Cost Allocation – Graded Final

Research out of MIT has analyzed the effect on results from various levels of cash rewards. In other words, does what effect does offering a larger cash reward have on performance to achieve a desired outcome? The results of this research found that a larger cash reward:

According to Rosabeth Moss Kanter’s Hierarchy of Motivation at Work.  The top two levels that drive the highest levels of motivation at work for employees are:

Two of the golden rules of cost allocation include: 1) Quickly provide feedback 2) Incentivize the right behaviors.  Identify the third, and likely most important golden rule of cost allocation:

A typical allocation system of workers’ compensation costs at many US companies looks like:

Identify the observation of primary importance to the risk manager attempting to reduce workers’ comp costs.

Trinity Enterprises is using the Full Cost Method to allocate its workers’ compensation costs across their 5 divisions.  Using the information in the table below, identify the required end of year adjustment for Division #1.

Note: This is a more simplified method of cost allocation that does not consider loss development. The value of the claim including the open reserve is considered closed as of a specified date at the close of each year.

Trinity Enterprises is using the Lost-Time Method to allocate workers’ compensation costs across divisions.  The total workers’ comp costs to allocate across divisions is $1,150,000* and total lost workdays across divisions are as follows:

*Note: This is a more simplified method of cost allocation that does not consider loss development. The value of the claim including the open reserve is considered closed as of a specified date at the close of each year.

State the amount of allocation for Division #2.

John Smith is your South West division leader and you have introduced a new Per Claim Cost Allocation method. Built into the system are incentives for specific behaviors.  Identify one behavior for which John’s division should be rewarded:

Designing and implementing a cost allocation system will look different from organization to organization.  However, the process for rolling out a cost allocation system at an organization will be identical. Identify how a risk manager would go about rolling out the new system to a company with 15 divisions.