TCOR-Total Cost of Risk

Peter Drucker, who is considered by many people being the one most significant thought leader in the arena of business management, coined the term “if you cannot measure it, you are unable to improve it.” When researching the strength of your risk management program, TCOR (price tag of risk) ensures you aren’t just measuring the achievements this method but will also uncovering areas wanting improvement.

Key points

• If you may not measure it, how will you differentiate your successes from failures?
• When the simple truth is success, reward it and gain knowledge from it.
• If you can’t see success, you may be rewarding failure.
• If you are aware of failure, you are able to correct it.

To continually measure the success and effectiveness of your respective risk management program, an overall total expense of risk analysis need to be completed.

What is total cost of risk and the way should i measure it?

Some definitions of price tag of risk include:

1. The costs incurred to give a highly effective risk management strategy.
2. A tool for evaluating the complete costs associated with an organization’s risk management operation relative to other key measures (e.g., revenues, headcount, asset base).
3. A metric accustomed to measure the success within your risk management process.

Simply put, TCOR will be the price of managing risks and incurring losses. Total price of risk could be the amount of all aspects of an organization’s operations that report to risk, including retained (uninsured) losses and related loss adjustment expenses, risk control costs, transfer costs, and administrative costs.

Components of TCOR

TCOR has traditionally been defined under three broad cost categories:

1. Premium: Cost to transfer the danger to your insurance agency.
2. Losses: All retained losses relevant to claims (including deductibles and self-insured policies).
3. Administrative: Bodily and mental risk management costs.

By identifying and quantifying these costs, we can easily plan and implement risk management ways to reduce them.

Where should i start?

Identify, track, and monitor every cost regarding risk in your organization:

• The first and easiest component to track has to be your insurance costs and broker commission.
• Retained losses ? All out-of-pocket loss costs (deductible, self-insured policies).
• Costs to safeguard employees/customers/property (safety manager, claims, HR, QC/QA, safety training, safety equipment, signs, etc.).
• External risk control costs (third-part administrators, attorney, safety training, etc.).
• Lost production resulting from losses/injuries (retraining, visits to the doctor, physiotherapy, incident investigation, spill clean-up, machinery repair, etc.).

Compile these risk management costs for about 2 years (three to five years is preferable). Once compiled, review and rate each item dependant on effectiveness and improvement needed. Prioritize the items depending on improvement needed and deal with a list. A plan of action (incorporating risk management, fleet manager, HR, health and safety, and claims management business friends) should be executed to oversee and implement programs, policies, procedures, and training required to improve the sum total of risk each respected line item.

Once set up a baseline has become established, continually monitor this course effectiveness good original baseline.

Risk Management Cycle

References

Port of Houston Authority
IRMI
Analytic Broker – Sum total of Risk Definition
Origami Risk – Tips on how to Tackle Total price of Risk (TCOR)
Property Casualty 360 -Total Cost of Risk Focus Boosts Bottom-Line Results