Blog - Tag: Measured Risk Insurance
Return-to-Work Programs Can Keep Workers’ Comp Claim Costs Down
One of the proven ways to reduce the cost of a workers’ comp claim is to get the injured worker back on the job whenever it is safe to do so.
Preferably, employers should offer some type of modified work duty if they are still recovering from their injury and if that injury impedes them from performing the work they did before the accident.
If workers wait until they are completely healed before returning to work, the cost of a claim with $9,000 in medical expenses, for example, can quickly balloon to tens of thousands of dollars as they draw indemnity benefits to replace their lost wages from not working.
Not only that, but an extended absence can lead to employees becoming disaffected from the workplace and increasingly unmotivated to return.
Fortunately, a strong return-to-work program offers a path back into the workforce through light duty and transitional work. To keep costs in check, no workers’ comp program should be without such a program.
If you have an RTW program or are considering starting one, here are the top 12 things you should consider, courtesy of the Institute of WorkComp Professionals:
- Understand your state laws about returning an injured worker back to the job and the benefits they are entitled to after taking on transitional or light duty.
- Create an RTW program that outlines the steps the company will take to help a worker get back on the job as soon as it’s feasible after a workplace injury. Discuss transitional duty and light duty in the program documentation and distribute copies of it to your staff.
- Be creative in identifying temporary alternative jobs. Appoint an employee-management committee to create temporary alternative jobs. Injured employee jobs should be meaningful, not demeaning or demoralizing — and for sure should not be punitive.
- If you have an injured worker, visit various worksites or departments of your company to identify tasks that are similar to the employee’s existing job.
- Provide the treating physician with job descriptions for any temporary transitional duty and the employee’s regular work.
- Obtain medical restrictions from the medical provider and a release, so that you can put them in a job that will not strain or risk reinjuring them. Be proactive and prepared for the release. Don’t wait to have it in hand before you begin your process — a delay of even a few days costs you money.
- Encourage treating medical providers to approve temporary alternative duty for injured employees.
- Communicate regularly (at least once a week) with injured employees returning to work for a temporary alternative duty position. During this time, therapy and treatment may still continue.
- Inform the worker’s supervisors about the injured individual’s physical limitations from the injury and make sure they don’t push them too hard. Closely follow the restrictions outlined by the doctor, or you risk upsetting the worker, or worse, reinjuring them.
- Continue to pay the injured employee at their regular rate of pay. Consider doing so even if the employee is working partial hours. This will help you avoid paying lost-wage benefits and, in many states, reduce future settlements. It also builds employee morale.
- Keep the employee engaged by asking them on a weekly basis about the transitional duty, to identify obstacles or ascertain if they feel they can do more.
- Provide feedback to the physician regarding the progress the injured employee is making at the temporary alternative duty position, to make sure the physician is getting both sides of the story. It also conveys the concern you have for your injured employees.
The takeaway
If done correctly, an RTW program can help your worker get back on the job faster, help them feel like they are still part of the team, improve morale — and reduce your workers’ comp premiums.
Tips for Safeguarding Your Baby Boomer Construction Workers
The average age of construction workers is now in the 40s. Baby boomers — people born between 1946 and 1964 — represent 40% of the construction industry workforce, according to the Center for Construction Research and Training.
The nature of construction work presents many hazards for workers, many of which may not appear until late into a person’s career. Research suggests that long-term construction work impacts an individual’s musculoskeletal system.
Also, any time an older worker suffers a workplace injury, they are more likely to be out of commission — and the road to recovery is longer.
Because of the physical demands of the work, construction workers have to be healthier than the general population, but the same physical demands cause workers with injuries or illness to leave the industry.
Some 10% of construction workers do not return to work after an injury, and those with a musculoskeletal disorder (MSD), lung disease or other serious injury are more likely to retire on disability than workers with the same conditions in less physically demanding types of work.
Compared to office workers, construction workers are also less likely to have health insurance and they have an increased likelihood of developing a chronic disease as they age. Their odds also increase for developing lung disease, stroke, back problems and arthritis.
Risk factors for older workers
Lower-back injuries are a common injury experienced among construction workers. Also, as people age, they naturally lose strength and muscular endurance, which could have an effect on their ability to carry heavy loads. They may also lack the flexibility of younger workers and experience trouble working in awkward positions, making them more prone to a workplace injury.
Physical workload is an important determinant of work ability among construction workers, and in turn work ability is highly predictive of disability among such people. A construction worker between the ages of 45 and 54 with a low work ability index and severe low-back pain has a 40-fold increased probability of disability retirement compared to a construction worker without those risk factors.
And if they are injured, it can take someone older than 40 twice as long to recover from a typical injury.
A study of U.S. construction roofers found that workers over 55 had lower physical functioning, and were more likely to have both a chronic medical condition and an MSD.
The study found that older age, reduced physical function, and lack of job accommodation among these roofers were each predictive of early retirement.
What you can do
The study also found that construction roofers who had received job accommodation for an MSD or a medical condition were four times less likely to retire than workers with similar medical status but without accommodation.
Some form of job accommodation was offered to more than 30% of the workers in the study, and many of the accommodations were relatively simple, such as allowing more time to accomplish a task or changing the work schedule. But, few employers provided new tools or equipment.
Using the proper tools and work practices is important. Employers should also recognize the importance of job rotation among workers to help prevent repetitive-motion injuries.
Shifting focus from hazardous to safe work practices will help reduce injuries and keep older and more experienced employees safe and healthy on the job.
Common excuses
Some of the common fallback excuses among baby boomer workers include:
- “I don’t need help!” — Some older workers won’t ask for help when lifting a heavy load that they think they could have easily hoisted when they were younger. This risks injury.
- “Deal with the pain!” — This old-school belief is that pain is part of the job, and that whining about it is for sissies. But if something hurts, the worker should stop and tell their supervisor.
- “I already know how!” — Many veterans are resistant to change in work processes or in using tools.
- “Get it done fast!” — A mentality of getting the job done quickly without following proper safety procedures, which can lead to injuries.
Cal/OSHA Publishes Model Workplace Violence Prevention Plan for New Law
Cal/OSHA has published a model Workplace Violence Prevention Plan to help California employers comply with a new law requiring that they have in place a workplace violence plan.
The model is designed to provide structure for employers to create their own plans. Businesses have the option to use the model plan, create their own or use another plan template. Alternatively, they may incorporate workplace violence prevention into their current injury and illness prevention plan.
The new requirements are the result of SB 553, which was signed into law last year in response to increases in workplace violence incidents around the country.
Cal/OSHA has posted the model plan and a fact sheet for general industry here. The model plan is written for a “broad spectrum of employers,” and companies will need to revise it and add their own information to address the specific needs of their workplace.
Cal/OSHA notes that employers who plan to use the model, should identify an individual or individuals to be responsible for implementing the plan, and ensure that they:
- Review the full requirements of the new law (Labor Code sections 6401.7 and 6401.9).
- Review the requirements for each of the elements found in the model plan and fill in the parts that will focus the plan on their particular workplace.
- Obtain the active involvement of employees and their authorized employee representatives in developing and implementing the plan.
- Make the plan available and easily accessible to affected employees, authorized employee representatives, and representatives of Cal/OSHA upon request.
Cal/OSHA has also created a page on its website that is dedicated to the new law and provides guidance for employers to follow. It recommends that whomever you appoint to implement the plan familiarize explore the page for further guidance.
Employers should not just fill in the blanks, save the file in the company database and forget about it. The law also requires you to train your staff on the details of the plan to ensure they know what to do in case of an incident or if they want to report a threat of violence in the workplace.
To ensure the plan is effective requires planning, evaluating the workplace, putting in place procedures and training.
The legal requirements
The law requires that an effective workplace violence prevention plan:
- Identify who is responsible for implementing the plan.
- Involve employees and their representatives in its creation.
- Include details for how to accept and respond to reports of workplace violence.
- Prohibit employee retaliation.
- Include details for communicating with employees regarding workplace violence matters.
- Lay out instructions for responding to actual and potential emergencies.
- Require the employer to develop and provide effective training. Employees must be provided with initial training and then an annual refresher.
- Require the employer to identify, evaluate and correct workplace violence hazards.
- Require the employer to post incident response and investigations.
Getting started
Employers who are unsure how to proceed with a workplace violence prevention plan should visit the Cal/OSHA website and download the model plan. The same page has a fact sheet that provides further guidance on:
- How to create the plan.
- How to create and maintain a workplace violence log.
- How to train employees on the plan.
- How to comply with the law’s record-keeping requirements.
How to Prevent Silica Exposure in Construction
There are a number of construction segments that are exposed to crystalline silica, which can cause silicosis and even death.
Workers who typically have the largest exposure to silica include those in:
- Cement and concrete or stucco operations,
- Abrasive blasting,
- Jack hammering,
- Rock and well drilling,
- Brick and block cutting, and
- Tunneling operations.
What are the dangers?
Crystalline silica is a dangerous dust that is often inhaled when it circulates in the air after certain construction activities.
It has been classified as a human lung carcinogen. It reacts with tissue in the lungs to create scarring or fibrotic nodules around the silica particles and may result in silicosis.
Silicosis may result in breathing difficulty, tuberculosis — and possibly death.
Exposure ranges from cumulative (over many years of exposure) to acute (exposure to high concentrations of contaminated air in short periods). Acute silicosis is identifiable by fever, shortness of breath, and cyanosis (bluish colored skin).
Silicosis is incurable and may be progressive even after dust exposure has ceased.
The danger is that silica particles are so small — about 1/100th the size of a grain of sand — and it’s impossible to detect by smell or sight. In fact, the particles are so small they can only be measured using air sampling equipment.
What you can do
It’s incumbent on you as a construction employer to ensure that your workers are not exposed to silica dust, not only for the safety of your workforce, but also your workers’ comp costs.
Here’s what OSHA recommends you do to protect workers from exposure to crystalline silica:
- Engineering controls — mechanical ventilation for removal of the contaminated air.
- Replace crystalline silica materials with safer substitutes whenever possible.
- Use of NIOSH-approved respirators.
- Wear only a Type CE abrasive blast supplied air respirator with a pressure demand valve for abrasive blasting.
- Practice wet-dust suppression measures.
- Isolation/enclosure/ventilation of dusty processes.
- Use handheld grinders with a shroud and vacuum.
- Use wet grinding/cutting methods.
- Wear aprons or coveralls and disposable clothing.
- Combine the use of more than one control measure.
- Conduct environmental monitoring.
- Educate and train workers and supervisors.
- Proper housekeeping measures should always be in place.
One of the main ways that silica dust particles can get kicked up is after a job is finished and dust has accumulated on the floor, fixtures, machinery and inventory.
Dry sweeping can spread the dust around once again, so it’s recommended that you:
- Use vacuum cleaners to collect dust.
- Wet down the area prior to cleaning up.
- Never use an air supply to blow dust off of work clothing.
- Remove dust-contaminated clothing at the worksite to minimize transportation and relocation of the dust.
Silica dust can have long-term effects on the health of your employees, so you need to do all you can to prevent exposure. For specific techniques in various high-hazard industries, you can read this booklet by OSHA.
Safe and Sound: Safety Tips for Heavy Equipment Operation
A jobsite crawling with bulldozers, cranes, scrapers and tractors can sometimes feel like a danger zone. However, with the proper heavy equipment safety guidelines in place, you can reduce risk and ensure your workers head home unscathed every day.
There are three main ingredients to safe heavy equipment operation: safe equipment, proper training and a safe attitude, and constant awareness of all jobsite activities.
If heavy equipment operators are armed with these three tools, they’ll have no problem playing it safe. Read on to learn more about these and other essential safety factors for operating heavy equipment on the worksite.
Use dependable equipment
OSHA puts a heavy emphasis on the safety features of heavy equipment. But, there’s much more to keeping equipment safe than just inspecting the machine’s safety features. After all, countless things can go wrong with this complex equipment, and these problems can lead to some major risks on the jobsite.
It’s extremely important to create customized inspection checklists for each unique piece of equipment. Safety experts recommend that heavy equipment operators conduct a pre-operational walk around and pre-start-up (in-cab) inspection before starting work to ensure the following are all working properly:
- Service, emergency and parking brakes
- Headlights
- Taillights and backup lights
- The horn.
Of course, these are just a few of the items that should be included on the checklist. You should create customized checklists for each piece of equipment based on both OSHA guidelines and the information provided in the equipment operating manual.
Steer clear of jobsite dangers
Heavy equipment operators should be aware of all jobsite activities so they can avoid potential dangers. That’s why it’s critical for equipment operators to walk through site activity checklists each day.
Here are a few obstacles and activities for operators to stay on the lookout for:
- Overhead lines: Many fatal occupational injuries occur due to contact between large jobsite equipment and overhead lines. That’s why equipment operators must exercise extreme caution when working near overhead power lines.
Workers should assume that all overhead lines are energized unless electrical utility authorities have indicated otherwise, and that they are visibly grounded and appropriately marked. OSHA provides specific requirements for the safe use of equipment near overhead lines.
- Barricades: Barricades must be used on any worksite where heavy equipment is in operation. These barricades help to notify workers where equipment is in use so that they can stay out of the area and avoid serious injury.
- Hand signals: If a crane is operation on a jobsite, the crane operator and the signaler must know the hand signals that are required by OSHA. These hand signals can be used for other types of equipment, as well.
Ensure safety with well-trained workers
A jobsite is only as safe as its workers. That’s why it’s so important to employ only well-trained, safety-conscious workers for work at a heavy equipment site. You should also conduct regular training, such as tailgate sessions before a shift starts.
According to OSHA requirements, jobsites, materials and equipment should undergo frequent and regular inspections by “competent persons” designated by the employer. It takes training to be a competent worker.
It’s important to train your employees on proper equipment inspection and operation safety. After all, your workers’ lives could depend on it. For more information, visit the OSHA website at www.osha.gov.
Getting Buy-in from Managers on Workplace Safety Programs
One of the keys to instituting a good safety program is to get management and supervisor buy-in.
You need their support and belief in the system if you are to convince your employees to embrace your safety regimen. If your managers don’t believe in the safety plans you have put together, it will show through when they try to sell them to your staff.
If you don’t have buy-in from your managers, the chances are slim to none that your employees will embrace the changes you are proposing. Managers play a crucial role in getting employees on board with safety.
If you are serious about preventing injuries and want to keep your workers’ comp X-Mod low, the role of your management team is crucial.
You will often encounter a few different personality types among your managers and they need to be convinced of the importance of workplace safety in different ways.
- The excuse-makers: They are the ones that blame external factors that are out of their control for safety lapses, and they may pooh-pooh the harm that a high X-Mod has. They may talk the talk on safety, but they don’t walk the walk.
- Half-hearted bosses: These managers may actually buy into the safety program, but they are unable to show their commitment in ways that make an impression on the rank and file.
- Committed: These managers are fully committed and enthusiastically embrace your safety plans and discuss them with staff with exuberance.
You’ll need a different approach with each personality type to get them to embrace the concept. Once they do, they can effectively convey the urgency and importance of workplace safety to the rank and file.
Constructor Magazine recently had these recommendations for getting management buy-in:
Select the right leaders – Choose managers who are firm, yet fair with a passion for the safety of the workforce. They should have a track record of success so that they can be an inspiration to their teams. Also, they should not be afraid to get their hands dirty to make a point or demonstrate how something is done.
Talk about risk management holistically – Every facet of your operation needs to be addressed if you want a comprehensive global risk management culture to exist.
Executives can influence this by extending discussions of risk management beyond the worksite to help managers see the bigger picture of why safety matters.
Assessing the risk associated with every task, purchase order, estimate or piece of equipment used will reinforce the notion that risk management is a company-wide function and not only in the sphere that the manager is responsible for.
Make periodic site visits – Top leadership should make a point to get on the floor and visit various departments to watch the workflow and reinforce the importance of safety to the workers. They should make these visits with the manager who has been put in charge of safety for that department.
At the same time, they should not arrive and start nitpicking and being enforcers of safety policy. Instead, their role should be to start conversations with the workers about safety challenges and asking for advice and ideas to make the operation safer.
They can use these visits to also celebrate successes and challenge the team to do better and always look for issues that could lead to injuries.
Is Your Business Doing Enough to Prevent Workplace Violence?
Violence in the workplace is a growing problem for which many U.S. employers are unprepared.
Business owners may believe that their workforces are like families and that a violent outburst could never happen at work. They may also think that they have adequate security in place to stop an outsider from launching an attack or that their business would never be a target. These assumptions are probably mistaken.
Violence can take many forms and result in injuries or death, and employers are increasingly advised to put in place security and workplace violence prevention measures. Besides the human toll, a number of insurance policies may come into play after an incident.
In 2020, 20,050 workers in private U.S. businesses suffered non-fatal workplace violence trauma. Another 392 workers were killed. While three-quarters of the non-fatal victims worked in health care, more than 30% of those killed worked in retail. Employees at gas stations and convenience stores were particularly at risk.
Government is starting to address the problem. A California law taking effect July 1, 2024 will require employers to implement written workplace violence prevention plans. These must include annual workplace violence prevention training, incident logs and other recordkeeping.
The U.S. Occupational Safety and Health Administration created guidance for health care employers about workplace violence prevention. It cited several hospital systems in 2023 for failure to provide safe workplaces.
Insurance
Companies that have suffered a workplace incident can turn to several insurance policies,
including:
- Workers’ compensation, for injuries suffered by employees or their deaths. One workers’ comp insurer has reported that the rate of workplace violence injuries has quadrupled over the past 25 years and the cost of those claims has doubled.
- Commercial general liability insurance, for injuries and property damage suffered by members of the public on the business’s premises at the time of the incident.
- Employment practices liability insurance, for employees who were not injured but were nevertheless traumatized from witnessing the incident.
- Commercial property insurance, which may cover damage done to the business’s building and personal property. For example, gunshots may damage walls, windows and equipment.
In addition, relatively new types of insurance such as workplace violence and active-assailant policies may cover expenses that traditional policies do not. These might include employee counseling, changes to undamaged parts of the building to make it more secure, and public relations efforts to repair a damaged reputation.
Prevention steps
While workplace violence that results in deaths often makes the news, the majority of incidents are smaller, such as an isolated attack by someone who has been fired. A business cannot absolutely prevent a workplace violence incident, but you can take steps to make it less likely. These include:
- Establishing and enforcing a “zero tolerance” policy for bullying, harassment of any kind, discrimination or intimidation.
- Modifying employer policies about sexual harassment to encompass all kinds of workplace violence.
- Making violence prevention a regular agenda item at employee meetings.
- Having procedures in place for reacting to any incidents that do occur, including assignment of responsibility for executing the procedures to specific individuals.
- Setting up a mechanism for employees to report any threats of violence towards them or co-workers.
There have always been violent incidents in workplaces, but they are becoming more common. Preventing them helps workplace morale and employee retention, protects your reputation —
and helps keep the workplace a pleasant and productive place for everyone.
Changes Coming to Electronics, Dual-Wage Class Codes
The Workers’ Compensation Insurance Rating Bureau of California will recommend changes to class codes for some electronics manufacturing sectors, as well as increases to the wage thresholds for construction industry dual classifications.
The move comes after the Rating Bureau’s governing committee unanimously approved proposed changes, which will be sent in March to the state insurance commissioner for approval. If approved, the changes will take effect Sept. 1, 2024. Here’s what’s on tap:
Electronics manufacturing industry
One of the proposed changes would link two more classes to the 8874 companion classification, which was created in September 2022 to cover certain low-risk classes in the electronics industry group.
Currently, 8874 is a companion class that covers payroll for lower-risk jobs in hardware and software design and development, computer-aided design, clerical and outside sales operations for two electronics industry classes — 3681 (manufacturing operations for electronic instruments, computer peripherals, telecommunications equipment) and 4112 (integrated circuit and semiconductor wafer manufacturing).
The new proposal would move to 8874 similar low-risk white-collar personnel currently assigned to class 3572 (medical instrument manufacturing) and 3682 (non-electric instrument manufacturing).
The Rating Bureau is also recommending merging class code 3070 (computer memory disk manufacturing) with 3681(2) (computer or computer peripheral equipment manufacturing).
If this recommendation is okayed, the higher pure premium rate of $0.46 per $100 of payroll for class code 3681 will apply to the new combined code. Class 3070 currently has a pure premium rate of $0.25 per $100 of payroll and the new rate would be phased in at 25% per year until class 3070 is eliminated and all employers are moved to class 3681.
Dual-wage increases
The Rating Bureau will also recommend increasing the thresholds that separate high- and low-wage earners in 16 dual-wage construction classes.
These class codes have vastly different pure premium rates for workers above and below a certain threshold as the lower-wage workers have historically filed more workers’ comp claims. Rates for lower-wage workers are often double the rates for higher-wage workers.
The following illustrates the changes:
| Classification | Current threshold | Recommended threshold for 9/1 |
| 5207/5028 Masonry | $32 | $35 |
| 5190/5140 Electrical Wiring | $34 | $36 |
| 5183/5187 Plumbing | $31 | $32 |
| 5185/5186 Automatic Sprinkler Installation | $32 | $33 |
| 5201/5205 Concrete or Cement Work | $32 | $33 |
| 5403/5432 Carpentry | $39 | $41 |
| 5446/5447 Wallboard Installation | $38 | $41 |
| 5467/5470 Glaziers | $36 | $39 |
| 5474/5482 Painting/ Waterproofing | $31 | $32 |
| 5484/5485 Plastering or Stucco Work | $36 | $38 |
| 5538/5542 Sheet Metal Work | $29 | $33 |
| 5552/5553 Roofing | $29 | $31 |
| 5632/5633 Steel Framing | $39 | $41 |
| 6218/6220 Excavation/ Grading/Land Leveling | $38 | $40 |
| 6307/6308 Sewer Construction | $38 | $40 |
| 6315/6316 Water/Gas Mains | $38 | $40 |
Deal with Unbonded Subcontractors at Your Own Risk
You should never hire an unbonded subcontractor on a construction project, unless you want to put your organization at significant financial risk.
If the contractor you hired fails to perform their work as specified in the contract, without a performance bond you have no means of recovery from the company. Also, if the subcontractor fails to pay its subcontractors or suppliers, without a payment bond, you could be left holding the bag for the errant unbonded subcontractor.
Despite these risks, many contractors don’t require subcontractors to be bonded because they think bonding raises the cost of a project.
But any costs related to bonding are negligible compared to the problems you may encounter if you deal with unbonded subs.
The two most commonly used contract bonds for general contractors are payment and performance bonds.
- Performance bonds are meant to ensure that a contractor will perform and fulfill its contractual obligations in relation to the project owner or obligee.
- Payment bonds guarantee that the general contractor will pay subcontractors and materials suppliers whatever is owed them. This bond is also meant to protect the client from claims arising against them due to contractor negligence. Payment bonds also cover all first-tier subcontractors and materials suppliers, as well as second-tier subcontractors and materials suppliers to first-tier subcontractors on public construction projects.
In other words, all parties are well covered when a contractor has obtained payment and performance bonds.
General contractors are at risk if a subcontractor defaults on its obligations, or fails to pay its lower-tier subcontractors and suppliers. Even if you have a long-standing relationship with a subcontractor, you are still putting your organization at risk if you do business with them and they are unbonded.
Other benefits
Higher standards — The chances of a subcontractor failing to finish its work, or failing to pay its own subs and supplier, are greatly reduced if they are carrying a bond.
That’s because a surety company must prequalify a company before they can secure a bond. To qualify, they have to go through a stringent process, including an examination and assessment of a company’s financial health and its ability to perform on projects.
The latter process is done by looking at prior projects the company has worked on and its experience in the industry.
The surety firm also assesses the subcontractor’s documentation and how the business operates.
In other words, the prequalification process weeds out subcontractors that are either not fit for a project, or may not have the intention to perform well on it. Sureties have no interest in underwriting bonds to unstable businesses, so they make sure to pick the most reliable subcontractors.
Reliability — Bonded companies are also more likely to work responsibly on your project due to their obligations to the principles of the project under the bond contract’s indemnification agreement.
A subcontractor bond will typically require that the business entity and its owners provide indemnity in the form of personal assets. Thus, subcontractors that are willing to put their personal assets at risk are more likely to see the job through and do it properly.
Good relationships — Most companies that are bonded and have been bonded on other projects will typically have a good relationship with their surety company.
Such partnerships are priceless in the inherently risky construction sector. Companies that operate prudently and which foster and maintain good relationships with their surety companies, suppliers and other contractors are preferred business partners for all involved.
Managing Your Internal Supply Chain Risk: Equipment Failure
Many companies have contingency plans to account for external supply chain risks, like a supplier suffering a fire that prevents it from keeping production running and getting you product that you need.
However, you also have internal supply chain risks, which you are better able to control. These risks can affect a variety of businesses from manufacturers to retailers and restaurants — and any business that has some type of revolving stock.
It could be vital to the survival of your business that you are aware of and prepare for internal risks such as machinery and equipment breakdowns.
Knowing the right steps to take ahead of time can save you from making a bad situation worse or significantly delaying the resumption of operations. All of that, of course, amounts to extra costs for your business, including the potential for lost revenues.
If you prepare for a failure of a key piece of equipment or machinery, you also won’t be scrambling trying to figure out your next step in times of internal disruption or crisis. Making decisions at such times can often lead to more problems and costs.
Your risk management plan to deal with such failures should include:
1. A list of key equipment
- Production machinery, including gear sets, motors, compressors, belts and fans.
- Boilers and pressure vessels.
- IT and communications systems, including wiring and cables.
- Electrical equipment or system, including transformers, switch boxes, cables, wiring and motors.
2. An inventory of spare parts
Optimally, you should keep all the key spare and replacement parts for your main systems on-site. You can ask the manufacturers or service companies of those systems to assist you in having an emergency inventory on hand.
Still, it may not be feasible to have all items on-site. In that case, you should compile a list of the other parts that could break and need replacement, and how to quickly order them from the correct supplier. You should include on this list the cost of those items and delivery times — and update the list at least every year.
3. Plan for renting replacement equipment
As part of your planning, you should obtain quotes from companies that rent out the same type of equipment or machinery that you use, and update the quotes every year.
The quotes should include all pricing like transportation and set-up fees, as well as estimated time from ordering to delivery and start-up.
Don’t forget to include alternative suppliers.
4. Repair firms
You should also have at the ready information on the various contractors that are able to repair any equipment that’s broken down. The information should be listed by equipment item and should include contractor capabilities, contact information and availability.
Again, you should update this information every year.
5. Inventory
The dilemma for many businesses is how much inventory to carry. You don’t want to get caught short when it’s time for deliveries, and you don’t want too much of your money tied up unnecessarily in inventory that will go unused for some time.
That said, a certain reserve of inventory to help you continue to supply your customers is a smart move if you want to minimize the disruption of an equipment failure.
You need to analyze your order and delivery schedules and identify an optimum amount of spare inventory to keep on hand to fulfill orders in case of an equipment failure.
Make sure to keep in mind perishability of inventory, if applicable.