MOI: Motive (Method), Opportunity & Indicators to Prevent Business Shrinkage

Since more than 55% of thefts are ego-driven (a theft of something that enhances one’s ego or that serves a personal desire), it is appropriate that the best acronym for a strategy to detect and deter theft is MOI – the French word for “me.” However, almost all thefts and frauds, as well as inadvertent losses and shrinkage, can be monitored more effectively using a modified MOI Inventory.

MOI Inventories examine the three essential elements of any intentional loss: motive, opportunity and indicators. Losses and shrinkage other than theft and fraud also can be tracked using an Opportunity and Indicator spreadsheet. “Motive” becomes “Method” in the revised MOI Inventory. These include accidental shrinkage and failures in administrative or operational systems.

Loss occurs when a combination of the three – motive (or methods), opportunity, indicators -- reaches a critical mass. Critical mass results from reaching a threshold level of opportunity and motive, in specific. Little opportunity but very high motive, little motive but very high opportunity, average amounts of each, or any variety of those combinations will result in loss. An abundance of indicators also reveals that critical mass has or is being reached.

More than a decade ago, I was conducting a seminar on loss in a very tightly-knit community. As an illustration of the MOI principles, I placed a five-dollar bill on the front podium, one on the back table next to the coffee and snacks and one on the floor just outside the conference room door. By the end of the session all three bills were still there. However, in the eleven prior seminars across the province, I had lost every one of the bills placed outside the door, six of the ones placed on the rear table and none of the ones placed on the podiums, even though the podium was left unattended occasionally during each two-to-three-hour program. All of the bills had a telephone number written on them. To me, that illustrated opportunity at work, and motive. In sixteen instances, the two had reached critical mass.

Where the five-dollar bill lay outside the door, there was extreme opportunity and, while the amount was relatively small, the risk in taking the money was negligible. Critical mass was achieved mostly through opportunity. At the rear table, opportunity was moderate, but sufficient enough for some to take the cash. At the front, there was almost no opportunity and motive would have needed to be extreme for theft to occur. However, in the closed community, even the risk outside the door was high, if anyone had happened to pass by when the bill was being taken.

By reducing opportunity, even in the face of relatively strong motive, theft can be averted. By understanding individual motive and defending against it, opportunity can remain fairly strong and theft will be less likely to occur.

Indicators simply show where theft likely will occur, or where it has. These “tracks” will reveal the most available opportunities for deviant behaviour. Thus, by understanding motive, recognizing the indicators and responding to opportunity, loss can be reduced or eliminated in almost every environment.

But what of loss that occurs inadvertently, through administrative error, miscalculations and oversight? These, too, can be mitigated by attention to opportunity first, then by examining indicators or tracks and, finally, by looking at the methodology involved in production, distribution, presentation, development and delivery of goods or services. Within such methodology analyses are determination of yields, supply lines, market, money handling and various other aspects of operations.

Shrinkage is the cause of two-thirds of business failures (CFIB), with market conditions contributing the largest impact to the remaining one-third. Shrinkage is preventable. Shrinkage also is detectable. Thus, the use of the MOI Inventory is a vital strategy to help ensure that your business remains viable. However, most business managers and owners focus more on the marketing, rather than on the more tedious details of operations. In order to provide any business with the greatest probability that it will be successful, more emphasis needs to be placed on these technical aspects. MOI may well be the most viable of the tools available to do so.

Employee Leakage: Unintentional Loss

While employee theft gets the lion’s share of attention in business circles, and supplier/shipper fraud comes a close second, retailers point to shoplifting as the primary cause of shrinkage. Yet, all three combined barely equal, if not fall short of the losses in business due to inadvertent shrinkage.

The term “leakage” is more apt, because the losses may be a slow, methodical trickle, but they seep away day after day, year after year, unnoticed. Theft tends to be seen more often than fraud, but many stories have made the news about fraud, particularly in non-profit businesses and the financial sector. Leakage, on the other hand, is like a sieve, with tiny hole after hole allowing the profits to drain away.

Leakage occurs in almost every facet of a business.

The receiving door often is the most frequent source of loss, even when the receiving door problems infiltrate into the back office. Of all problems, failure to accurately count incoming and outgoing stock, supplies and materials is the most common. Tracking of damaged, returned or incorrect/inadequate goods is next. In food service, quality control problems are seen more often at the stock room than on the sales floor. In machining and fabricating environments, misuse of supplies or raw goods is a major issue, but quantity and quality controls are essential to control damage and inferior input/output of goods.  Stock handling and rotation also contribute to back door problems.

Receiving door problems that migrate to the office include mispriced goods, back orders, wholesale pricing problems and stale-dated or low-grade receipts. Simply losing paperwork adds another significant headache to managing inventory.

In the sales office or on the sales floor, myriad opportunities for leakage occur. Poor scanning and incorrect pricing issues lead the way in retail settings, while portion control and poor preparation & handling are top problem areas in restaurants. Failure to follow up on orders out often leads to customer service issues with quantities and quality. In the rush to capitalize on a sle, price quotes often do not reflect cost issues.

Throughout the operation, soft cost controls and operating expense issues drain profits. Energy costs are most obvious, followed by banking/credit issues and management  of supplies not directly linked to production. Maintenance of equipment (or the lack thereof) cost businesses in premature wear but, more critically, can create huge problems when malfunctioning equipment stalls a production run.

In any business, leakage easily can cost 3-5% of revenues. In most cases, that is the difference between profitability and bankruptcy. Yet, the investment to implement simple systems generally is less than ¼ of any recovery, so there is negligible risk to investing in a good operating system evaluation of your business.