In Finance, what is Loss Management?

Loss management is an ongoing business process that involves identifying and investigating any issues that could adversely impact the income and general financial stability of a company. To this end, this type of management seeks to address issues such as loss prevention due to theft, damage to products as the result of outmoded or inefficient machinery used in the production process, and in policies and procedures that lead to the development of unnecessary waste of raw materials. Often, the process of loss management involves the active participation of individuals at every level of the organization.

Intentional theft is often one of the main problems faced by any business. Retail stores often operate loss prevention and security departments as a means of dealing with losses sustained by shoplifting, or by employees stealing from inventory. In like manner, businesses that provide services of some type also must also deal with losses incurred as the result of the theft of office materials and sometimes equipment. In both these situations, loss management seeks to uncover any activities involved with theft of property, and implement policies and procedures that help to minimize the opportunity for theft to occur.

When it comes to the efficient handling of raw materials needed in the production of various types of goods, loss management will often work with managers and employees directly involved in the production process to rework current procedures or make changes to the equipment used in the production process. The goal is to change operations so there is less waste generated during each phase of the production. This can often help identify situations where machinery is not operating at optimum levels, either by failing to produce a desirable amount of units per hour, or where older machinery is damaging some of the units produced.

In situations where the machinery is performing efficiently, the reason for the loss may have to do with the layout of the production floor. Here, the process of loss management will focus on reworking that layout so that the materials flow from one step in the production process to the next with greater efficiency. This reduces the potential for damage during transit from one step to the next, and also allows those steps to require less time to execute. As a result, losses are diminished even as production increases.

Loss management is useful in businesses of all sizes. By taking the time to identify any situations that are having a negative effect on the use of all resources under the control of the business, it is possible to minimize waste, limit theft, and ultimately generate more revenue for the company. Many businesses that operate multiple locations employ loss management strategies at both the corporate headquarters and every remote location of the business, no matter how small or what purpose that location serves.