| Can you get a Return On Investment from dollars spent on Safety |
| By Ray Clouatre Evergreen Safety Council |
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| Many managers consider money spent on safety as a necessary evil. We invest valuable dollars and time in staffing, equipment, supplies, written programs, safety committee, analysis, recognition, discipline and enforcement, training, and leadership in our safety program. Many believe safety programs slow operations and decrease production thereby reducing profits. It is easy to fall into this trap if you only look for a direct link between dollars spent and dollars earned. The financial benchmark of a safety program involves looking not at what safety earned us, but what losses it potentially prevented. Potentially is the key word here. We may not be able to gauge our program on comparing actuarial losses from before the program to after the program. There may have been few actual injuries and no fines resulting from violations discovered in an OSHA inspection, but what potential losses existed. Adrian Lugo, owner of Lugo Construction in Fife WA, stated in a speech to the Puget Sound Construction Safety Summit, that there are three reasons to have an effective safety program - morality, legality, and profitability. "Owners, managers, superintendents, foremen, and supervisors have a moral responsibility to return the worker to the place we rented them in the same condition we rented them. And people are our most prized resource" Safety programs are not an option for the organization. They are required by both federal and state law. Profitability comes from the money saved by preventing accidents, injuries, illness, and citations. The first step in attempting to quantify the financial benefit of safety programs is to understand what an accident costs us. We must look at both evident and hidden costs of an accident. The evident costs of the accident include fines from OSHA, equipment damage, lost work time of injured employees, insurance experience rating, and medical expenses. Hidden costs include such things as supervisor time, management time, investigation expenses, legal expenses, training replacement workers, loss of business, reputation, down time of mourning workers, and much more. A few years ago the conventional wisdom for computing hidden costs was to figure all cost you could quantify and multiply times 3. The prevailing figure used by many today is 7 - 10 X for general industry and up to 20X for major construction projects involving multiple trades and several sub-contractors. The cost of a simple single accident is much higher than most people imagine when quantified in this manner. Determining how many accidents or citations the safety program actually prevented is perhaps impossible. A look at inherent hazards and potential catastrophes is equally important to comparing the actual accident/citation rate before and after the implementation of a safety program. Frequently money saved from preventing even one accident or citation is profitable compared to the cost of a single accident or citation. There are some safety activities that definitely slow production. It may take half an hour to properly lock-out-tag-out a process that allows you to safely perform a maintenance procedure that only takes 5 minutes to perform. Proper confined space entry procedures certainly require more time, manpower, and equipment than just "jumping in for a minute". But even these slowdowns pale in comparison to the cost of the potential injury or fatality that these situations pose. Many safety activities increase production. Techniques that protect against ergonomic injury also increase a worker's ability to perform timely and with high quality. A job safety analysis, designed to identify hazards and develop safety procedures, frequently results in the identification of wasted task steps and increases efficiency. Overall safety programs are proven to increase production. Though no such study has been done in the United States, The Japan Industrial Safety and Health Association (JISHA) and the National Safety Council conducted a 40-year study of three Japanese companies to determine the effect safety programs had over accident frequency rates (number of accidents per 1000 FTEs). Toyota Motor Company, Matsushita Electrical Industries, and Tachi Corporation records from several time periods were studied. The results from each time period lists safety measures instituted and the accident frequency rate for the period. All time periods studied show a rise in productivity and a decrease in accident frequency rate. One period, 1956 - 1972 showed a drop in the frequency rate from 22.99 to 7.25 and a productivity increase of 3.6 times. The results of these and other studies can be reviewed in the National Safety Council booklet Case Studies in Safety and Productivity. Clearly, investment in safety programs results in a return on investment. Whether through dollars saved from prevention of accidents and citations, increased efficiency from job safety analysis, overall productivity increases or from fulfilling our moral and legal obligation to our people (our most prized resource), this return on investment is quantifiable. |
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