When establishing Health and Safety Management Systems, it’s sometime difficult to see the value in any potential return. Here, we look into the return on investment you could expect to see from these programmes.
Safety Programmes and their Return on Investment
Establishing safety and health management systems can dramatically reduce injury and illness costs. In some cases, it could reduce costs by up to 40 per cent.
In today’s business environment, these safety-related costs can be the difference between reporting a profit or a loss.
Proving Return on Investment
Studies indicate that for every £1 invested in effective safety programmes, you can save £4 to £6 in costs associated with occupational illnesses and injuries. With a good safety programme in place, your costs will naturally decrease. It is important to determine what costs to measure to establish benchmarks, which can be used to demonstrate the value of safety over time.
But 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 overall cost of risk.
Proving the Value of Safety
Demonstrating the value of safety to management is often a challenge because the return on investment 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.
You may want to capture certain data simply to determine what costs to build into the price of a product or service, 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 per cent of overall costs, and a study published by the Economist Intelligence Unit (EIU) estimates general safety costs at about 8 per cent of payroll.
If it is important for your organisation 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 and indirect costs.
Direct (hard) costs include:
- Wages
- Operational costs
- Insurance premiums
- Legal fees
- Accident costs
- Fines or penalties
Indirect costs go beyond those recorded on paper and include factors like:
- Accident investigation
- Repairing damaged property
- 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 and lost business share
When calculating costs, minor accidents costs are about four times greater than direct costs, and serious accidents about 10 to 15 times greater, especially if the accident generates HSE fines.
According to the International Risk Management Institute, 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.
Safety as a Core Business Strategy
Industry studies report that companies who focus on safety as a core business strategy come out ahead and safety experts believe that there is direct correlation between safety and a company’s profit.
