Prevent or report? managing near misses for safer operations
File(s)
Accepted version
Supporting information
Author(s)
Peura, Heikki
Bakshi, Nitin
Type
Journal Article
Abstract
Problem Definition: Firms can reduce the risk of rare disasters by accounting for more frequent near
misses: precursor events that could have escalated to a disaster but did not. Investigating a near miss reveals
its root cause, allowing the firm to improve process safety and reduce disaster risk. A managing firm, however,
usually does not directly observe the occurrence of a near miss, but instead relies on the report of an agent
(an employee or contractor) who is also responsible for precautionary measures that prevent such incidents.
This paper explains why near-miss reporting may not take place in such a decentralized setting.
Academic/Practical Relevance: Literature and practitioners have acknowledged the crucial role of nearmiss reports in improving process safety. Nevertheless, even at sophisticated and experienced organizations,
disaster inquiries invariably uncover a history of unreported or ignored near misses preceding an accident.
We provide an explanation for this persistent phenomenon based on rational economic incentives.
Methodology: We examine the firm’s problem through a dynamic principal-agent model that captures the
agent’s potential for under-reporting near misses along with moral hazard related to their precautionary
effort.
Results: We find that the firm may fail to capitalize on near miss information due to conflicting incentives.
For instance, the agent may be unwilling to report near misses because the resulting safety improvements hurt
them financially. This happens because safety improvements replace the need for the agent’s precautionary
effort, thereby lowering moral hazard and allowing the firm to extract more rent from the agent. However,
even when the agent is willing to report near misses, we find that the firm may choose not to record them,
opting instead to create stronger incentives for precaution. In both scenarios, the firm forgoes opportunities
for process-safety improvement, and instead focuses on existing precautionary measures.
Managerial Implications: Our findings highlight the challenges in providing incentives for both reporting
and precautionary measures, that can result in a failure to leverage near miss information. We examine
remedies that alleviate these issues and increase reporting in both voluntary and mandatory reporting
environments.
misses: precursor events that could have escalated to a disaster but did not. Investigating a near miss reveals
its root cause, allowing the firm to improve process safety and reduce disaster risk. A managing firm, however,
usually does not directly observe the occurrence of a near miss, but instead relies on the report of an agent
(an employee or contractor) who is also responsible for precautionary measures that prevent such incidents.
This paper explains why near-miss reporting may not take place in such a decentralized setting.
Academic/Practical Relevance: Literature and practitioners have acknowledged the crucial role of nearmiss reports in improving process safety. Nevertheless, even at sophisticated and experienced organizations,
disaster inquiries invariably uncover a history of unreported or ignored near misses preceding an accident.
We provide an explanation for this persistent phenomenon based on rational economic incentives.
Methodology: We examine the firm’s problem through a dynamic principal-agent model that captures the
agent’s potential for under-reporting near misses along with moral hazard related to their precautionary
effort.
Results: We find that the firm may fail to capitalize on near miss information due to conflicting incentives.
For instance, the agent may be unwilling to report near misses because the resulting safety improvements hurt
them financially. This happens because safety improvements replace the need for the agent’s precautionary
effort, thereby lowering moral hazard and allowing the firm to extract more rent from the agent. However,
even when the agent is willing to report near misses, we find that the firm may choose not to record them,
opting instead to create stronger incentives for precaution. In both scenarios, the firm forgoes opportunities
for process-safety improvement, and instead focuses on existing precautionary measures.
Managerial Implications: Our findings highlight the challenges in providing incentives for both reporting
and precautionary measures, that can result in a failure to leverage near miss information. We examine
remedies that alleviate these issues and increase reporting in both voluntary and mandatory reporting
environments.
Date Acceptance
2022-02-23
Citation
Manufacturing and Service Operations Management
ISSN
1523-4614
Publisher
Institute for Operations Research and Management Sciences
Journal / Book Title
Manufacturing and Service Operations Management
Volume
24
Issue
4
Copyright Statement
© 2022, INFORMS
Identifier
https://pubsonline.informs.org/doi/abs/10.1287/msom.2022.1100
Subjects
Operations Research
0102 Applied Mathematics
1503 Business and Management
1505 Marketing
Publication Status
Accepted
Date Publish Online
2022-03-31