Economics of Safety in the Workplace – What Does Safety Really Cost? August 19, 2015May 21, 2018 HMdev1 Jay Bice Contributed by Jay Bice – HSE Manager _____________________________________________________________ Economics of Safety in the Workplace – What Does Safety Really Cost? What does safety really cost? In the old days, employee safety was not exactly valued. The injuries or fatalities that happened during construction were often just figured into the cost of doing business. For example, during the construction of the Empire State Building in 1931, five workers lost their lives. From 1933-1937, eleven workers died building the Golden Gate Bridge. As you can see in the picture below, there was no true safety culture. Jump forward 40 years and it seems that safety was still not a focal point of the industry. While the World Trade Center was being built during the early 1970’s, sixty workers lost their lives during the construction. Eventually, in 1970, President Nixon signed the Occupational Safety and Health Act into law, establishing OSHA. This was the start of companies realizing the value of ensuring employee safety. Another 40 years later, the One World Trade Center began construction. This video shows that safety is becoming a true workplace value and not just an accepted risk. During the construction of One World Trade Center, the fourth tallest building in the world, two workers lost their life…a drastic decrease from earlier years. Some have a perception that safety only costs the organization money. This perception leaves much of the story untold. To understand how safety really affects your bottom line you must understand the direct costs versus the indirect costs. Direct costs are associated with the initial cost of an injury or accident; the cost of a doctor’s visit, the cost of new fender the truck needs. Then you have the indirect costs that are much like the iceberg analogy; 90% of the cost of an incident is hidden as an indirect cost. Direct Costs: Medical Expenses Payroll/Indemnity Indirect Costs: Replacement Employees Production Delays Overtime Lost Work Time Reduced Productivity Loss of Expertise Indirect costs are staggering in comparison to the direct cost of an incident. Indirect costs take into account the time it takes your safety professionals and management to respond and manage the incident. A major indirect cost is the lost productivity of those involved. Lost productivity just scratches the surface of indirect costs incurred after an incident. The question is, what does that really cost? If it delays your project, it could send a message to your client that you cannot keep your deadlines. What could that cost you? Possibly a future contract worth millions of dollars to your organization. What about insurance cost to cover your losses, or the increased EMR (experience modifier rating) rating you receive because of the incident? This could affect future contracts since clients are more frequently awarding projects based on these statistics. This calculator will give you the estimated impact of a workplace injury on a company’s profitability. For example, if a company makes a 10% profit margin and we look at an incident that has a direct cost of $20,000 and indirect cost of $22,000, you will have a total cost of $42,000. The company would have to generate $220,000 in sales to cover the indirect cost and almost half a million dollars to cover the total cost of one minor injury. This shows how the costs of one incident can really add up. So how are you going to control these costs? Add more safety professionals? Add more training? Hire only experienced employees? Just one tactic alone will not solve all safety problems. Implementing an effective incident reporting and investigation program will help demonstrate the value a company puts on employees safety. Reporting incidents and near misses are extremely important to organizations that want to improve their safety systems and culture. Near miss investigations are typically viewed as a negative finding. It is actually the opposite. A true near miss will have minimal cost and no injuries or damage. These show where the gaps in your system are before they have an opportunity to cost you a fortune. This is a prime opportunity to investigate, identify gaps, and report to your management team the recommended corrective actions. Corrective actions will typically come in four categories: Elimination of the hazard An engineering control of the hazard An administrative control of the hazard PPE to protect against the hazard The most effective way to approach and minimize the losses is to first have a very safety supportive management team. Safety has a true place in a company’s culture, where everyone on staff is a safety leader and safety is not the sole responsibility of the company’s safety professionals. Everyone should have a direct role in safety, and ultimately, it is the responsibility of management to execute projects not only on time but safely as well. A quick fix could be to add someone with “safety” in their title to every crew, but how cost effective would that be? Some can sustain that kind of cost but most would not be able to remain competitive in the marketplace with that increase in staff. Management must understand and support the safety culture. Safety does cost money, but it can cost a lot more if safety is not a valued part of a company’s culture. I have been around the gulf coast industrial business all my life. I have seen my share of what can go wrong. There have been a number of incidents that help remind me every day of the importance of having a safety culture valued by all. _____________________________________________________________ Jay Bice – HSE Manager at H+M Industrial EPC Certificate of Technology in Occupational Health and Safety Jay has more than 20 years of industrial health and safety, experience in construction, pipeline environmental services and petrochemical facilities. He is responsible for developing and executing safety and health policy and objectives for H+M, as well as any sub-contractor workforce all of which represents exposure of a high risk nature. Jay provides management oversight to various safety and occupational health related programs. These programs include injury prevention, fire and emergency services, behavior safety, drug and alcohol prevention, training and occupational health. Jay is a member of the American Society of Safety Engineers.