Safety Has a Cost Benefit

DEPENDING ON YOUR PERSPECTIVE, SAFETY CAN BE A COST OR AN INVESTMENT. IN THIS ARTICLE, WE TAKE A LOOK AT THE REAL COSTS OF SAFETY AND THE POTENTIAL IMPACT OF AN INJURY ON YOUR BUSINESS.

We should all agree that we need safety programs to prevent our people being injured. Not only do we have moral obligations to our employees to provide a safe workplace, but regulators also require this from us. They are prepared to hold us financially and legally accountable, should we be proven negligent. The primary objective of a business is to make money for its stakeholders, showing an acceptable number on the positive side of the profit and loss ledger. This comes down to planning and budgeting to ensure that any safety outlay provides a cost benefit to the company. Safety programs cost money. To name just a few requirements, there are inductions, training, PPE, safety staff, inspections and certifications. Furthermore, there is the dollar value of the work time lost doing pre-start meetings, toolbox talks, RACS, Take-5s and the like.

If no workplace incidents ever happen on the worksite, and no occupational injuries are experienced, then some may take the view that the money was spent unnecessarily, resulting in lower profit. However, others may consider money well-spent as it resulted in no injuries or incidents, thus increasing the profit margin. So, which is it?

The cost of an injury

To answer this, it is necessary to understand the total costs associated with an occupational injury. Some costs are obvious and easy to assign to the injury, while other costs are embedded within larger issues or are less easily attributable. These two types of costs are often referred to as direct and indirect costs. Another description is visible and hidden costs. When occupational injuries occur, it’s easy to see the immediate direct costs, but there are a multitude of ongoing indirect costs that should also be taken into account. Some researchers advocate that the significance of these indirect costs can be three to ten times higher than direct costs, depending on the business and the circumstances following the accident. Frank Bird’s studies showed the ratio of direct to indirect costs to be between five and seven. To put that into perspective, if the direct costs of an occupational injury were $50,000, the indirect costs associated with the injury would be in the order of $250,000 plus. The direct costs are easily understood and identified. They include medical, rehabilitation and case management costs, disability settlements, insurance costs and legal costs. The indirect costs are more variable for each injury and less tangible; they are not easy to quantify in forecasting. Costs that need consideration include:  Training and hiring costs: With an employee away, it may be necessary to engage a new person for the task. This incurs onboarding and training costs for both the trainer and the new person.  Lost productivity: New or temporarily reassigned employees are generally less productive. This loss could also be increased by a drop in workforce morale following the incident.

Brendan Craker

Safety Manager, ECA WA  Disruption to the work program – especially when there is a limited window for the work program to be completed.  Equipment usage downtime as it waits for external experts to assess that it’s safe to use.  Overtime payments to make up the lost hours.  Loss of goodwill or reputation: A history of safety incidents can affect how potential employees and customers view the company. This could lead to increased employee hiring costs and customer loss.

Seeing the big picture

Preventing occupational injuries not only keeps employees safe, but also prevents potentially significant costs. After considering the potential costs linked to occupational injuries, we can safely say that a solid safety program is a value-add to the business. However, it is important that businesses cost safety requirements and include them in their pricing schedules when scoping projects. This will ensure that there are no conflicts between meeting the schedule and the safety program requirements. October is National Safe Work Month. Let’s all take this on board and work to the theme “think safe - work safe - be safe”.

For more information on WH&S, contact the WHS services offered by your local NECA Branch.