In many businesses the term loss prevention is a bit of a misnomer. While certainly the philosophy is to prevent loss of profits and assets, in practice there is often very little prevention and much reaction. Many initiatives become focused on the reactionary processes of LP. Resources are allocated to chase dishonest employees, ORC rings, shoplifters and other crisis level security issues. These efforts are often required as a nature of the LP role, however, failure to apply efforts strategically ultimately results in dire consequences for the program and an inability to get ahead of shrink because too much time is expended putting out the fires.
The greatest cause of an increased reactionary position isn’t social or economic issues. Dishonesty, disasters, and crisis have always existed within the retail environment. Reaction isn’t a result of issues as much as it is the result of a missing strategic business approach. That is, people often think of loss prevention as something outside of the company’s business model. In truth, the hardest question to answer for many is— what is the company’s Return on Investment (ROI) for its loss prevention expenditures?
Loss Prevention programs, efforts and results can and should be considered within the same terms as any business expenditures. Companies calculate many metrics such as margin, sales per square foot, hourly costs, cost of goods sold. Loss Prevention is an important metric and in order to both improve and understand it we should measure it. The measurements help to identify its success, its true cost, its value and these things will guide us to the more proactive initiatives.
A major challenge for loss prevention is the lack of business influence at the executive level. That is not to say there is no influence, but most conversations occur when either things have gone wrong, such as rising shrink or when a large enough event occurs to capture C-level attention. The obstacle in achieving better, more regular and more influential executive attention is the missing strategic component that directly relates to the company’s primary focus — profits. If the primary LP focus and function is resolving and investigating loss then influence is limited to a single topic. When LP becomes focused on the same important business metrics as the rest of the company, then the conversations move from “here’s how we resolved the bad news” to “here’s how our efforts are improving performance and helping to reach the company’s goals.”
The strategic element is key to influence and influence is critical to better LP initiatives. The LP practices and process may be unique to the particular area of responsibility, but over all they should be directly tied to a company’s financial goals. That requires a direct analysis of ROI and the ability to draw a line between what was spent and what was gained. Without a strategic approach, influence is difficult to fully obtain and without that influence LP will continue to spend time and energy chasing bad guys, putting out fires, and being left out of the discussions that help guide the important company programs and decisions.
John Fice, Chief Operating Officer & Treasurer at LP Innovations Inc