This session at PRIMA 2015 covered how to identify the concepts of measuring return on investment (ROI) and how to evaluate calculated returns. The session was presented by Ariel Jenkins, CSP, ARM, MBA, ARM-E, Director – Risk Control at Safety National.
In risk control, the motto “No news is good news” comes to mind. Many risk professionals think they must be doing their jobs effectively if their employees are not reporting any injuries. Safety professionals want to increase their net income, support productivity, reduce risks and create potential to generate economic value.
Return on investment is the gain from initial investment minus the cost of investment divided by the cost of the investment. For example, an 85% ROI means that for every dollar invested, you will receive $.85 return on your investment. The higher the return, the better, because this means your investment is beneficial to your company. This can also be measured by the payback period, which is cost of the project divided by the annual cash inflows. This number can explain the amount of time it will take for the investment to pay for itself. The shorter the payback period, the better. If the payback period is high, it could be beneficial to look into this investment to see if there is a more efficient way to reduce risk and increase productivity.
Is it misleading to take credit for loss reductions?
In risk control, professionals are pushing a huge rock up a hill; the job for risk managers is tough. Ask yourself several questions:
- Did you reduce the frequency of exposure?
- Did you reduce the likelihood of a loss?
- Did you mitigate the severity of injuries?
- Did you make the operation more capable of physically performing their jobs?
- Did you educate the workforce?
- Did you effectively motivate the workforce to perform safely?
If yes, then take credit for loss reductions and show that investing in your employees and risk control is beneficial.
Being able to measure your return on investment in risk control is beneficial because it can give a basic measurement to forecast future projects, give insight to current projects and how to improve efficiency and effectiveness.