It is common for business leaders to think of a safety program as nice to have, but nonessential business function. If only they had more time and money, they would surely implement a robust safety program. However, the Occupational Safety and Health Administration (OSHA) reports that workplaces that establish safety and health management systems can reduce their injury and illness costs by 20 to 40 percent. In high-risk companies such as those within the hospitality and recreation industries, safety programs can have an even larger impact.
And well-established safety programs don’t just affect raw numbers. Safe environments also improve employee morale, positively impacting workplace productivity and reducing turnover.
In today’s business climate these safety-related costs in industries such as hospitality and other service industries can be the difference between reporting a profit or a loss at the end of the year. Industry studies report that companies who focus on safety as a core business strategy come out ahead. Share with your leaders how implementing safety programs will directly affect your company’s bottom line using these tips.
Calculating the Cost of Safety
Demonstrating the value of safety to management is often a challenge because the return on investment (ROI) can be cumbersome to measure. Your goal in measuring safety is to balance your investment vs. the return expected. Where do you begin?
There are many different approaches to measuring the cost of safety, and the way you do so depends on your goal. Defining your goal helps you to determine what costs to track and how complex your tracking will be.
For example, you may want to capture certain data simply to determine what costs to build into the price of your products, or you may want to track your company’s total cost of safety to show increased profitability, which would include more specific data collection like safety wages and benefits, operational costs, and insurance costs.
Since measuring can be time consuming, general cost formulas are available. A Stanford study conducted by Levitt and Samuelson places safety costs at 2.5 percent of overall costs of operation, and a study published by the Economist Intelligence Unit (EIU) estimates general safety costs at about 8 percent of payroll.
If it is important for your organization to measure safety as it relates to profitability, more accurate tracking should be done. For measuring data, safety costs can be divided into two categories:
Direct, or hard costs, which include the following:
- Safety wages
- Operational costs
- Insurance premiums and/or attorney’s fees
- Accidents and incidents
- Fines and/or penalties
Indirect, or soft costs, which go beyond those recorded on paper, include the following:
- Accident investigation
- Repairing damaged machinery, equipment and tools
- Administrative expenses
- Worker stress in the aftermath of an accident resulting in lost productivity, low employee morale and increased absenteeism
- Training and compensating replacement workers
- Poor reputation, which translates to difficulty attracting skilled workers, not to mention customers, and lost business share.
When calculating soft costs, minor accident costs are about four times greater than direct costs. Serious accidents about 10 to 15 times greater, especially if the accident generates OSHA fines or litigation costs.
According to the International Risk Management Institute (IRMI), just the act of measuring costs will drive improvement. In theory, those providing the data become more aware of the costs and begin managing them. This supports the common business belief that what gets measured gets managed. And, as costs go down, what gets rewarded gets repeated.
OSHA studies indicate that for every $1 invested in effective safety programs, you can save $4 to $6 as illnesses, injuries and fatalities decline. With a good safety program in place, your costs will naturally decrease. It is important to determine what costs to measure to establish benchmarks, which can then be used to demonstrate the value of safety over time.
Also, keep in mind that your total cost of safety is just one part of managing your total cost of risk. When safety is managed and monitored, it can also help drive down your total cost of risk.
Considering the statistics, safety experts believe there is direct correlation between employee safety and a company profit. For further information, or to get started, see our blog Six Things You Need To Build a Successful Safety Culture, or view our free Safety Bootcamp. If you need further information, please contact us at (801) 443-1090 for more assistance in finding and building your safety culture by establishing safety programs.