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Who's In Charge Of Loss Prevention

Posted on 4/3/13 4:42 PM

Pro's and Con's of loss prevention There is a saying that “everyone has a boss.” In my twenty-something years the question of “who should LP report to?” has come up often and usually with passionate opinions as to the best reporting structure. Loss Prevention is a support function and one whose dynamic responsibilities and flexible nature make it a good fit for almost any department. In a way, LP is like a universal blood donor - not a perfect match anywhere, but functional everywhere.

In the best case scenario, Loss Prevention (the department) would report to a C-level individual. Such a reporting structure would ensure that shortage prevention policies and programs were a core part of the overall business strategy. Unfortunately, in many companies either their size or the relative “new-ness” of a loss and prevention initiative do not make a C-level report a viable or efficient option.

That, however, is not a deal breaker. Loss Prevention programs can function effectively and efficiently in many of the other choices. What is critical is to select a “home” that considers both the culture and the communication within the organization. An organization that operates departments without a lot of walls and one that communicates openly across departments can safely place the LP function within any department and achieve success. Since the height of these potential walls and the efficiency of communication is, at times, hard to objectively measure, it is worthwhile to consider the pro’s and con’s of the three best choices for LP nesting in your organization.

Operations: As an outsource service provider, we have a lot of experience reporting to the Operations Team. For small and mid-level companies and those just beginning their loss prevention initiative this is the easiest and most efficient place to begin.

Pros: Good Operations is Good Loss Prevention. An important symbiotic relationship already exists between these two groups. They understand the store environment and its challenges, so they tend to speak the same language. For the most part their goals are aligned and most importantly, as a partnership, there are fewer hurdles for decision-making and implementation.

Cons: For all the reasons that it is a good relationship, that relationship can create issues. Sometimes what is required is not easy and there can be a tendency for “too much” understanding as to why something can’t be done. Additionally, “policing” one’s self is difficult. When constructive criticism is necessary, it can be difficult to employ when communicating with those on “our team.” Those confrontations become even more difficult when the criticism is directed at one’s boss.

Human Resources:  Loss Prevention nested within HR doesn’t happen often, but it is a viable option. Dependent of the overall structure, HR can lend a lot of support to the goals and objectives of a loss prevention department.

Pros: Often the actions of LP practices and policies impact performance decisions. Whether this means using an “audit” score as a part of performance reviews or a decision to terminate an employee for theft or policy violations. Working together means a well-thought plan and better consistency in the decision making process. Additionally, HR often does not have a “field arm” which means many of their decisions rely on events recited by others. A combination of HR and LP provides the HR team with “boots on the ground.”

Cons: Many of the most difficult performance and termination decisions require “constructive discourse” and a purely “objective” review. There is value in the separation between the “fact” collectors and the “decision” makers. This particular team-up requires that we strike a balance between the roles of HR and the roles of LP.

Finance: The effectiveness of any loss prevention program ultimately is the financial measurement of loss reduction. No team understands the finances better than the Finance team, so with certain caveats explained, it can be a very good match.

Pros: The world of accounting is one based on rules, policies and consistent procedures. In finance there isn’t a lot of “gray” area. As a partnership, Finance can lend a lot of support to the implementation of policy. Because it is a department that doesn’t like “exceptions” that lack factual explanations, we can be fairly certain of Loss Prevention programs with clear and logical rules.

Cons: Life is not a spreadsheet. Stores operate by applying policy with common sense and environmental considerations. Things can’t always add up in practice the way they do in theory. For loss prevention initiatives to be effective it needs the support of the entire organization. The danger in this reporting structure is that LP can lose its flexibility. A rigid approach can be counterproductive as people are less supportive of those that they believe don’t appreciate their challenges.

Two other considerations are the Legal and Internal Audit department. These two should be considered with the same information as the Finance group. An additional caveat is that Legal tends to not to have a lot of communication with the store groups and this may lend itself to policies and practices that work better in theory than in actual practice.

Regardless of “where” we place Loss Prevention services, it is critical to consider the potential pluses and minuses to each choice. The most effective programs are those that are embraced by the organization as a “whole.” So placement is less important than ensuring LP initiatives are a part of the larger global plan and that these initiatives receive support by all departments.

Ray Esposito

Topics: policies and procedures, Loss Prevention program and development