD benefits at 104 weeks, after which the employee can be terminated if he or she does not return to full duty. In New Mexico, where an employer faces a potentially unlimited TTD exposure, breaking the cycle—especially after more than two years-could be considered a bigger return-to-work accomplishment.

To determine the true value of a program, the most critical measurements are found in the processes, not the results. The problem with a result-oriented model is that it will rarely capture all of the factors driving these results. For example, in Year 1, a risk manager institutes new protocols regarding fall on ice events. In Years 2 and 3, the number of fall on ice occurrences decreases dramatically. If the number of occurrences or the cost per occurrence are measured, the program would appear to be an unprecedented success.

But what if, in Year 4, this "successful" program witnesses more fall on ice claims than in the preceding three years combined and this unprecedented number of claims decimates the company's risk management budget? It is the same risk manager and the same program, but there are diametrically opposed results. Was the program fatally flawed all along or, by only measuring outcomes—in this case, frequency (number of ice related claims) and severity (cost per claim or lost work days per claim)—did they fail to understand the factors driving them? Perhaps the results of the first three years were a function of relatively warm, dry winters with little or no ice leading to fewer ice-related falls. Once the normal weather pattern returned in Year 4, the increased cold and precipitation resulted in more ice-related falls.

To achieve more accurate results, the cyclical result-oriented model needs to be replaced with a structural constant improvement model that ensures a more consistent process for developing incremental improvement that will not be impacted by "one-off" events. It replaces measurement by circumstantial evidence with measurement of direct evidence. Basically, a constant improvement model focuses on "why" instead of "what."

In a workers compensation scenario, for example, measuring the number of claims per full-time employee seeks to divine the success of a safety program. But does it really accomplish that?

Metrics like frequency or severity create an incomplete picture. Rather, if you are trying to measure the efficacy of the safety program, then you need to actually measure the safety program. Determine the indices of a great safety program, such as clear buy-in from the highest levels of management, the existence of strong safety committees, and the availability of proper safety equipment and constant training. Then, measure these elements as part of a developmental continuum. The constant improvement model does not merely teach safety; it creates a safety culture that will result in the consistent reduction in frequency and severity of loss events.

The constant improvement model forces organizations to consider each milestone in the development of a safety program as part of a larger continuum. The first step should be getting written buy-in from management. This forces the program to go beyond the theoretical concept stage to develop a plan fit for management's review.

Next, set up the safety committee. This requires determining the committee's membership, structure and statement of purpose. These steps, in and of themselves, will not impact the cost per full-time employee or the average number of days out per claim. They will, however, be the foundation that allows you to assess the maturity of the program and lay out specific, achievable steps toward improvement.

One of the committee's first duties should be to develop a safety manual that will ultimately be reviewed by the CEO. This is important because the committee is more inclined to take ownership of the manual if they develop it personally. And if they need to present it to the CEO for approval, again, they are more inclined to produce a product that is worthy of the CEO's signature. Once the CEO signs the plan, it becomes the law of the land, making companywide buy-in much easier. By measuring the progress on the continuum, you and the safety committee can determine the next step to grow the program and create a plan for achievement.

In the next phase, look at how safety inspections are performed. Does the committee analyze near-miss events and accidents? Does it make recommendations based on property or equipment inspections, accident reports and near misses? Does it review and follow up on employee safety concerns? Does the committee perform training? If not, the next steps on the continuum are clear.

As the organization achieves each goal, the next step in the process presents itself. The program's growth under the constant improvement model will eventually drive the results that the result-oriented model searches for-reduction of frequency or severity of claims.

What do you do with those result-driven reports then? Analyze them. Understanding the cost on a per-employee basis is still necessary to establish a budget. For example, understanding that your most expensive type of injury is falls from ladders helps you to promote ladder safety through your safety committees. Understanding the frequency of Oxycodone prescriptions will help you address the systemic abuse that drives medical costs up and inhibits your ability to return employees back to being a productive part of the workforce.

The shift away from a result-oriented model will take time. It will require that each organization first identify those processes and metrics that should be measured and then consider them as part of a continuum in a constant improvement process. However, this extra work will pay off by developing more meaningful measurements that can be the catalyst for real, lasting improvement.
Jeff Marshall is a consultant and writer on a variety of risk management topics at