Safety and health: Is the return on investment measurable?
Someone much smarter than me once said “You can’t manage what you don’t measure.” If measuring your return on investment means strict, objective number crunching, then I would suggest that you may frustrate your CPA when you ask him to come up with the metrics that justify your investment in safety and health. But that doesn’t mean we don’t manage it or that it doesn’t have measurable value.
Today, because of OSHA’s aggressive enforcement policy, we tend to focus us on the “expense” side of safety and health. OSHA’s approach to safety is punitive and self-defeating as it tends to pit employers against employees, contrary to what Congress envisioned 40 years ago. But I digress. If we look logically at what to realistically expect as our “return” on our safety and health “investment,” and educate ourselves on the benefits to both our companies and our employees, we will be in a better position to recognize the value we derive from a solid safety and health program.
First, we are all fooling ourselves if we take an expense, which is what safety and health is, and expect that we are magically going to have a “return.” When we talk about a “return on investment” or ROI, the typical definition is “income that an investment provides in a year.” Your investment in safety and health will not provide measurable “income.” So how should you look at the “expense” of a safety and health program and the benefit that you derive from that expense? I like to think of it more as a “return of value” (ROV).
All measurements of ROV involve a certain amount of subjectivity. If you are fortunate enough to have never had a workplace injury, especially a lost time injury, then you may be more indifferent to the need for a safety and health program. The old “I’ve never had a problem so far” mentality, especially for a small business owner, seems to be very prudent, when you look at the fact that the cost of implementation seems to be excessive given that you have never had a loss.
Larger companies, with large numbers of employees, recognize the benefits of safety and health programs because they constantly measure the effect everything has on their bottom line including the cost of injuries; small businesses not so much. Most small businesses are too busy running their business and trying to make money, especially in this economy. This is despite the fact that when a small business has an employee that suffers a disabling injury the financial impact might even result in the closure of the business.
According to the Bureau of Labor Statistics every year in the United States there are 3 million occupational injuries. Broken down, that is 8,220 injuries every day! That is 342 job related injuries for U.S. employers every hour of every day. Based on the Census of Fatal Occupational Injuries for 2010 (the most recent information available) there were 4,690 workplace deaths in the United States. That is just shy of 13 deaths every day. Pretty sobering statistics huh?
What seems even more staggering, if that is not enough, is the cost of those injuries and deaths to U.S. businesses. Liberty Mutual Insurance Company, a large workers compensation insurer, issued its 2010 Annual Report of Scientific Activities, which found that based on data provided by the Bureau of Labor Statistics for serious workplace injuries (those injuries resulting in at least six days of lost work time) for the reporting period of 2008, those injuries cost $53.42 billion. That is the direct costs, the actual out-of-pocket expenses associated with treating the injury. That is over $1 billion every month.
Direct costs normally include payments for hospital visits, allied health services, rehabilitation services, nursing home care, medical equipment, burial costs, insurance administrative costs for medical claims, payments for medical health treatment, police, fire and emergency transport, corner services and property damages.
You might be surprised to find out that indirect costs, those more difficult to measurable yet just as real costs, (accident investigations, property damage, lost production time, supervisor times, retraining and replacement worker costs, etc.) are estimated to be about four times the amount of the direct costs, adding $213 billion in additional costs. That puts the total annual cost to U.S. businesses for disabling injuries at a staggering $267.1 billion. But did you notice that those costs are only based on injuries resulting in at least six days of lost work time? When you even try to imagine the costs of injuries that result in less than six days of lost work time, you can only guess at what additional costs there are to businesses. These costs are not reported, but just imagine if they were added to the total?
According to the BLS, there were about 134,000,000 annual employees in the United States in 2008. Only a small number of those employees suffer a disabling injury each year, yet the costs to business, if spread across the entire workforce, average about $1,983 per employee. If you ignore safety and health for your workforce, figure that on average, you will spend about $1,983 per employee in direct and indirect costs for work related injuries. That is if you don’t have an employee that suffers a disabling injury.
However, had you been one of the unlucky companies that had even one lost time injury, your costs would be astronomically higher. If you want to actually calculate what an injury could cost your business, OSHA has a user friendly “Safety Pays Calculator” (http://www.osha.gov/dcsp/smallbusiness/safetypays/estimator.html) that can help you make that assessment and the resulting costs will be shocking and accurate (To see a background of how the numbers were obtained follow this link: http://www.osha.gov/dcsp/smallbusiness/safetypays/background.html).
The calculator will allow you to pick a specific type of injury from a drop down list, input the actual profit percentage that your business works under, and with one click, will calculate the direct costs of such an injury, the indirect costs for that injury, and, how much additional business your company will have to generate in one year, based on your current profit margin to pay for those costs. That is probably the closest I can come to giving you an approximate ROI.
I believe that your ROV is much more important to a company than your ROI. A solid safety and health program shows your employees you value them; it can provide a vehicle to engage your workforce in something worthwhile; it will protect you from the wrath of OSHA; but most importantly, it will protect that most valuable asset, your loyal employees!
John Skowronek is an OSHA authorized trainer and safety consultant with Square One Solutions in Reno. Contact him at http://www.worksq1.com or follow him on twitter @KnotheadNed.
Ted Cohn and his wife, Diane, co-founded the company Wildeye in July and began working on a video platform: BidToTalk. The concept? Give influencers the ability to create auctions for fans to bid for one-on-one video calls.