Difference Between Business Expense and Investment

by Charles T Wilson on May 7, 2012

It’s easy in a rough economy to misunderstand the difference between a business expense and an investment.  They both look like the same cash out the door!  Unfortunately, when expense cuts are across the board, the law of unintended consequences can rear its ugly head.

Short-sighted ~

I remember my employer, a major insurance organization, responding to a similar economic period in the late 1970′s.  They decided not to hire the usual crop of trainees for one year.  Not recognizing this was an investment, rather than an expense cost them dearly in huge staff and skill gaps for about five years.

Risk management, including safety, loss prevention and mitigation are often put on the chopping block in times like these.  For some firms it feels easy to cut this “soft” stuff:  “We’re in good shape.  What could go wrong?”

Large company risk mangers know the consequences:  it costs $7 to $10 to fix a safety or risk management issue than to invest $1 in preventing it up front.

Business Insurance recently reported what can happen:

  • Tighter budgets, less attention to safety and stretched labor can lead to MORE ACCIDENTS;
  • Less managerial oversight often encourages ETHICAL PROBLEMS;
  • Layoffs can bring LIABILITY AND DISCRIMINATION CLAIMS, SUDDEN “INJURIES,” and LONGER CLAIM PERIODS for workers’ compensation.

What you can do ~

Doing more with less is often a necessity, at least for a while. What’s important is not losing sight of your long-term strategies.

  • Discuss problems openly with staff to get understanding, ideas and buy-in.
  • Get input for effective change implementation – how can you maintain key priorities and the needed oversight to make this work.
  • Everyone’s got to know you’re not downplaying quality products and services or worker and public safety:  talk it up and walk the talk.
  • Discuss gaps with your insurance professional or broker and other suppliers.  Ask them about ways to get – often free – value-added training, risk assessments, loss control inspections, testing and other help.
  • Remember some investments have intangible benefits, like professional advice that allows management to be more focused and productive, avoids problems, or reduces stress, hassle and distractions.

What’s your Return on Investment?

Insurance rates are already climbing and expected to go higher this year.  Insurers are clamping down and restricting coverage.  This is definitely not the time for you to have additional claims or look like you’re doing a sloppy job with your risk management and loss prevention basics.  High priority attention and some investment here will pay off over many years to come.

What’s your experience in this area?  How hard is it to distinguish between an investment for the future and just an expense?

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Take Care of Important Business First

by Charles T Wilson on March 29, 2012

Here’s a not-so-successful story about Risk Management.  It’s sad, and I wish I could have done more to prevent it.

I was working with a start-up client to get a new Employee Benefits Program up and running.  We were in the “final” stages for several months:  there were just a couple basic decisions to make, a couple applications to sign, and some initial checks to write.

They were all “on the back burner” because she was travelling, creating some terrific new partner opportunities around the world, beginning to sell new products, getting promoted, etc.

My reminders did not alter her “urgent” priorities.  As often happens, the “tyranny of the urgent” overshadows the “important” business issues that need to get taken care of first.

With everything “almost” complete, she hurried off on an international business trip.  Two days later, she was hospitalized and diagnosed with a life-threatening disease.  In a whirlwind, she underwent initial emergency treatment, got transferred to Intensive Care with a severe complication, and then immediately started phase one of a major, long-term treatment plan.

Adding to the tragedy … the insurance applications were still in her briefcase.

Now she is recovering, and that’s great news.  However, she and her family have not had the benefit of extra protections which could have been in place.  Not only would these have saved them a lot of money, they would have provided a sense of comfort.  Worse yet, she’s lost, probably forever because of her new “pre-existing condition,” a couple significant pieces of her long-term healthcare safety net – Life and Disability insurances.

In our busy, overloaded lives it is so easy to focus on what appears to be urgent and neglect what is truly important.

The Risk Manager recommends you STOP now, and think about what those really important issues are – or could be – for you.  Then make sure they get taken care of first, NOW.

Have you had or seen a situation like this?  What other ways can the urgent get in the way of the important?

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