Cost Allocation

Appropriating the true cost of a risk management program, whether it be insurance premiums, self-insured losses, or some combination of the two, allows the University to effectively manage resources and control costs. A proven method of creating incentives for individual managers to improve their own loss experience is through the development of an effective cost-of-risk-allocation mechanism. For any large organization the actual design and methodology used must be custom fit to that organization's individual structure and culture. However, we have found that the most effective approaches to cost allocation all share a few key attributes:

• the basis used for the allocation has a strong relationship to the costs being allocated,
• the methodology is understandable and rational to the managers affected by the allocation,
• the allocation is seen by the managers as a controllable cost with incentives provided for good performance.