You’ve been hearing for months that the recession is over, but like many other business owners you might be adopting a wait and see attitude. The only fact that seems undisputable is that the economy’s next move is not easy to predict.
In an uncertain environment, one solution for employers is to hire temporary employees for any downturns — or upturns — they face.
“Businesses used to have a steady flow of business throughout the year and they were able to budget for what their staffing needs would be and hire full-time,” says Scott Adamonis, director of sales for Everstaff. “Nowadays, business ebbs and flows and having a relationship with a staffing company allows companies to be able to fluctuate.”
Smart Business spoke with Adamonis about how companies can roll with a changing economy using temporary employees.
How common is the use of temporary employees?
More companies are shifting toward a flexible workforce, especially with the instability of the economy over the past five or six years. It’s very unpredictable and having a staffing company able to provide contingent labor is a great business model that many have adopted. More often than not, the decision of how many temporary employees to use is based on the business environment and is not necessarily industry specific.
Temporary or contingent employees aid companies because of their flexibility. In the past, businesses would use temporary employees to cover for vacations, maternity leaves or something along those lines. Now business is fluctuating — based on what the economy is doing — so employers need to have a flexible work staff in order to ramp up and ramp down based on their business needs.
Along with flexibility, what are some additional advantages of temporary employees?
Flexibility certainly is one of the largest advantages as it fills the widespread need for an adaptable workforce, especially for companies that experience ups and downs in their business activity with project work or seasonal swings. Employers are slowly bringing people back into their workforce but in contract or in contingent labor positions as a test of the economy. Then, if business activity decreases again, employers can — with the help of a staffing agency — respond quickly to changes.
Hiring temporary employees is also a great cost-saving tool. For example, a company will utilize contingent labor to handle unexpected increases in workload and accomplish this without the burden of hiring additional full-time employees or forcing overtime hours on their current staff.
The most expensive item on a P&L or balance sheet is labor expenses — from salary and benefits to unemployment and employee taxes. Partnering with a staffing firm can help a company ease some of these burdens by providing a flexible workforce on an as needed basis
Using supplemental staff for large projects or seasonal work increases the morale of your core full-time employees. When you, as an employer, get major orders and you already have full-time staff working 10- or 12-hour days, you don’t want to increase their workload and risk those employees burning out.
Employers also can treat these temporary employment situations as working interviews, utilizing short-term work to assess work ethics, cultural fits and skill levels.
As a business owner in an uncertain environment, how do I identify my staffing needs?
Forecasting who, what, where and when those needs are going to arise is a difficult task in today’s world and partnering with a staffing company is an excellent solution. A lot of times you think projects are coming in and can anticipate them, but other times you might not be able to do that. You don’t want to have your workforce sitting around waiting, so you can build a relationship with a staffing company and use it as an extension of your HR department. A quality staffing company will recruit and build a specific pipeline of talent so the turnaround time of implementing your workforce is seamless.
You always want to ensure your full-time employees are taken care of first. Many employers offer extra hours to their permanent staff initially, but as the year goes on they need the additional help of temporary employees. It’s an added resource that companies can utilize as needed.
What should an employer know about hiring temporary employees through a staffing agency?
The most important aspect of partnering with an outside source is to have your relationship in place with a temporary staffing agency ahead of time. The more a staffing agency knows about your company, the better the agency is going to be able to find people who fit your needs. The staffing agency does much of the groundwork before placing someone, so a strong prior relationship will enable the agency to understand the company’s culture or the background checks and screening requirements that are necessary to work at its facilities.
A close relationship between a business and the staffing agency not only alleviates turnover but also speeds the hiring process. Employers may not have any staffing needs for several months, but when they do require temporary employees they will need them quickly.
When looking for the right staffing company, don’t be afraid to review all your options. There are many specialty staffing companies that are job-type specific, others offer employees for a variety of jobs such as general labor; office and administration; accounting and finance; sales; legal; call center; information technology; and engineering. Look for an agency that can blend your staffing needs, company goals and culture with the right skill set, service, and technology to deliver the solutions necessary to help manage an ever-growing need for a flexible workforce.
In the end, there needs to be a comfortable working relationship where the hiring managers and staffing companies share the same business philosophies and practices.
Scott Adamonis is the director of sales for Everstaff. Reach him at (216) 369-2566, ext. 111, or email@example.com.
Insights Recruiting & Staffing is brought to you by Everstaff
Event planning is no longer just “party planning.” Event planning has become a powerful tool for business success by helping to increase sales through live events and saving time and money when planning or organizing company events. Planning an event takes a great deal of time, energy, skill and creativity to effectively execute.
“Mid-sized businesses often do not realize the value of having someone actually trained in event planning; they often allocate the job to an administrative professional who has a full-time job and little time to pay attention to the vast details it takes to successfully implement an event,” says Michele Clark, program manager, The Shlensky Institute for Event Meeting and Planning, for Corporate College.
Even if a business thinks it cannot afford an event planner, it could afford training someone in its office. And, any administrative professional that is given the task of planning and executing events should be compensated for the increase in time and effort it takes.
Smart Business spoke with Clark about the importance of training employees in the fundamentals of event planning and understanding best practices in this essential role.
Why does a business need to ensure its marketing coordinator or a similar employee is properly trained in event planning?
Marketing and event planning really go hand in hand. Events have become an advantage for any business’s marketing strategy, and when combined with an advertising campaign, it vastly increases the awareness and visibility for a product or service. It gives your audience a live environment for your brand. The more people see, touch, taste and experience your product or service, the more you sell.
Marketing personnel also become involved in the acquisition of sponsors for events. To sell an event, it’s important to understand how to look at the event through the eyes of a planner so you are able to provide real marketing solutions to a sponsor’s goals.
What is involved in planning a business event?
A business event is no different than any event in that it all comes down to the details. Whether you are planning a large conference or a gala affair, knowing how to manage every detail is key to its success. If you don’t know the fundamentals of planning an event, you could be wasting a great deal of time. For example, a large conference can take up to year to plan. An event planner handles all of the tasks related to an event, such as research, food, decor, entertainment, transportation, invitations, accommodations, speakers, activities, staffing, supervision, evaluations, and the list goes on and on.
How does event planning affect a business’s profitability and reputation?
Having someone trained in event planning actually saves time and money. If you have someone who understands time management and the organization of an event, it is much more efficient than having someone just plan the event on the side trying to find their way through hundreds of logistics.
As for reputation, there is a remarkable difference between someone with experience and training who executes an event versus someone who just ‘wings it.’ If something can go wrong, it will, and a well-trained event planner understands the challenges and knows how to avoid or solve them. Your well-managed events will speak for themselves and be less likely to become a failure, which could, in turn, give you a bad reputation.
What kind of training should be provided to employees who deal with events and hospitality?
A comprehensive course designed specifically for event planning is excellent training for someone given the task of planning events and will provide that person with an appreciation of what it takes to plan an event. An employee needs to understand the fundamentals, such planning a budget, dealing with sponsors and clients, and utilizing organizational tools.
However, experience is the No. 1 attribute when it comes to executing events. So look for a course that also offers your employees experience through volunteer opportunities, internships and working with an event planner for the best combination of learning.
Also, if your company holds conferences on a regular basis, employees can receive further training specifically in Meeting and Conference planning. There is also other targeted training such as trade show and exhibition management or event planning trends and technology.
Trends and technology include information on registration software or how to take advantage of iPhones during a conference. Technology is now a large part of the hospitality industry, such as using something as simple as the ‘Bump’ app, where attendees can download their information then just tap other smart phones to receive their information. It’s a terrific networking tool and saves paper. There is an influx of meeting technology that changes rapidly and accommodates various attendee ‘smart’ tools.
As the hospitality industry grows in Northeast Ohio, how will this affect corporate business events?
It is a really exciting time for event planning in Northeast Ohio. The event and meeting planning industry is increasing in Northeast Ohio faster than the national average, at 14 to 19 percent over the next few years, according to O*net OnLine.
The new casino alone just begs for an activity, anything from corporate team building to a birthday party. Then you bring in the Medical Mart and Conference Center and you are surrounded by opportunities for event marketing projects, product launches, entertainment parties, major conferences and trade shows. The list of what can take place here is ongoing and event planning and management is alive and well.
Michele Clark is the program manager, The Shlensky Institute for Event Meeting and Planning, for Corporate College. Reach her at (216) 987-2909 or firstname.lastname@example.org.
Insights Executive Education is brought to you by Corporate College
Approximately 25 percent of mid-sized companies plan to expand how they use treasury management products this year, according to Greenwich Market Pulse. Treasury Management is more important than ever to make sure businesses not only manage risk but effectively oversee their payments and receivables with adequate liquidity.
But, how can you ensure your business is maximizing its liquidity and cash position potential?
“Businesses are increasingly challenged to provide a disciplined, efficient means to effectively manage their capital position and liquidity in response to the rapidly changing economic environment, increased regulation and globalization,” says Korlin Scott, Senior Vice President and Director of Commercial Product Management for FirstMerit Bank.
“As financial systems continue to evolve with more sophisticated functionality to support these market drivers, there are significant, cost-effective opportunities for businesses to leverage Treasury Management services for improved payment settlement, reconcilement and cash positioning.”
Smart Business spoke with Scott about how companies can use Treasury Management to save money and time.
Why is Treasury Management important for businesses?
Improving cash flow can help any business efficiently manage its working capital. When key aspects of the cash flow cycle can be utilized to their fullest extent, companies gain competitive advantages.
Treasury Management services can significantly drive efficiencies in the receivable collection processes and provide enhanced control over payments while delivering a real-time view into company finances. Driving improvements in the cash flow cycle can have a direct impact on a company’s working capital and ability to focus on revenue-generating activities.
What’s the first priority for employers with treasury management?
Taking advantage of a bank’s robust technology allows a business to significantly improve its cash flow cycle without costly investments or additions to staff.
The broad range of payment and collection services available includes automating the routine, daily process of making/receiving payments and centralizing the reconcilement of information for a consolidated view of the business.
Integrating these services — and, perhaps more important, the information — is key to achieving significant reductions in time spent on day-to-day administration and transaction processing.
How can employers more efficiently manage how they receive payments?
There is a tremendous opportunity for businesses to improve order entry through cash conversion, particularly with check payments, by speeding up the payment collection and posting process.
For example, lockbox services effectively automate the collection of larger volumes of payments. Payments are received at a central location and scanned for automated deposit, accelerating the cash application process. The ability to capture and image not only the payments but associated remittance information also improves the reconciliation process, leading to improved availability of funds.
Another service that is equally as effective is Remote Deposit Capture, which can be used instead of or in conjunction with lockbox services. Remote deposit allows your business to deposit checks immediately upon receipt without the need to visit the bank. You also have the flexibility of later deposit times providing faster access to funds without making physical deposits at the bank.
What’s the best way for a business to manage how it pays out cash?
Gaining control over the timing of outgoing payments allows businesses to more accurately forecast cash outflow, as well as maximize use of their available cash.
Automated Clearing House (ACH) services allow businesses to make and collect payments electronically with specific settlement instructions to more efficiently control the timing of the payments. ACH typically costs much less than writing checks and with the ability to initiate payments online, you can significantly reduce payment risk while enhancing your ability to manage recurring payment information.
Wire Transfer is another alternative, providing an easy, secure means to transfer funds worldwide. For urgent payments, wire transfer has a distinct advantage over writing checks and ACH, as it provides immediate funds availability, which is an effective tool to improve the purchase to payment process.
These are just a few of the Treasury Management options that can more efficiently manage your cash flow, whether it’s expediting payment collection or gaining better control over outgoing payments.
Korlin Scott is Senior Vice President and Director of Commercial Product Management at FirstMerit Bank. Reach him at (330) 996-6496 or email@example.com.
Insights Banking & Finance is brought to you by FirstMerit Bank
A loan through the U.S. Department of Housing and Urban Development isn’t for the faint of heart. The red tape can cause headaches for multifamily housing owners (“investors”) and real estate management companies not familiar with the ins and outs. However, with the proper guidance, you can achieve a true understanding of annual compliance requirements.
“Today, more and more investors in this economic environment are not able to get conventional financing, as they once used to, for their apartment buildings and multifamily housing complexes,” says Lori M. Crow, CPA, COS, associate director in assurance services for SS&G. However, HUD has been able to continuously insure and help fund these loans, she says.
“With many companies deciding to refinance with HUD, there are complexities to understand when moving into a heavily regulated environment, many of which investors and real estate management companies do not know about since they may have only used conventional financing for their apartment buildings,” she says.
Smart Business spoke with Crow about financing a multifamily housing loan through HUD and how to adhere to regulations.
Who finances with the Department of Housing and Urban Development and what are the benefits?
HUD issues insurance and direct loans to for-profit and not-for-profit entities. As far as for-profits, generally partnerships and LLCs participate in the program and receive insured loans. For example, a for-profit partnership approaches a third-party financial institution that deals with HUD; that institution will obtain the loan, but HUD insures it so in the event of any defaults the financial institution is protected. Nonprofits can have both insured and direct loans with HUD.
In fiscal year 2011, HUD insured mortgages for 442 projects nationwide — that’s approximately 60,000 apartment units with loans averaging $3.5 million.
The biggest benefit to a HUD loan is financial institutions aren’t 100 percent on the line; HUD is backing them up or insuring them in the case of default. Since the 2008 economic downturn, banks have been hesitant about the stability of apartment buildings and other multifamily complexes.
The loans have fixed interest rates, too. In 2011, 3.5 percent was the average fixed rate. Generally speaking, a HUD loan is 85 percent of the property’s appraised value and the partnership or LLC only needs to invest 15 percent equity into the property. Often, conventional financing is variable or for a lower amount.
What are the disadvantages of HUD financing?
Problems come from investors who are re-financing into HUD but aren’t as tuned in to the regulations. When investors obtain a HUD loan, a regulatory agreement is executed both by HUD and the owning entity, and there are a minimum of 10 types of compliance requirements that the owner must follow on an annual basis. As long as the owning entity understand these requirements, it’s not hard to follow them. However, a lot of investors moving into it for the first time don’t realize everything they signed on to.
Another factor is time. It’s a lengthy process. For example, it can take more than a year to close on a loan for an entity that already has an established relationship with HUD.
What regulations are most often not adhered to?
Annually, an independent HUD audit is required that will provide an opinion on both the financial statements, as well as compliance with the requirements as set forth in the Regulatory Agreement. The three biggest non-compliance issues auditors identify are:
- Unauthorized distributions. This is the biggest noncompliance problem. You cannot distribute cash back out to the investors more than twice a year based on HUD’s strict calculations of surplus cash. That differs from conventional loans, where you may be able to take money out of the property whenever there’s cash in the business.
- Unauthorized loan of project funds. This is where an entity may loan money to a partner, another entity within management’s portfolio, or to any other related or nonrelated party.
- Unauthorized change of ownership. This occurs when either the general or majority-limited partners exit or transfer their interest without HUD’s prior authorized approval.
There are other regulations to follow, as well, such as ensuring you have the proper internal controls over the federal programs and complying with affirmative fair housing rules.
What happens if an owning entity doesn’t comply with HUD regulations?
The auditor will qualify their opinion on compliance and provide detail findings of the noncompliance identified stating the issue, cause and effect, any questioned costs, the auditor’s recommendation for correction and management’s response to the finding. Then the owning entity will have to follow up with implementing the corrective action, paying money back to the property, if necessary, or undertaking other actions to become compliant again. If it’s a significant noncompliance issue, the owning entity may be sent to the Departmental Enforcement Center (DEC), which then moves the noncompliance and the entity’s corrective action out of the local HUD office and this could prohibit the investor or management company from obtaining HUD financing for other properties in their portfolio.
Normally once the audit is submitted, you’ll hear from HUD in a couple of days. If you don’t, then there’s often a problem.
What’s your advice for those new to HUD loans?
Early in the stages of entering into a firm commitment with HUD, a CPA should become involved who has HUD expertise, somebody who audits similar entities on a day-to-day basis. A lot of times, CPAs are not engaged until transactions or unauthorized distributions have already occurred, normally when an owner is looking for a firm to complete its first annual audit. If an expert comes in early to assist the owning entity in understanding all the regulations, it will tremendously help with a clean transition into HUD financing.
Lori M. Crow, CPA, COS, is an associate director in assurance services for SS&G. Reach her at (440) 248-8787 or firstname.lastname@example.org.
Insights Accounting & Consulting is brought to you by SS&G
In the service industry, employee-related expenses account for 50 to 70 percent of total expenses, which makes it critical to bring in the right people and ensure your investment is a good one.
“The cost to hire people is significant, from advertising to interviewing to the onboarding process,” says John Harabedian, Managing Director of the Retirement Plan Services division at Tegrit Group. “If you are only retaining 50 percent of the people you recruit, that’s a huge cost to the company that needs to be reduced.”
The benefits of recruiting and retention strategies aren’t just cost-related.
“If you’re growing and you’ve got a strong culture, you’ll be known as a good place to work, which enhances the company’s reputation and image in the community,” he says.
Smart Business spoke with Harabedian about recruiting and retention practices.
Why does a business need recruiting and retention strategies?
Not having a recruiting strategy often leads to reactive hiring. If someone terminates employment, a manager who hasn’t thought about a replacement strategy might make a quick decision to hire someone who seems qualified but isn’t.
You always want to look for loyalty in your employees, that is the key to customer retention as well as cost savings. Customers value continuity; if you have the same person on the account for a long time he or she will know the client well and the chances of the client having a great experience are significantly enhanced.
What are some best practices for recruiting?
Your human resources department should have an active ongoing recruiting process for key positions, even if those positions aren’t open. You interview people as resumes come in, for future position openings. Then if you have to replace someone you already have two or three people in mind — you know what their situation is, if they need to move and their salary requirements for example. This makes positions easier to fill, especially for specialized, technical jobs, and ensures your company does a better job of finding the right people.
You need to define your corporate culture and find people who fit into it. A strong work culture engages employees and provides them with opportunities, which is crucial to keeping them satisfied.
In addition, good employees typically surround themselves with similar-type people, so employee recommendations can be a critical source for hires with the same work ethic and values. You can incentivize your staff with a cash bonus for recommending someone who gets hired.
An internship program is another excellent recruiting tool where both the intern and employer can evaluate each other before making a long-term commitment. You can start an internship program using younger employees who recently graduated with connections to local universities. Then in the second year, once you hire interns permanently, you can use them as spokespeople for the next graduating class. However, a successful internship program is predicated on interns having real work to do. You need to make interns feel like full-time employees by letting them have one-on-one time with managers, attend meetings and do client-based work.
Once you’ve recruited the right employees, what can you do to ensure they stay?
The defection of good employees is all tied to the culture. You need to put people where they have a passion. You don’t want to leave people in jobs they may have entered into if that is not what they want to do long-term. If you can get a person excited about what they do — if they can contribute and have some creativity in their role — they are much more likely to stay with the company.
A growing organization has to recognize you are always looking five to ten years down the road. Not only who are my managers today, but also which employees can become directors or fill other senior level positions? Internal mentorship programs identify key performers with significant potential. And you don’t have to be shy about who is in a mentoring program and who isn’t as it might motivate others.
Keep in mind what influences employees today. Younger employees put an emphasis on family and outside activities that you wouldn’t have found 20 years ago. You may need to be more creative in allowing staff to work remotely or have flexible schedules. You also might have to help older managers adjust to the mindset and values of younger staff.
How do you evaluate your recruiting and retention strategies?
Your HR department should always be looking for feedback from staff as well as evaluating the job application website you use to see if they are the most appropriate.
You can also rate your employees to find out how your retention strategies are working. For example, you can rate staff as (1) key performer, don’t lose; (2) good performer; and (3) average or acceptable, and any employee who is rated below three you would want to actively manage out. Then evaluate which employees are leaving — how many were ones, twos and threes?
Although the recession has created a double-effect that works for the employer — the talent pool is deeper with more people out of work and with fewer jobs more people are staying put — this kind of situation is only short-term. You need to invest in your employees and ensure the company has a wonderful culture in which they can grow and eventually take on more responsibility.
John Harabedian is the Managing Director of the Retirement Plan Services division, for Tegrit Group. Reach him at 330.983.0520 or email@example.com.
Insights Retirement Plan Services is brought to you by Tegrit Group
The way customers interact with your business — whether positively or negatively — plays a crucial part in how your company is perceived and whether you can keep and expand your customer base.
However, there are procedures you, as an employer, can enact to ensure that whenever customers are less than satisfied, you make the right moves to address those concerns.
“You have to have some type of service recovery in place to provide great service — through excellent response time, ensuring the service support people are knowledgeable about the product and customer’ needs — in order to meet customers’ overall quality requirements,” says Edward Kromar, director of service for Blue Technologies.
Smart Business spoke with Kromar about how to continuously set service standards and recover less-than-happy customers.
What are service recovery systems and how do they impact business?
Service recovery is based on the customer’s impression of the service provided by your company. The paradox is a customer can give you a higher grade on service for a product or device that requires service and maintenance on a regular basis than on one that doesn’t. This might happen after the customer sees how committed your service department is to meeting their expectations in a timely manner and repairing the problem efficiently.
You, as an employer, need to set service recovery standards that will keep customers pleased in all areas from delivery and support to product availability and the knowledge and understanding of your sales and marketing teams.
In today’s world of instant responses and technologies, sub-standard customer service can be spread throughout the business world quickly. It’s something you want to manage closely, proactively working to have a positive response time to concerns and trying to make corrections for the constantly changing and specific needs of customers.
How can employers create standards to ensure their customer service is productive and efficient?
You have to have service support employees with the type of personality that can work well with customers. You can train your personnel on additional fundamental skills they might need, but each individual support person on the frontline has to have that natural ability to work with the customer during a high-stress time. That’s something you or your managers need to be able to pick up in the interviewing process.
You also need to measure time closely. Every industry has different standards but it’s imperative that you respond as quickly and efficiently as possible. Once a customer brings up a concern, you need to reply in minutes. After the initial inquiry, you have to look at the time the support staff takes when actually interacting with the customer. You need to train your employees to work efficiently — understanding how to use all their tools, manuals and resources — so they can troubleshoot, repair, explain and leave the customer fully confident that the problem was resolved. Remember it’s always a moving target and you constantly need to think about improvement.
What are some best practices for service recovery systems?
You want to be able to survey your customers to see how they receive and perceive services. There are many ways to do that, including any type of survey or the basic follow-up on service — either hours or days later — after the service has been performed. However, one of the most effective methods is when the sales force interacts with your customer base. You also should have your sales force or marketing team then work with all the data.
By listening to employees and gathering their input on customer concerns, you can customize training internally to address those concerns. Then, personnel can respond more proactively, knowing that this is now what customers want. Customers’ needs change every six or eight months, so you have to work on it all the time.
Customer complains often go to frontline employees, how important is it for CEOs and managers to get that information?
Internal meetings and communication are extremely important, as well as the candor that managers have to display when they sit in a group and discuss concerns. You should meet on a regular basis — whether weekly or monthly — and consider these in a very open format. If you don’t have that straightforwardness from your frontline personnel and you don’t listen, you can get out of touch with your customers.
Sometimes a problem has to go to the management level and the managers can decide whether this is a corporate level correction or a manufacturer/vendor correction. If it’s a corporate correction, you can get a plan in place, write a new procedure and dial it in. If it’s a manufacturing concern, you should already be conversing regularly with manufacturers — daily or weekly — about the capabilities of the product and your needs as the manufacturer’s customer.
How much of an effect has technology had on service recovery?
It’s huge. Technology has been the driving force for product turnover with customers looking for more capabilities and features on equipment whether it’s software or hardware. And that same release of new technology assists the support people who can deal more efficiently with customer concerns. You can educate customers by having them log in for a training session and you also can remotely dial into customers’ products to check on problems or be notified automatically when something is wrong. There’s high customer satisfaction when you can contact a customer who might not be aware of a problem and tell them you’ve been alerted to the difficulty and are actively making the correction.
Edward Kromar is the director of service for Blue Technologies. Reach him at (216) 271-4800 or firstname.lastname@example.org.
Insights Technology is brought to you by Blue Technologies
As labor rates rise in China, shipping costs increase, the dollar weakens and supply chains grow more complex, many industry analysts are suggesting U.S. manufacturing activity will increase over the next five years.
And while some risks such as supply chain failures may be reduced if manufacturing firms are closer to operations and manage them more effectively, other risks — such as medical cost inflation for workers’ compensation and nonoccupational injuries — are on the rise, says Mike Stankard, managing director and Industrial and Materials Practice leader at Aon Risk Solutions.
“High-frequency, low-severity type risks, such as workers’ compensation or fire prevention, need to be managed on a day-to-day basis to prevent and mitigate losses,” says Stankard. “Businesses simply can’t overlook those because they face them every day. They also need to control losses that would prove catastrophic, such as large liability claims or the financial impact from natural disasters. Those risks can be managed with insurance because they are largely unpreventable, and businesses have an obligation to protect shareholders’ capital.”
Smart Business spoke with Stankard and John Gertken, senior account executive with Aon Risk Solutions, about how to manage risks facing the industrial and materials sector.
What are some risks that can impact the industrial and materials sector?
Aon Risk Solutions recently conducted a survey of business leaders in the industrial and materials sector to gauge their concerns, which included the economic slowdown — in both the U.S. and abroad, uncertainly surrounding raw materials and commodity pricing, and future innovations to keep up with customer needs.
In addition to the broad risks that drive macroeconomic issues affecting supply and demand, leaders must consider specific risks and manage them on a day-to-day basis to ensure efficient and effective execution of their business plan. In this area, risks include business interruption and supply chain failures, keeping up with emerging market opportunities and the risks and rewards of globalization.
What are some of the major drivers of risk?
The recession has had a profound impact on manufacturers that were forced to quickly adjust to changing demands for their products. The challenge was that no one knew just how low the economy was going to go. Some manufacturing employers reduced their work force by 40 to 60 percent and closed plants, although some of those reductions are starting to reverse. Many companies, especially automotive, used bankruptcy as the ultimate risk management tool to make long-term fixes to their macro-business models in the areas of labor contracts and raw material purchasing, shutting down inefficient plants and dropping marginal product lines.
Escalating health care costs continue to affect the work force both in terms of group medical insurance costs and workers’ compensation. When workers are injured, an employer is affected by wage replacement, medical costs and productivity leakage.
There’s also been reaction to all of the production moved offshore in the past 10 years. In 2011, natural disasters, such as the earthquake and tsunami in Japan, flooding in Thailand and earthquakes in New Zealand and Chile, put stress on the global supply chain, forcing companies to re-examine the vulnerabilities around their supply and customer chains. Many are now considering whether they were shortsighted when they moved production to low-labor rate countries that could potentially result in larger issues than just how much per hour they are paying employees.
How can mid-sized employers minimize risks?
Mid-sized employers may want to consider increasing workplace safety to avoid injuries that may result in expensive medical costs. As not all accidents are preventable, effective claims management practices on post-accident behaviors can help control medical costs and get workers back on the job as quickly as possible, even if it’s for light duty work.
When looking at the supply chain, manufacturers need to re-examine their supplier base to look for potential bottlenecks, single-source suppliers that could cause problems down the road. To minimize the risk, contingent business interruption coverage insurance around supply chain failure is available, which can cover loss of revenue.
However, it is important to note that underwriters have changed their business practices to limit their exposure in this space. They want to know about your suppliers — where they are located and how much business you do with them. For example, they might reduce your limits or restrict coverage so it only applies to direct suppliers rather than indirect ones, even though both can have just as much impact on your business.
Once risk management practices are in place, how can you measure them for effectiveness?
Your insurance broker, who optimally deals with your industry, knows it well and works with your peer companies, should be able to provide best practice benchmarks and performance metrics that can be continually updated. They can give you guidance on how to prevent and minimize claims as well as advice on the quality of insurance, how much you should purchase, how you should measure and value business interruption losses, etc. For example, your broker could perform a comprehensive evaluation of your workers’ compensation processes and losses, analyzing your environment and all of the losses you had on a granular basis. After determining the root cause of those losses, the broker would make recommendations such as ergonomic corrections, improvement in communications around losses and reporting lags.
These kinds of precise adjustments and the best practices associated with them could add up to millions of dollars in savings over time.
Mike Stankard is a managing director and Industrial and Materials Practice leader for Aon Risk Solutions. Reach him at (248) 936-5353 or email email@example.com.
John Gertken is a senior account executive with Aon Risk Solutions. Reach him at (314) 719-5193 or firstname.lastname@example.org.
Please visit aon.com/industrialandmaterialsreport to download a copy of the 2012 U.S. Industrial and Materials Industry Report.
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Before entering into an international commercial agreement, it is vital to ensure your company will be protected in the event of a dispute.
Litigation can drag on for years and can be extremely disruptive and expensive. Litigating against a foreign company can be particularly complex with issues that include service of the complaint in a foreign country and jurisdictional objections that can be raised by a foreign defendant. That is why international arbitration may be the answer, says Michael B. Dubin, a member with Semanoff Ormsby Greenberg & Torchia, LLC.
“International arbitration is an easy way to litigate against a foreign company that allows you to avoid a lot of the headaches,” says Dubin. “With any international commercial agreement, consult with an attorney early to assist with both the structure of the business terms as well as contingencies in the event of a dispute.”
Smart Business spoke with Dubin about the advantages and intricacies of international arbitration.
What is international arbitration?
International arbitration is a confidential, private arbitration proceeding to resolve disputes between parties to an international commercial agreement. The agreement provides that all disputes arising out of or relating to the agreement will be resolved by binding arbitration by one or more arbitrators (usually three) selected by or on behalf of the parties and sets forth under what rules the arbitration will be conducted.
The arbitration is similar to a trial but heard before experienced attorneys and/or businesspeople sitting as the arbitrator(s), rather than a judge or jury. After the arbitration, the arbitrator(s) will issue a binding award that cannot be appealed except under limited circumstances, such as for fraud or undue influence on the arbitrator(s).
How can international arbitration help resolve a dispute for my company?
International arbitration provides a quicker, more efficient resolution of a dispute than litigation and allows the parties to avoid the uncertainties of litigating in a foreign court. A typical international arbitration can be completed in approximately one year from the date of filing.
Arbitration generally, including international arbitration, substantially limits the exchange of discovery between the parties, thereby expediting the entire process. The arbitrator(s) routinely allow the parties to request information and documents from the opposing party and possibly take a limited number of depositions, if warranted. However, depositions are discouraged.
One disadvantage to arbitration is the actual out-of-pocket costs to the parties. For example, a party initiating an arbitration seeking damages of $500,000 to $1 million can expect to pay a filing fee of approximately $8,500. In addition to the filing fee, the parties are required to pay the hourly or daily rates of the arbitrator(s), which can be expensive in a case with three experienced arbitrators.
How can companies best protect themselves before international arbitration, especially mid-sized companies that might not be familiar with the process?
Most mid-sized companies are unfamiliar with international arbitration. If your company is contemplating entering into an international commercial agreement, consult with an attorney during the initial stages of negotiation instead of waiting until after the agreement is signed and a dispute has arisen.
There are several critical items that companies should consider and provisions that should be included in international agreements if arbitration is the desired dispute resolution method. These provisions include:
- A clause providing that all disputes arising out of or relating to the agreement will be resolved by binding arbitration.
- Under what rules the arbitration will be conducted.
- That interim (injunctive) relief shall be permitted.
- The number of arbitrators and how they will be selected. For instance, agreements commonly provide for three arbitrators, one to be selected by each party and the third arbitrator, who will act as the chairperson, to be selected by the two party-selected arbitrators.
- The language in which the arbitration will be conducted.
- The state and/or country’s substantive laws that will govern the arbitration.
- The city and country where the arbitration will be conducted.
- Whether the prevailing party will be awarded its attorneys’ fees and costs.
- The award can be enforced in any court of competent jurisdiction, meaning the prevailing party can enter the award as a judgment in court to enforce and collect on the award.
What steps should a company take once it becomes aware of a dispute?
Once you become aware that your company is involved in a dispute that could lead to arbitration or litigation, it is important to preserve all relevant documents and to inform your employees (and IT team) not to delete or destroy any documents, including electronic documents, that may be relevant to the dispute. Also contact your company’s in-house counsel and/or outside counsel early on to best protect your company.
International disputes can be complicated and expensive, but a well-drafted international commercial agreement can simplify the process, help control costs and put your company in the best position for a successful resolution.
Michael B. Dubin is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-2658 or email@example.com.
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From greater flexibility to lower costs, self-funded insurance is attracting the attention of more and more employers.
“Self-funding plans have been gaining popularity as a way for companies and employees to save money in the face of the recession, recent health care reform and increasing health care costs,” says Mark Haegele, director, sales and account management, for HealthLink. “Health care reform adds a number of taxes and restrictions on fully insured companies that those on a partially self-funded basis are typically able to avoid.”
Smart Business spoke with Haegele about how you can manage a self-funded plan to ensure your company gets the most out of its health care expenditures.
What’s the difference between a self-funded and a fully insured health plan?
With self insurance, or self funding, the employer assumes the financial risk of providing health care insurance. Typically, the company sets up a trust of corporate and employee contributions that are administered in house or subcontracted to a third party. A company can either hire a third-party administrator (TPA) or do the administration itself to save on fees that would normally go to an insurance company. A TPA can also take on fiduciary responsibility with reinsurance to further protect the employer.
When an employer is fully insured, it pays a fixed premium to an insurance carrier that assumes all of the risk.
Why would an employer choose to self-fund?
There are a number of reasons to go with self-funded insurance, and flexibility is one of the biggest selling points. For example, Company A can choose to exclude bariatric surgery on its health plan and Company B can include it, depending on its employees’ specific needs. In Illinois, the state mandates that fully insured businesses must pay for bariatric surgery, so only with self-funding do businesses have the ability to choose.
In another example, under self-funded insurance, an employer can identify disease prevalence and assign benefits to accommodate its employees’ specific needs. So, if an employer discovers a higher incidence of asthma and diabetes in its employee population, as a self-funded employer, it can choose to pay 100 percent of all of the services required to manage those illnesses. This keeps employees healthier — and out of the costly ER and hospital — by ensuring they maintain their treatment protocols for that particular illness.
It’s about identifying the makeup of the employee population, and designing and building self-insured plans to really support that population’s needs; you’re not stuck in a box of what you have to provide, based on what the state mandates or on your insurance company’s systems.
In addition, you can maximize your interest income on premiums that would otherwise go to an insurance carrier, and you can avoid prepaying for health care coverage, improving your business’s cash flow.
Finally, self-funded insurance is only subject to federal law, not conflicting state health insurance regulations and/or benefit mandates and state health insurance premium taxes, which can account for 2 to 3 percent of premium costs.
How common is self-funded insurance and how can a company determine if it is the best option for its needs?
Approximately 50 million employees and their dependents receive benefits through self-insured health plans, which accounts for 33 percent of the 150 million participants in private employment-based plans nationwide, according to the Employee Benefit Research Institute in 2000.
There’s a myth that self-funded insurance is not cost effective for employers with fewer than 1,000 employees. However, there are many TPAs that offer partially self-funded programs for companies with as few as 10 employees. In most states, including Missouri and Illinois, health care is a guarantee issue for plans with fewer than 50 lives. This means if you have 50 or fewer employees and you try self-funded insurance but it doesn’t work out, health insurance carriers must allow you to have fully funded insurance the following year.
However, if you have between 50 and 100 employees, you need to truly understand your risks because returning to a fully funded plan from a self-funded plan could increase your rates dramatically. Make sure that you have a trustworthy broker and/or lawyer review the plan you’re going to participate in before making your decision.
If a company assumes the risk of self funding, how can it protect itself from a catastrophic claim?
You can purchase stop-loss insurance for reimbursement of claims above a specified amount through a TPA. Only the employer is insured, not the employees or health plan participants, which means you can avoid most insurance taxes.
There are two types of stop-loss insurance, which acts as reinsurance:
- Specific stop-loss provides protection against a high claim on any one individual. The rule of thumb is $10,000 if you have 10 employees, $20,000 if you have 20 employees, etc.
- Aggregate stop-loss offers a ceiling on the amount of eligible expenses an employer would pay, in total, during a contract period. The carrier reimburses the employer at the contract’s end for aggregate claims.
You also can use TPAs to help decrease your risk. A TPA will have existing affiliations with health care networks to help manage the plan and save the most money. TPAs can also help manage the increased complexity of self-funded insurance.
Self funding is more viable than ever for employer groups with as few as 10 employees. Right off the top, employers save 3 to 5 percent of the total cost of their health plan through insurance companies’ risk charge and profit, coupled with the other advantages of plan design flexibility and additional tax avoidance associated with health care reform.
Mark Haegele is a director, sales and account management, for HealthLink. Reach him at (314) 753-2100 or Mark.Haegele@healthlink.com.
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There is a reason the saying “Location, Location, Location” has persisted in the real estate business.
Take, for example, CIO Thom Davis, of Omega Environmental Technologies, and his wife Grace, founder and CEO. In 2009, they moved their Dallas-based company 10 miles down the road to where they were living in Irving, Texas. They found that relocating to the new ZIP code brought a number of advantages.
“When you have your business in one city and live in another, it’s hard to be as involved as you’d like and still have your full work day,” says Davis. In addition to improving the personal amenities surrounding them, the couple also tapped in to a host of business perks with the help of the Greater Irving – Las Colinas Chamber of Commerce.
Smart Business spoke with Davis about what Irving has to offer, why they made the change and how other businesses may benefit from making the move, as well.
What led to the decision to move, and why Irving?
The business needed to double its space, as we’ve been pretty fortunate in our growth over the years. When we looked at where we should move, Irving was our first choice.
There were a number of reasons we picked Irving and one was to get closer to an airport. We manufacture and distribute mobile air conditioning parts for a range of vehicles to 87 countries, so we’re doing a lot of international business, shipping some 25 percent of our products through airlines.
We wanted to improve access in and out of the facility and be easily reached by customers and suppliers. The company is now about six minutes from the Dallas/Fort Worth International Airport.
It also was a good fit culturally. My wife and I had been living in Irving for 12 years and wanted to be more involved in the city’s civic life. Irving is a very diverse city — some 53 languages from 96 countries are taught in the school system — which fits in well with Omega because our 66 employees represent 13 nationalities.
Irving has two paid symphonies, one volunteer symphony, an award-winning musical theatre and many activities that are convenient and inexpensive. And that’s not even looking at the cultural benefits of both nearby Dallas and Fort Worth. Since relocating, 15 of Omega’s 66 employees and their families have moved into Irving.
What aspects of the city have helped your business?
Transportation and location are definitely big assets. There are major north/south highways and east/west thoroughfares that either run right through Irving or are on the edges of the city. One new addition is the light rail, which will be very convenient for foreign guests who are used to train travel, allowing them to visit companies in the area. The leg from downtown Dallas to Irving opens in July; the section that runs from Irving to the airport is under construction and scheduled to open in 2014.
There are plenty of comfortable hotels scattered throughout the city and there’s no price point visitors can’t find. Our customers typically stay for a week and many bring their families because when you’re leaving Brazil or Italy to come to the U.S., you’re not coming for an overnight stay. With Irving’s central location, visitors’ families are easily entertained in downtown Dallas, which is only 15 minutes away, and downtown Fort Worth, which is only 20 minutes away.
Are there any other factors about Irving that makes it a good fit for businesses?
There’s a willingness to help on behalf of the city, aided by the Greater Irving-Las Colinas Chamber of Commerce, because there’s an understanding of how important business is to Irving. Dallas didn’t offer any incentives when we looked at space still within the city but closer to the airport. With a smaller city — Irving consists of more than 216,000 people — there’s more support from city leaders and staff and it involves people who are higher on the administrative chain.
Irving has more than 8,500 companies, including the headquarters of five on the Fortune 500 list and a presence of almost 50 more on the Fortune list. It also has more U.S. Chamber Small Business Blue Ribbon Award Winners than any other city in the U.S. It’s a city that spends a lot of time and energy trying to recruit and help the small and large businesses already there.
How has the city helped your business since the move?
There were some incentives that came from the chamber of commerce and the city itself. Since most of our goods are shipped offshore and purchased in the U.S., the city granted us a tax abatement. Irving also designated us as a free trade zone, which means as long as we move products in and out of the city in 90 days we don’t have to pay personal property tax on those products.
What is your advice to other companies that are considering relocating?
The first thing you need to do is contact the chamber of commerce. Many chambers, such as the Greater Irving-Las Colinas Chamber of Commerce, are the economic development arms for cities. These chambers have put together programs to help make it a one-stop shop for new businesses coming in.
So instead of having of run all over trying to find this person and that person, the chamber will give you the guidance and help you address any issues, such as obtaining permits.
Thom Davis is chief information officer at Omega Environmental Technologies. Reach him at (972) 812-7099 or firstname.lastname@example.org. Visit Greater Irving-Las Colinas Chamber of Commerce at www.irvingchamber.com.
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