Charge Total Casualty Claims Costs Against the Operating Unit's Profit

The Marriott Corp.'s accident loss prevention program has reduced the casualty loss rate as a percentage of sales by 46% since 1959. The approach it uses is to charge accident costs against a unit's profit & loss statement. Similar programs have failed at other companies for such reaso...

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Bibliographic Details
Published in:Harvard business review 1981-09, Vol.59 (5), p.6
Main Authors: Culbertson, Charles V, Woods, John D
Format: Magazinearticle
Language:English
Subjects:
Accident prevention
Casualties
Claims
Loss
Prevention
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Summary:The Marriott Corp.'s accident loss prevention program has reduced the casualty loss rate as a percentage of sales by 46% since 1959. The approach it uses is to charge accident costs against a unit's profit & loss statement. Similar programs have failed at other companies for such reasons as use of fixed charges and failure to anticipate escalation of costs. Marriott's approach, however, overcomes many of the flaws in other programs. Losses are layered by setting a maximum charge at each operating level of the company, namely divisions and units. These maximums are custom-tailored based on past company experience. Managers will tend to be more alert to the impact of accidents when they realize such accidents can hurt profits. They will budget for losses and set accruals based on loss experience.
ISSN:0017-8012