Cost-justifying safety and health
As you get closer to the top decision-maker in your organization the more readily you see, and hopefully appreciate, the fact that cost justification for every aspect of business is the name of the game. Especially today, with decision layers in business shrinking, you’re probably more directly accountable for proving your worth than a few years ago.
This can be a source of some discomfort, especially if most of your learning and experience has focused on protecting workers’ lives, not competing for limited financial resources.
So how do you sell the value of a safety and health program? Looking at how someone else does it is a good start. Joseph Dear, the head of OSHA, gives us many fine examples on cost-justifying safety and health programs. He trumpets this message before Congress all the time. Mr. Dear is competing for limited resources just like us. You can read Dear’s speeches and Congressional testimony on OSHA’s Home Page on the Internet.
Dollars and anecdotesStatistics and dollars are played up in almost every one of his speeches. So are success stories. How many statistics or metrics have you gathered for your safety and health program? Can you attach dollars to these statistics? And don’t be shy about touting successes. They may seem to you to be simply part of doing your job, but they’re more than that. They’re bits of proof that what you’re doing has value.
From Dear we also learn that bigger numbers make stronger points. He states in speeches that injuries and illnesses cost American business $100 billion a year. This is a huge number far exceeding medical costs being borne by business for workplace injuries. How did the figure get so big?
It’s likely that the number assumes a multiplier to account for indirect costs associated with injuries and illnesses. Various estimates put the indirect cost for an injury or illness at two to seven or more times the direct cost (the highest estimate found was 50 times!). Indirect costs include items such as lost time from other workers who watched, talked or helped respond to the injury; repair costs for damaged equipment; and so on.
So if an employee has a simple injury and receives medical treatment costing $200, the more accurate cost to the company may be $400 to $1,400 or more. You can accept the estimates or try to calculate them yourself. Many safety and health text books provide worksheets for attempting this task. I’d suggest you use the estimate.
If you’re looking for even bigger numbers, don’t stop at just calculating direct and indirect costs of an injury or illness. Find out what the sales impact of that incident means to your company. What if your company operates on a 15 percent profit margin, meaning that for $10,000 in sales, the company gets back $1,500 in profit. All that profit might have to be spent to cover the direct and indirect costs of the simple injury described above. So really, a $10,000 sales effort is needed to cover that injury cost.
The financial impact of one injury may not raise eyebrows. But say your company’s annual direct costs for workers’ compensation is $1 million, factor in a multiplier (conservative four times) to account for indirect costs, then calculate how much your company would have to sell to cover this $4 million cost.
Big number, isn’t it? One that will get more attention and respect than just citing the direct dollar loss from workers’ compensation costs alone.
After you’ve shown a portion of what injuries and illnesses are costing your company, you then need to show how much savings come from your safety and health program. The easiest way to show this is to determine how many incidents have been avoided.
To accomplish this task take your industry frequency rate (calculated from the OSHA 200s), multiply it by the employment at your site and divide the result by 100. This number will give you the expected number of incidences. Subtract from this number the actual number of incidences at your worksite. You are now left with the number of incidences avoided. Use the information above to help find the average cost per incident at your workplace and tally up the figures to see how much has been saved. Don’t forget to figure how much sales would have been necessary to achieve this number.
There are many ways of cost-justifying a safety and health program. The bottom line today, like it or not, is that we must constantly prove our value. Motherhood and apple pie doesn’t work very well anymore.