November 30, 2009

Workers' Compensation Metrics: Creating a One-Page Scorecard

Lately, there has been discussion in the blogoshere about workers' compensation metrics, what do you measure, how often, do you focus on accidents or injuries, lost time or lost dollars, how deep do you drill down in management reporting, and the list goes on and on.

Because performance measurement is such a serious issue, I'd like to offer a perspective gleaned from working with national account and middle market employers, as well as insurers, for more than 25 years.

Performance measurement should have four characteristics: It should be simple, it should be meaningful, it should be consistent and it should be continuous.

By simple, I mean easily and quickly understood by senior management. Meaningful means that it should sit in senior management's sweet spot; it should be something that is anticipated and valued by leaders. It should be consistent, because those leaders, once trained to view performance in one way, do not appreciate abrupt course changes. And to be effective over the long term, it has to be a continuous and routine process. The mantra should be: What is consistently well-measured is highly valued.

With this framework in mind, I usually recommend that monthly reports to senior management measure two things religiously: Incurred losses per full time equivalent employee (and this should be done by department, division and company) and incurred losses per every hundred dollars of payroll (again, split out by department, division and company). Before any measurement occurs, however, management should settle on targets, which should be a bit of a stretch, but attainable. And target selections should be set against actual performance in the prior three or four years. For instance, if costs per FTE have been in the $200 to $300 range in the last few years, a good target would be a reduction of 30% to 40% in the current year.

Senior managers have finite attention spans. Therefore, workers' compensation performance measurement should fit on one page, a Scorecard that senior management can assimilate in no more than a few minutes. If the information is pithy enough, that's as long as it should take, but it should also lead to fruitful discussion about management actions to enhance performance, discussion that comes out of knowledge.

There are many other solid and valuable workers' compensation metrics, but, in Lynch Ryan's experience, these two are the ones that senior managers appreciate the most.

All of this assumes, of course, that a serious and ongoing safety, workers' compensation and injury management program is humming along, and that all parts of the organization have been trained in how to keep it that way. To quote the Bard, "Ay, there's the rub."

| 5 Comments

5 Comments

Tom,

Your suggestions implicitly show why the standard form of insurer reporting to management -- the unit stat report and the mod rate -- are a bust for the most part. The kind of reporting you are proposing could in fact be done by an insurer. How many think this way?

Tom,
I think you are right on with your choice of metrics. I haven't used the cost/$100 of payroll since we self insure, but I will take a look to see what it tells me. I would recommend using a rolling 12 month period as this tends to even out seasonal differences. Year to date numbers fail the "meaningful" test for the first nine months or so.

Agree with Tom as FTEs and Payroll links with increases or decreases in exposures. Otherwise, claims costs could be down which may have been driven by the number of employees at work.

We have found that tracking lost work days is another good metric. If lost work days are on the increase, it is likely results are eroding.

Agree with Tom as FTEs and Payroll links with increases or decreases in exposures. Otherwise, claims costs could be down which may have been driven by the number of employees at work.

We have found that tracking lost work days is another good metric. If lost work days are on the increase, it is likely results are eroding.

Peter,

Yes, an insurer could do this if, and it's a very big if, it had access to monthly payroll data as well as monthly total hours worked. Simple calculations after that.

However, insurers already provide the most necessary information to construct the Scorecard - a monthly loss run.

Sam,

I urge you to try the cost/$100 of payroll. Do it monthly, and, yes, roll it as you go.

Frank,

I agree with the lost days tracking, as long as you construct a severity rate out of it (lost days per 100 FTEs). That will equalize a regular 40 hour work week with ovetime and part time hours.

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This page contains a single entry by Tom Lynch published on November 30, 2009 10:02 AM.

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