Understanding Loss Causes Is Critical


When a professional risk management organization analyzes losses, they are usually looking for the causes of each loss to prevent them from happening in the future. Someone who is not trained in proper risk assessment might try to treat the symptoms of a loss instead of getting rid of the causes. When this happens, losses can continue to pile up and cost the company money.

Separating Cause From Symptom

in order to understand the importance of separating causes from symptoms, let’s look at a fictional situation that will help to make our point. Let’s say that a retail store has a problem with people slipping and falling at one of their entrances and getting injured. In two years, the company has seen $100,000 in financial losses, an increase in insurance premiums, and $500,000 in settlements paid out by its insurance company.

Without doing an in-depth analysis, the store decides to put rugs down at the entrance on days when it is raining or snowing. All goes well until someone falls at that entrance on a sunny and warm day and breaks their arm. After an in-depth investigation, the company discovers a slow water leak over the entrance that makes the tile floor slippery and dangerous. The symptom of the problem was people slipping and falling, but the cause was a leaky pipe.

Why Finding The Cause Is Important In Risk Assessment?

When you have a situation where people are getting hurt and the company is losing money, it is critically important to find the cause of that problem and put an end to it. Not only is profit being lost whenever someone gets hurt, but the company risks the possibility of not being able to find an insurance company to cover it if their existing company drops them. A public reputation for being a company that does not properly address risk can also cost the company business.

Looking Deeper Into A Problem Is Critical To Risk Management

What if that water leak was also causing mold to build up in the ceiling over the entrance? By not doing an in-depth analysis of the problem, the retail store did not do everything it could to handle all of the potential risk in this situation. Risk can build upon itself if it is not properly handled, which is why looking for causes is critical to the broader scope of complete risk management.

How To Find Causes When Assessing Risk

Every company should have a risk management system in place that goes as deep as possible into a risk and comes up with all of the potential issues that need to be handled. The first step in assessing risk is to put together all of the facts available and looking at those facts from a variety of angles. Our retail store thought the problem was being brought in from outside of the store, but it turned out to be an inside issue. All angles must be investigated before the problem can truly be identified.

Once you have identified the true cause, you must do an analysis of anything else that could be affected. For example, we mentioned the possibility of mold building up in the ceiling tiles thanks to the water leak. This is an example of the many contingencies you must consider when assessing the causes of a risk.

Risk management is not just a way to protect your assets, it is also a way to generate more profit. When you find the real causes of risk, you can avoid the costs associated with making guesses that turn out to have no value in the situation at all.