Loss Events & Losers

Nobody wants to be a loser. In order to not be a loser, an organization must understand what a Loss Event is. Understanding what a Loss Event is, will enable the organization to investigate the cause of the Loss Event, identify Root Cause, and the appropriate Action or Counter Measure(s) to correct the Root Cause. However, before any of this can happen, the organization must understand what a Loss Event is.

Simply put, a Loss Event, is where something is lost in the process of doing business. I don't necessarily mean the type of loss that would prompt you to go to the lost and found. Rather, the loss is typically measurable in monetary terms, for most businesses. Losses can be the dollar value of down time, defects, a safety incident; you can think of as many examples as there are companies in operation.

The problem is, that any loss event represents lost revenue to the organization. If the loss event is down time, then you have the cost of not producing product, the cost of replacing equipment that was damaged or in disrepair, the cost of labor during the downtime, etc. If the loss event is defects, then you might have the the cost of rework, lost opportunity cost if you cannot rework and have to scrap, cost of equipment or line time to do the rework, cost of overtime to execute the rework or manufacture replacement product, etc. If the loss event is a safety incident, you can follow nearly all the same paths for the cost involved, but you might have some different costs such as doctor's visits, workers compensation, etc.

The point is, that a loss event, in the simplest terms a business can understand, is the erosion of revenue and/or profits. In order to understand the cause of the loss events, organizations will employ formal Root Cause Analysis (RCA). I personally like to use a Fault Tree when doing RCA. Using RCA methodologies will drive the investigator to Root Cause. Knowing Root Cause will enable the appropriate Actions or Counter Measures. The appropriate Actions or Counter Measures will prevent the Loss Event from occurring again. Prevention of another, similar Loss Event provides an incremental increase in the revenue and profits of the organization.

Organizations that have not figured this out, or choose to ignore Loss Events, are Losers, (fiscally of course!)