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10 QUESTIONS ON... Risk management

Date: 06 July 2010

Managing risk has been at the forefront of fleet management debate in recent years. In the latest of BusinessCar's 10 questions series, Rachel Burgess discovers the hows and whys of risk management from leading industry experts

1. Why is risk management important?

Driving is the most dangerous activity that most of us do in the course of our working lives. Rick Wood, RoSPA's training and quality assurance manager - road safety, says it has been estimated that up to a third of the accidents that happen on Britain's roads involve somebody who is at work at the time.

"This means that every week, around 200 road deaths and serious injuries involve someone driving, riding or otherwise using the road for work purposes."

Managing risk is something fleets cannot avoid - it is a statutory requirement of health and safety legislation for businesses.

"But good businesses also use it to help them reduce costs and to provide effective management of vehicles, says Nigel Grainger, senior consultant at Fleet Risk Consultants.

Kenneth Bowling, from Driving Risk Management feels that broadly speaking, the reasons to have a good risk management strategy include protecting your bottom line, reducing loss, ethical considerations (corporate social responsibility) and legislation.

2. How has business car operators' attitudes to risk management changed?

According to Chris Chandler, associate director of consultancy services, Lex Autolease, attitudes have changed and fleet operators are far more aware of the issues. However, "there are significant variations with regards to the actual levels of risk management applied by different organisations".

Bowling says operators fall into two groups: those that do the bare minimum with some reluctance and those who recognise that far from a hindrance to their business, driving risk management is actually one of the most effective ways to impact their bottom line.

"The more visionary operators know they can actually reduce costs within their fleet, with the added bonus of uniting their organisation with a common goal. This latter group is growing as the benefits of driving risk management are acknowledged by the industry and better understood overall," he says.

3. What are the keys areas involved in managing risk?

"For organisations looking to justify investment in risk management initiatives, it is vital to put together a strong business case and cost benefit analysis," says Andy Price, practice leader - motor fleet at Zurich.

"To do this you need to understand all the direct costs every time a collision occurs - any deductibles and own damage costs, as well as any identified costs from within the business - as well as the uninsured losses associated with every collision.

"Estimates for these hidden costs vary but even if you use a conservative 2x multiplier, this will give you an insight into the total cost of risk and will help the business case for investing in risk management initiatives," Price says.

He continues: "Given that convincing senior management to agree to a risk management programme can be so difficult, it is important to ensure that what you implement is effective."

There are three key parts to the process:

1. Assess, analyse and understand the risks

2. Implement appropriate interventions

3. Maintain, monitor and review

Chandler say companies should have an "ongoing process to monitor and manage down road risk, keeping an audit trail to demonstrate pro-active risk management is being carried out".

4. What mistakes do fleets make when attempting to control risk?

Companies taking the 'one size fits all' approach are making one of the worst mistakes, says Grainger. While there are some generic items in the management of risk, there are also specifics that need to be account for.

Chandler adds: "The risk assessments should be the starting point to managing road risk, not necessarily off-the-shelf products or quick-fix solutions. Risk management is an ongoing process requiring senior management and employee buy-in. A key failing is often not getting senior buy-in for risk management."

And Price says companies that focus too much on driver training to reduce risks see little change in their claims rate after 18 months.

"Those who choose in-vehicle training as their main way of managing risk often enjoy a short-term reduction in claims rate, but after 12-18 months this has reverted to pre-training levels."

There are two reasons for this claims Price. Firstly, firms need to align their operating practices and procedures with driving policies: "It is often necessary for a company to modify the way it operates to allow employees to drive safely."

The second reason is an emotive issue - most company car drivers will rate themselves as 'above average'. So, unless a driver believes they can improve their driving, any training is unlikely to be effective over the medium-long term, as the driver does not believe their behaviour behind the wheel is hazardous.

Price concludes that companies that have taken time to develop an on-road safety culture and then implemented in-vehicle training tend to see much more effective outcomes.

5. What is the absolute minimum standard every fleet should be achieving?

Companies should at least comply with the requirements of the Health and Safety at Work Act 1974, says RoSPA's Wood.

"Employers must conduct suitable risk assessments and put in place all "reasonably practicable" measures to ensure that work-related journeys are safe, employees are fit and competent to drive safely and vehicles used are fit-for-purpose and in a safe condition."

He adds that businesses should be mindful of the Corporate Manslaughter and Corporate Homicide Act 2007, which gives the legal system "extra teeth" when there have been serious breaches of health and safety regulations that have led to loss of life.

Bowling says that it is essential to have policy and procedures in place that guide your employees on best practice.

"You must be able to prove that you issued these and that they were accepted by each of your drivers. An individual driver risk assessment must be conducted for each employee who drives for work purposes."

Driving licence checks should be a matter of course and a sensible policy to control the use of vehicles that clearly states everyone's responsibilities should be in place, adds Grainger.

6. How many fleets are doing everything that is required of them?

Blue-chip companies and the larger and more mature companies tend to be very good at managing occupational road risk, says Wood. "As far as small- and medium-sized enterprises are concerned, we can only say that good practice is patchy. These are often the firms that struggle with finding or affording the necessary resources and expertise."

Bowling agrees, saying that small fleets are often unaware of work-related road risk and the associated legislation.

"Larger fleet operators tend to be more savvy when it comes to legal aspects and accountability of their business," he adds.

Chandler says there are some fleet operators who do more than is necessary, but there are "undoubtedly many many more who do too little".

And Grainger adds very few fleets do everything that is required of them: "Those who do are mainly those with very strong safety cultures or have had a fatality."

7. Is the biggest issue with a lack of strategy or a lack of driver compliance?

The overwhelming response was that it depends on the company. However, Grainger points out "without a strategy you will have no compliance".

Bowling agrees: "It is the risk management strategy that is lacking most often, unfortunately. Driver compliance is part and parcel of an effective strategy that monitors how successfully policy and procedures are being implemented."

Wood says: "It can be one or the other or it can be both. It all depends on the culture of the organisation. Those companies which strive to communicate their ideas and engage their workers are also likely to have employed a high-level driver strategy with realistic targets that most people are happy to work towards."

8. How do you ensure drivers' adherence?

Checks, checks, more checks and good systems to manage the process, says Grainger.

"The most successful way to achieve compliance is by embedding a safety culture throughout the organisation," thinks Bowling, who says that a top-down approach is needed with full buy-in from directors and managers, who also need to lead by example.

"Control measures are the next step with efficient reporting systems and monitoring of policy. Effective strategies for driver compliance are driver assessment, commitment to safe driving, ongoing training and setting minimum standards," he says.

He adds: "Driving training interventions are most likely to be effective when they are linked to an individual's risk profile and are coaching-based."

Wood says an effective way is to install telematics systems in vehicles that can monitor driving behaviour by logging the number of times they brake or accelerate sharply.

9. How can you justify the money spent on risk management and can you calculate the savings?

If you speak to most fleet operators who have implemented robust risk management programmes, they speak highly of the benefits and costs savings achieved, says Chandler.

He admits it can be difficult to identify these cost savings. "Ironically, it will be easier to make a case for a business with very high risk exposure and suggest cost savings, than for a fairly well-performing fleet that just needs some additional effort and documenting of their ongoing risk management."

Bowling says: "The cost of not managing work-related road safety needs to be looked at first to put things into perspective.

"Companies can incur huge fines for a charge of corporate manslaughter or breach of Health and Safety at Work legislation. And how do you put a cost on your directors being given a prison sentence? Or the cost of a police investigation into your company? Or the lasting damage to your brand and reputation from associated publicity? The fact is, it's not simply a question of accounting.

"Having said that, return on investment can be calculated quite easily provided you have accurate data prior to undertaking any driving risk management."

10. What is the future of risk management?

Risk management is set to stay as a key element for operating a fleet of vehicles effectively.

Chandler thinks much of the industry will maintain a good standard of practice because it is right to do so and will manage costs.

"Others, I am sure, will do little unless a significant fleet test case goes through the courts under Corporate Manslaughter, but that is not to say we want such a test case," he says.

Bowling predicts awareness will start to grow in the small and medium fleet sectors with "competent and professional driver training seen as sound business sense and an effective way of reducing fleet costs".

Price adds: "The safety improvements, legal compliance and environmental improvements that are achievable through effective risk management as well as significant cost savings will see more organisations implement effective programmes.

He also thinks in-vehicle intelligence will become more widespread in car fleets as the technology becomes more cost-effective and the data easier to manage as part of the risk management programme.