You may have heard the term "J Curve" in many of your business classes, or you may utilize it in your existing business decision making process. Essentially the J Curve is the point in time where capital invested in a specific project reaches the bottom of a curve and begins to head upward to yield a favorable return on invested dollars.
I recently attended a conference call on J Curves and their application in helping CEO's evaluate ideas that solve complex business problems. With curiousity I began listening to the moderator speak eloquently about how the J Curve is an effective tool at looking at whether or not new ideas should be implemented, and how to evaluate when they should be cut off if they begin failing.
CEO's that have poorly performing workers compensation programs rarely, if at all ever measure what the difference would be to their long term workers compensation costs if they markedly improved safety and culture within their organization. The measurement of a J Curve within this environment has often been the resulting difference in measuring one insurer's costs versus anothers. Since the impact of this outcome rarely yields more than a 10 percent difference between insurers, it doesn't begin to measure the true financial costs the individual employer's claim costs have on the insurer's basic pricing. Since the assumed impact of change is measured solely based upon insurer's rates, and not the lowest possible costs if the insured were claims free, the true impact of measuring the J Curve in this scenario is almost meaningless.
While risk financing is a part of the risk management process in a workers compensation transaction, it's relevence to material improvement in a poorly performing plan does little to help the executive quantify and measure the potential benefits from investing in safety and cultural upgrades to their existing plan. What's actually needed is a better way at measuring the impact from these improvements, and then evaluting the J Curve from these improvements.
By utilizing a more sophisticated tool such as the J Curve to help measure the potential impact of change to a challenging safety and cultural environment, CEO's can more effectively evaluate what changes should be made in their worker compensation programs to materially improve long term costs.
If you aren't measuring it, you cant manage it. If you'd like to know how to measure the impact from your existing workers comp plan, drop me a line at riskmanager@verizon.blackberry.net, or give me a call at 661-332-0382.
