Anyone who has met me knows that I love to learn, and when I read about something new that interests me I can disappear down a rabbit hole of research for days. I also repeatedly turn to different industry sectors for inspiration on what I can learn, and how that can be applied to our goals for Mayet and our clients.
This was one of those weeks, I learned about the Total Cost of Risk (TCOR). TCOR is a terminology originating and primarily used in the insurance business. However over time the practical aspects of TCOR have transcended multiple sectors. This got me thinking about the impact of this on Outsourcing risk.
In the rest of this post I have broken down the key concepts of TCOR and explained the use case in clinical trial outsourcing. And I have also provided some practical starting pointers on optimisation of the key elements. Join me in my rabbit hole.
Understanding TCOR
Most people view risk management activities as a cost to business and believe the associated cost to increases proportionately to the amount of work done in this area. (see graph)
Total Cost of Risk (TCOR) originated in the insurance industry as a framework to comprehensively identify, measure, and mitigate the various costs associated with risk. It goes beyond traditional insurance premiums to include retained losses, loss control measures, administrative expenses, and indirect costs like business interruptions and reputational damage.
Total cost of risk combines investments, risk management activity, and the cost of negative or unmitigated risk outcomes. There is a sweet spot in the total cost of risk (see graph).
TCOR enables organisations to understand their total risk exposure and make informed, proactive risk management decisions.
Applicability to Other Industries and Business Processes
TCOR’s principles are applicable across various sectors. In manufacturing, it helps manage supply chain disruptions and product recalls. In finance, it aids in controlling credit, market, and operational risks. In healthcare, it manages patient safety, regulatory compliance, and medical errors.
Relevance to Clinical Trial Outsourcing Risk
For organisations delivering clinical trials, TCOR may be unheard of. But it can help manage the total cost of risk associated with outsourcing to vendors like CROs and labs. By applying TCOR, organisations can mitigate risks related to vendor performance, regulatory compliance, and quality.
This leads to reduced costs, improved efficiency, and more successful clinical trial outcomes, ensuring all potential risks are effectively managed.
Breaking Down TCOR for Outsourcing Risk?
Total Cost of Risk (TCOR) provides a holistic view of the various costs associated with risk, encompassing both direct and indirect elements that clinical trials may face.
These 5 key areas are defined below:
- Vendor Costs: The upfront ‘cost’ (risk) of outsourcing, represented by the financial investment made to engage external vendors for their services, including contractual costs and any additional charges for extra work.
- Negative Risk Outcomes: Any negative outcome resulting in incurred cost to the client organisation, comprising costs borne by the client due to vendor failures or errors, such as remedial actions, delays, and expenses.
- Quality Assurance and Control Costs: Investments in monitoring and verifying the quality of work performed by vendors, including inspections, quality audits, and corrective actions.
- Administrative Costs: Managing risk involves various administrative tasks, such as vendor management, risk assessments, compliance efforts, and issue management.
- Indirect Costs: Often hidden, these are expenses that result from risk events unrelated to the outsourcing risk, such as trial delays due to recruitment, regulatory implications, reputational damage, or loss of productivity.
Why Understanding TCOR Matters for Clinical Trial Sponsors and Decision Makers?
- Comprehensive Risk Management: Adopting the TCOR approach equips organisations with a comprehensive understanding of their risk exposure. This empowers proactive and informed decision-making to mitigate potential threats effectively.
- Cost Savings: By identifying and addressing the various components of TCOR, organisations can achieve cost savings over time. Investing in quality assurance measures and reducing vendor risk-related costs can potentially lower overall expenses and allocate resources more efficiently.
- Enhanced Resilience: TCOR enables organisations to cultivate resilience in the face of unforeseen events. By addressing risks at every level, companies can fortify their ability to withstand disruptions and protect their research investments.
- Strategic Decision Making: Armed with a comprehensive TCOR understanding, decision-makers can align risk management strategies with broader organisational objectives. Integrating risk management ensures it becomes an integral part of the company’s overall strategy.
- Long-Term Sustainability: TCOR focuses on prevention and long-term risk reduction, advocating for sustainable risk management practices that secure the organisation’s longevity and success in clinical trials.
Strategies to Optimise Each Component of Your Total Cost of Risk (TCOR)
Knowing that there is a sweet spot in the TCOR, means that we can direct activities and make changes or advancements to create pressure on the curve (see graph). Below I will guide you through some of the simple suggestions for improving the sweet spot of TCOR for your company.
Optimising Vendor Costs
To effectively manage vendor costs, organisations should:
- Negotiate Favourable Contracts: Establish clear terms and conditions, including performance benchmarks and penalties for non-compliance.
- Hire Outsourcing Experts: An outsourcing expert can identify service gaps, overpricing of services. And establish opportunities for improvements in outsourcing management.
- Implement Vendor Management Software: Use technology to streamline vendor selection, performance tracking, and contract management.
Reducing Negative Risk Outcomes
Minimising risks associated with vendor errors and delays requires:
- Develop Robust Risk Mitigation Strategies: Identify potential risk events and develop comprehensive strategies to address them, including business continuity and disaster recovery plans.
- Regular Performance Reviews: Continuously monitor vendor performance against SLAs and address issues promptly.
- Conduct Thorough Vendor Assessments: Evaluate potential vendors’ track records, capabilities, and financial stability before entering into agreements.
Enhancing Quality Assurance and Control
To ensure high-quality deliverables from vendors:
- Conduct Routine Assessments and Audits: Regularly assess vendor processes and outputs to ensure compliance with quality standards.
- Invest in Training and Development: Provide ongoing training for both internal staff and vendors to maintain high standards and reduce the likelihood of errors.
- Use Data Analytics: Leverage data to identify trends and potential quality issues early, allowing for proactive management.
Streamlining Administrative Costs
To optimise administrative efforts and reduce costs:
- Automate Administrative Processes: Use software solutions to automate repetitive tasks such as risk assessments, compliance tracking, and partner data management.
- Centralise Documentation: Maintain all relevant documents in a centralised, accessible system to reduce administrative overhead and improve efficiency.
- Utilise Monitoring Tools: Implement monitoring systems to keep track of vendor activities and compliance, allowing for immediate action when issues arise.
Mitigating Indirect Costs
To address and reduce indirect costs resulting from risk events:
- Establish Clear Communication Channels: Maintain open lines of communication to quickly identify and resolve problems. (Pro-tip: this applies to all)
- Patient Recruitment and Retention Issues: Difficulty in recruiting and retaining participants can delay the trial and increase costs; use data analytics to identify suitable patient populations and develop engagement programs to retain participants through regular communication and support.
- Regulatory and Compliance Issues: Non-compliance with regulatory requirements can lead to trial suspensions or terminations; hire regulatory experts to ensure compliance and conduct regular audits to address issues promptly.
By implementing these strategies, clinical trial sponsors can positively influence each component of their Total Cost of Risk (TCOR), leading to more efficient and effective risk management, reduced costs, and improved overall outcomes in clinical trials.
TCOR: Key takeaways for senior management
In principle, effective risk management can pay dividends in cost savings. Practical application of this principle to management decisions about what activities to pursue, and the extent to which they are followed to optimise costs, is far more difficult.
TCOR is a valuable tool for developing a comprehensive view of risk but may also present challenges that require further maturing of the culture and processes around risk management. The TCOR methodology, applied consistently and regularly, provides a basis for organisations to:
- Develop the business case for risk management activity.
- Build stakeholder confidence that risk is being managed appropriately.
- Better understand the wider implications of risk decisions.
- Improve business performance as a result of better decision-making and reduced costs — especially if applied repeatedly over longer time frames to monitor and drive improvements.
In Conclusion
Total Cost of Risk (TCOR) is a transformative approach to outsourcing risk management that empowers clinical trial decision-makers to safeguard their projects, driving financially graded positive outcomes.
By recognising the different components of TCOR and investing in proactive risk reduction strategies, organisations can minimise potential losses, enhance their resilience, and position themselves for long-term success.
In the competitive and highly regulated field of clinical trials, understanding and implementing TCOR is essential for achieving research goals and maintaining operational integrity.
Embrace TCOR to elevate your clinical trial vendor management and ensure your projects are robust against risks, ultimately driving better outcomes and fostering innovation in the healthcare sector.
