The Cost of Safety
By Rob Mandeville
While a great deal of research and substantial documentation now points to the strong correlation between safety, quality and productivity, this has not yet fully registered with business owners and managers. Many business owners and managers still believe that enhanced safety efforts will cost them more than they will deliver in economic benefit. Safety literature often refers to this as the cost-benefit trade off. In the past, the commonly accepted view incorporated only the direct, obvious and measurable impacts of on the job health and safety. This is changing as employers are realizing the broad linkages between safety and business profitability.
Health and safety is an investment, Like any other business investment, a good manager will scrutinize the return on that investment, to assess the value. Assurance of safe operation is integral to meeting other business goals.
When looking at safety this way, it becomes clear that a proposal for expenditure on a safety program can be prepared and put forward in exactly the same way as a proposal for any business investment, a piece of heavy equipment, for example. The bottom line of such proposals is to show that spending the money will have a positive effect on the company?s profitability in the future.
The formula, then, is the cost of encouraging and developing health and safety, vs. estimated cost of the accidents and ill health prevented.
Research shows that making a significant change in the safety culture of an organization can result in significant savings. Here?s an example
If a company invest $40,000 on developing an excellent health and safety program, we can calculate the ROI (Return On Investment). Although the results are sometimes difficult to quantify, international research shows us that this can often result in a 40% reduction in accidents in the first 6-9 months. If the company?s direct cost accident bill had been $195,000, and those cost are reduced by 40% ($78,000) in the first 9 months the ROI is $78,000 – $40,000= $38,000 or 95% in only 9 months.
A second and perhaps bigger part of this is the direct and immediate impact you can make on your bottom line with a effective health & safety plan. I am talking about calculating just how much accidents and poor health cost your business, and conversely, how much you can save by preventing accidents and reducing claim duration and incidences of illness or ill health related leave.
First let?s look at what you are spending on accidents and poor health in your workplace. You are directly spending money on medical and rehabilitive expenses, first aid cost, repairs to damaged equipment or product, sick pay, WCB premium increases, any legal cost that might arise, and finally any WCB fines you may be facing. That is the cheap part, experts say that your indirect cost are much, much more, anywhere from 3 to 50 times your direct costs.
Indirect cost include time and resources, other than cash, incurred as a result of he incident and can include things like investigation cost, training the replacement worker, retraining or re-orientating the returning worker, production downtime, wages and benefits for first aid, human resources, and health and safety personnel involved in forms completion and managing he accident response and return to work process, downtime for other staff to cope with a fatal or traumatic incident, reduced morale, loss of goodwill, loss of corporate image and reputation, court cost etc? you get the idea.
You can however control many of these direct and indirect cost and influence even more of them. You have a tremendous amount of control over one of your biggest safety administrative cost already, your WCB
rates and premiums. By becoming involved in the Worksite Partnership Program (WPP) and the Certificate of Recognition (COR) program you can achieve some significant reductions and savings in your rates and premiums and believe you and me that adds up quickly to some very real savings.
Contrary to popular opinion, there is great variation in injury/illness rates among companies that are engaged in similar businesses. Each year WCB is required to collect from employers an amount sufficient to meet current and future cost for that particular year. To this end, each employer pays an assessment based on assessable payroll multiplied by the basic assessment rate for that industry (or sub section of the industry) and modified by the employers experience rating. This rate is reassessed every year and this system makes sure that the cost of compensation are fairly distributed. Employers in industries with similar claim cost pay similar base rates.
Here is where you developing an effective health and safety plan comes into the picture. Obviously if you and your peers to this then you all will be safer, you will have fewer incidents and hence fewer claims and consequently all of you in your industry group will pay less, this is the cornerstone of the Certificate of Recognition (COR) program, which goes after entire industry sectors. So there is one direct savings to you right there, and that is good for the bottom line right?
Furthermore, there is a system in place to reward individual companies for there own safety, in BC we call this the experience rating. Companies with good safety ratings get a break on their rates while companies with poor ratings pay a surcharge, ouch! that means if you have a poor experience rating you are going to pay more and this can be a significant amount, and you have the power to control this.
I am not going to get into the actual math and formulas for this here but I hope this makes sense, I hope you realize by investing in a good safety plan you can get not only a great ROI but even more important you get to have happy, healthy, motivated employees who go the extra mile for you, because you do the same for them.
Stay safe and I will talk to you again next week.
Rob Mandeville is a Safety Advisor and Auditor at Action Health & Safety Services. He has his OH&S certificate from the UofA, and is currently studying for his CRSP ( Board of Canadian Registered Safety Professional) exams. If you have a question about health and safety or an idea for an article you can reach him at firstname.lastname@example.org