Page 65 - Petrosphere - Loss Control Management (LCM) Training Manual V 1.0

64 Module 6: Economics in Loss Control Loss Control Management (LCM)

Principle of Economic Priorities

“A manager will usually give priority response to items possessing
the potential for the greatest proportion of results from the least investment
of available resources”.

“This principle is also expressed in a widely accepted economic
corollary that a firm should choose from mutually exclusive cost control

techniques the one which offers the highest rate of benefits to costs, when
both are expressed as expected values.”

Example:

• Cost item are relevant when they can be associated with the budget the particular individual is
accountable to manage.

Principle of Vested Interest
“A manager is predominantly interested in those

economic considerations affecting his own budget”.

“A manager is predominantly interested in the
budget he is accountable to achieve, and by comparison,
only interested in anyone else.”

Example:

• Cost item are relevant when they can be
associated with the budget the particular individual is accountable to manage.

Principle of Substantial Evidence
“In the absence of adequate historical information, it can be assumed that a manager will require
more substantial evidence of need”.

“Nearly every safety or loss control specialist has had an operating manager request evidence
that losses in the immediate area of responsibility have occurred to justify that action suggested.”

Example:

• The safety and loss control organizations of many large corporations circulate major loss
announcements and reviews to their various companies, in order that those with similar
conditions or practices can learn from the loss experience of others.

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