Security Budget Planning
To succeed as a Security Director or Risk Manager you must take ownership of loss minimization across the enterprise.
If you’re a risk manager or a security director your business is saving the company money. You have P & L responsibility and not just for theft prevention and workplace safety. Your role is to minimize loss. To succeed, you must identify, own, and mitigate every way the company loses money due to liability. Once you understand that your only responsibility is to minimize loss by reducing liability, you’ll begin getting the funding you need.
Security contributes to the balance sheet because security minimizes loss.
Return On Investment is the one issue which prevents most security budgets from being approved.
To have a chance at funding, a safety program must show value received for the money spent. But if the money spent prevents injury, there’s no way to show the ROI, right? Wrong.
Forget the notion it’s impossible to determine the present cost of a future event. The process is actually well established – it’s done by actuaries for insurance companies. Your car insurance premium is generated based on an actuarial process which determines the present cost of variable futures, including the possibility, but not certainty, of a collision.
Forget the notion you can't prove the ROI for a security spend which prevents a future event. You can. It's a two step process:
1) Compare the current cost of a given event against the current cost of the event when reduced by the security program you need funded.
2) Compare the cost of the security program against the event cost reduction.
This is not as complex as it sounds. But if you continue insisting you’re in the safety or risk business, you’ll continue having fruitless budget arguments without getting the funding you need. You're in the loss minimization business.
How do you find the current cost of a future event without being an actuary or hiring one?
You don’t need the level of precision generated by an actuary.
You just need an estimate accurate enough to demonstrate your program's ROI.
A public road runs between your company’s parking lot and office building. There’s a crosswalk, but you want to hire a crossing guard for the morning and afternoon rush. A local company will provide the service for $35,000 per year. How do you show ROI?
Your data collection shows that your 50 employees do 24,000 crossings per year. Without a crossing guard on average one employee per quarter is hit by a car with a cost of $15,000 in medical bills and lost work time per incident. The local service provider has data which shows that with a crossing guard, the incidence drops to one employee per year.
Consequently, the spend of $35,000 reduces the estimated cost of employee injury from $60,000 per year to $15,000 per year, a savings of $45,000 and an ROI of 28%. If there are no incidents in a given year, the savings is $60,000 and an ROI of 71%.
Yes, it's imprecise. Yes, it’s a rough estimate. But it will get you much further than requesting funding for a crossing guard because “we need to keep our people safe.”
The key is understanding liability.
In the broadest sense, liability is the possibility of being sued.
Every business model does things which damage property and injure people, so that's where your security budget analysis begins. Your existing risk analysis will reveal the probability of each damage vector resulting in liability against your company. Generally available data will reveal the cost of each identified liability.
The Security Budget Analytic loop will keep you on track for planning a budget cycle for each vector. It doesn’t have the detail or precision of an actuary, but it will provide an estimate accurate enough to support your budget request.
By moving through the SBA loop, you'll be able to show how each safety program changes behavior to reduce the present cost of liability. By identifying all possible risk vectors, estimating the liability flowing from each one, and then translating liability into cost, you'll have the data to demonstrate the ROI you need to get your security programs funded.
Every time you walk into a budget meeting, managers should be looking forward to your next
money-saving security strategy. Your first step is a no-cost hour with OSI.