The main obstacles are how we think about signs and symptoms as it relates to loss prevention. An easy way to describe it is to think of loss and shrink as a health issue and loss prevention as the medical professional. When it comes to health most people rely on the “hope and pray” method. For as long as possible we ignore the little signs. We mostly hope the signs indicate we are just tired, or maybe just ate the wrong thing, or perhaps that arm numbness was always there. We pray it won’t get any worse. Sometimes it doesn’t…but sometimes it does. When the signs however become full-blown symptoms we’re off to the doctor for a prescription… or a heart by-pass.
Shrink and loss are treated in much the same way. There are many “signs” that predict the possibility of a disaster. They are a series of little things that indicate that all is not well and they are, like that indigestion, often easy to ignore. Which is a shame because there are only three steps to circumvent a loss prevention crisis:
1.) Understand the signs that indicate opportunity for a crisis
2.) Monitor and evaluate risk on a regular basis
3.) Intervene or investigate shifts in risk factors
So why doesn’t every business employ these three steps?
Psychologically, most people are terrible at risk assessment. We over assign risks to bigger emotional issues and under assign to the smaller and more likely issues.
People are fearful of flying, but driving a car is far more risky. Swimmers worry about shark attacks, but drowning in a swimming pool is far, far more likely. It’s called the Optimism Bias in risk evaluation. Another characteristic of Optimism Bias is the farther into the future an event will occur; the more optimistic we are about the outcome. It’s one of the reasons why companies with less frequent inventory reconciliation tend to place shrink control on a lower priority level…there is plenty of time for hopeful thoughts for a positive outcome.
Sometimes this Optimism Bias occurs even in light of a poor shrink result and especially if the result seems to be the exception—a single bad result after several good results. It’s not uncommon for a company to take the position of, “well we want to see if the next inventory results are better.” The fact is, that unless one can point to a single “special” cause for the poor result, there is little reason to believe that without intervention, the good ole days will return.
In some cases the shrink or loss does improve and this is used as evidence that the poor result was an anomaly. Consider, however, that a poor result often creates a lot of conversations and attention to shrink. These conversations have the effect of increasing the focus on losses and it is actually the careful attention that helps return the shrink to a lower level—people make fewer mistakes, they follow the rules, and dishonest employees decreases the frequency of their dishonest actions.
In the end, lost profits are lost and it doesn’t make sense to view a crisis from the rear view mirror when you can, with small efforts, predict a potential issue in advance. Although the best process begins with a clear and objective risk evaluation, there are methods to gauge your general risk. One of those methods is the broad look that we’ve provided in our ebook, The Retail Heart Attack. A second, is our Risk Evaluation Survey. Both of these are a helpful start to understanding from a high level how your company is positioned for future loss prevention issues. But that’s just a high level view and as they say, an ounce of prevention is worth a pound of cure.
Ray Esposito, Sr. VP Strategic Development & Marketing at LP Innovations Inc