BACK TO THE FUTURE - How Software Enhances Risk Management
BACK TO THE FUTURE – How Software Enhances Risk Management
By Darrell Smith CFE, ARM, CIM, FCSI
Back in 1985 two accountants from Bedford, Nova Scotia developed the Bedford Accounting Software program. Later, Bedford was sold and became Simply Accounting and then Sage Accounting, as it is known today.
Before computerized accounting, transactions had to be entered manually into sixteen column journals. When you made a payment on an account using the double entry system, you credited cash and debited the account payable. This was very time consuming and required a lot of manpower to process the large number of transactions. Once all transactions were posted, the information was used to produce financial statements to assist in decision making.
What the software did was streamline the accounting process, making it less labor intensive. It gave management access to profit and loss statements daily and allowed individuals who were not trained in accounting to do the work with just training on the accounting software.
Having worked in accounting using sixteen column journals, I know I can speak for every accountant when I say there is no way they would want to go back to a manual system.
Just like the accounting process, risk management involves tracking a large number of transactions and assets, with the goal of producing reports for management that inform and enhance decision making.
This begs the question, why do organizations still use manual paper and file systems in their risk management departments?
Nowadays there are Risk Management Information Systems (RMIS) available, a risk management database for claims and incident management, insurance policy management, certificate and contract tracking, asset management (buildings, equipment, vehicles), crisis management, and more. An RMIS helps ensure you are compliant with various rules and regulations and provides access to powerful analytics and management reports. RMIS systems identify trends to help reduce the frequency and severity of losses.
Let’s take a look at just one area of a Risk Management Information System, claims management. According to the American Institute for Chartered Property Casualty Underwriters, the objectives of Claims Administration is to:
1. Enforce contractual obligations,
2. Gather claims data,
3. Reduce the frequency and severity of claims,
4. Estimate the amount of the claims,
5. Promote equitable compensation.
For the benefit of readers who do not work in claims, the most common claims include:
• burglary and theft,
• water and freezing damage,
• wind and hail,
• slips and falls,
• customer injury,
• property damage,
• workers compensation claims.
Every claim involves a large volume of paperwork, including incident reports, statements, pictures, and other supporting documents that need to be recorded and shared with all relevant parties.
Consider the number of claims an organization may have in the run of a year. For example, a company with a fleet of vehicles, could have dozens or hundreds of first-party claims (involve organizations own property), or third-party claims (losses suffered by another party). The high volume of claims alone justifies the investment in a Risk Management Information System. Now, consider compliance by tracking vehicles, insurance, drivers, and maintenance and you can see the large volume of data that needs to be documented and monitored.
A Risk Management Information System not only provides a centralized hub for document management, but also powerful data analytics and reporting functionality. Automated data entry and workflows reduce the time spent on administrative tasks by up to 85%, and insights from management reports reduce the total cost of risk by up to 50%. The system is built on cloud-based infrastructure that ensures accessibility, data security and privacy, and the flexibility to integrate with third-party systems.
The purpose of the accounting system is to provide accurate, timely, reliable and cost-effective information to help management make informed business decisions. Shouldn’t this also be the objective of your risk management program?
In closing, I choose the title “Back to the Future” not in reference to the Michael J. Fox movie, but the actual meaning of Back to the Future.
Do not dwell on the past! The past has been written in ink, the future in pencil! Worries about what cannot be changed is unnecessary, focus on what you can control and try not to make the same mistakes.
East Coast Fraud & Risk Management Group is a business partner with ClearRisk of St. John’s Newfoundland, the company behind ClearRisk risk management software solutions.