Housekeeping. Emergency Exits. Cell phones. Bathrooms. Breaks. Introductions. Risk Management Art or Science?

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2 Housekeeping Emergency Exits Cell phones Bathrooms Breaks Introductions Risk Management Art or Science?

3 Learning Objectives Elements of Risk Management Steps of a Proactive Risk Assessment Calculating Risk Priority Numbers How to Conduct and Document a Failure Mode & Effects Analysis

4 Risk Uncertainty concerning a loss arising out of a given set of circumstances 6 General Classes (Risks may fall into multiple classes) Economic Marketplace Legal Compliance/Statutory Political Changes in Law/Policy Social PR/Reputation, Society Physical Property/People Juridical Court/Jury Attitudes

5 Risk Management Process of protecting an organizations assets through exposure identification, analysis, and control & financing losses with internal and external funds overseen through the implementation and monitoring of the RM process. 5 Steps of the Process Identification Analysis Control Financing Administration

6 Identification Methods Flowchart Physical Inspections Policies and Procedures Review Subject Matter Experts Insurance Policy Review Checklists & Surveys

7 Analysis Quantitative Analysis The How Much Analysis 1. Statistical 2. Take backs 3. Cost/Benefit analysis 4. Quantifying total cost of risk 5. Understanding how many and how bad Qualitative Analysis The What Analysis 1. Financial - Assess broad loss exposures that may have a financial impact (shifts in government, State budgets, societal trends, etc) 2. Risk Assessment - Potential loss exposures that may increase in an ultimate risk for the organization.

8 Analysis (Cont d) Loss Potential Direct vs. Indirect Costs Loss Ratio Total loss paid/total Earned Premiums Caution Shock Losses Frequency vs. Severity (probable vs. potential) Frequency - how many times a loss occurs or is expected to occur within a designated timeframe Severity - monetary ($) amount assigned to a loss

9 Control Theories of Risk Control Human Approach vs. Engineering Approach Avoidance: Avoid potential risk completely, may inhibit the advancement of your agency Reduction: Method of mitigating loss through risk treatment tools Transfer: Transfer risk to another party by way of contracts & written agreements (insurance/contracts/certificates) Prevention: Attempts to prevent the loss from occurring while continuing to engage in the activity

10 Financing Retention Internal funds used to pay losses Active Retention Unfunded Reserves Funded Reserves Passive Retention Failure to Identify Failure to Act on Identified Exposure Transfer External funds used to pay losses Non-Insurance Hold Harmless Indemnity Agreements Insurance Traditional Insurance Risk Retention

11 Administration Implementation and monitoring of the RM process Implementation Commitment & Participation from Sr. Management Planning and RM policy development Training & Education Monitoring Benchmarking Continuous Tracking Regular Evaluation

12 Benefits and Challenges of Proactive Risk Assessments Benefits Protection of assets (people, property, etc.) Reduction of insurance related costs Improved operational efficiency Challenges Lack of understanding Innovation and creativity of controls Buy in

13 Proactive Risk Assessment vs. Accident Investigation Risk Assessment Proactive Accident Investigation Reactive They have very similar qualities and outcomes. It is the sequence of events that mitigates loss. Completing a proactive risk assessment allows you to implement the best controls and think through the process to try to avoid the incident altogether!

14 The Proactive Risk Assessment Conducted in-house by a multi-disciplinary team Identifies potential liability, property, employee, financial, and security losses Goal: Identify and treat exposure areas to mitigate the potential for a loss, before the loss occurs

15 Failure Mode and Effects Analysis: Getting Started So how do I actually do a proactive risk assessment? 1. Identify an area where risk lurks (i.e. pick a process to analyze) 2. Describe the system and function 3. Create a block or process flow diagram indicating relationships within the process a. Sample 4. Create a worksheet containing information about the system (related block diagram) a. Sample

16 Essential Elements of a Successful Proactive Risk Assessment Process Executive and Board support and involvement You re doomed without it! Clearly identified objectives What do you want to achieve? Establishment of the size and scope Which program or exposure are you looking at? Resource allocation Is there a budget? Do you have the right people?

17 More about Failure Mode and Effects Analysis There are many different models available We ll review one type of model today What is important is that you have a process to analyze potential failure modes (i.e. problems that could happen) AND the potential effects of that failure on your process

18 STEP #1: Selecting the High Risk Process Examples of how you can do this: Review laws, regulations, and policies and procedures Review agency business documents Analyze claims data Processes that are heavily dependent on human intervention

19 STEP #2: Staffing the Assessment Team Need multiple disciplines Subject Matter Expert All levels of the organization Solid understanding of the process being assessed Knowledge of commercial insurance helpful Knowledge of laws and regulations

20 Agency Business Documents Agency-wide documents Budgets Guess what? It s okay to share these with staff! Organizational chart (table of organization) Policies and procedures (personnel, safety, etc.) Program specific documents Program Handbooks Polices and procedures (program specific) Guidelines and manuals

21 STEP #3: Diagram the Process Map process through flow charting Determine how things were intended to work vs. how things are actually working Whiteboard the flowchart Look outside your agency to determine best practices for processes Team to visit worksite to observe the process

22 STEP #4: Identify Potential Failure Modes Process can have multiple failure modes and each failure mode can have multiple effects Address the following questions: What could fail with this step? (failure modes) Why would this failure occur? (causes) What could happen if failure occurs? (effects)

23 Framework and Structure for Proactive Risk Assessment: Failure Mode & Effects Analysis Assesses the steps of a process and identifies where problems may occur Scores exposures quantifiably Assists with better understanding of the process Brainstorming is critical to the process

24 STEP #5: Assess Failure Modes & Identify Causes Risk Mitigation requires an understanding of frequency, severity, and probable detection of the exposure. Use definitions for rating risk consistently Keep the scales simple and ensure they are appropriate to the exposure and your organizations risk tolerance.

25 Proactive Risk Assessment: Severity Identify consequences of each failure mode should it occur Score the severity of the consequence 1 = minimal severity 10 = very severe Example: Failure mode that will result in death or serious injury would be rated as a 10

26 Proactive Risk Assessment: Occurrence Identify causes of each failure mode should it occur related to frequency Same rating scale as severity 1 = minimal chance of occurrence 10 = significant change of occurrence Example: Causes of failure modes that occur daily should be rated at 10

27 Proactive Risk Assessment: Detection This score is based on how detectable the failure will be If it can be identified prior to the service, the score would be 1 Example: A Case Manager sells marijuana to someone they are providing service to. This would be scored a 10 for detection.

28 Calculating Risk Priority Numbers Severity x Occurrence x Detection = RPN The higher the RPN, the greater the risk Calculating the risk priority numbers for identified risk will help you identify what you should focus on first!

29 STEP #6: Conduct RCA on Critical Failure Modes The highest RPN s should be focused on 1 st Ask the following questions: What might cause the failure to occur? When might the failure occur? Where might the failure occur? Why might the failure occur? FMEA looks at What if while RCA looks at Why

30 STEP #7: Redesign the Process Considerations for the redesign of the process: Determine if step should be eliminated, controlled, transferred, or retained Identify controls for failure modes to mitigate risk Identify an individual to complete the action Pilot the redesigned process prior to widespread implementation

31 Protection of the Process Patient Safety and Quality Improvement Act of 2005 Limits discoverability of the process Directed by Legal Counsel Thus creating attorney client privilege

32 Making Final Recommendations How do you share information with executive management/board of Directors? There is no standard format, but some things to consider include: Be brief and factual (use bullet points) Include supporting documentation Fact-based for critical recommendations Keep all supporting documentation on file Avoid Acronyms and jargon in your presentation

33 Conclusion Be proactive in your approach to risk management ı Chances are, you will see a significant reduction in the number of incidents as well as the number of accident investigations that your organization needs to conduct! Thank You and Stay Safe!ı

34 Citations American Society for Healthcare Risk Management Whitepaper - Strategies and Tips for Maximizing Failure Mode and Effect Analysis in Your Organization, 2002 American Society for Healthcare Risk Management Risk Management Handbook for Health Care Organizations, 5th ed. Vol. 2 ECRI Institute Proactive Hazard Analysis and Health Care Policy, 2002 National Alliance for Insurance Education & Research Principles of Risk Management, 2010 Patient Safety and Quality Improvement Act of 2005 Public Law July 29, 2005