Search

A Look at Workplace Safety & Health and Business Profitability.

A solid safety culture is a foundation of good business.

There is a strong correlation between the safety culture of an organization and incident rate. This in turn effects profitability by reducing or increasing direct and indirect cost associated with said incidents.


Direct costs are those that are associated with the treatment and correction related to the incident while indirect costs are accrued as a result of an incident. For example, if an employee suffers a broken leg, medical expenses (likely covered by workers' compensation insurance) and medications are a direct cost. Indirect costs associated with that injury may include loss of production and increased insurance premiums.


Direct costs are much easier to see and measure than their indirect counterparts. This makes assessing the "value" of safety a difficult, time consuming task. But it is possible to measure the long-term impacts of safety culture. The following is a case study to showcase the direct and indirect costs associated with workplace injuries and how they can effect an organizations bottom line over the long-term.

Case Study: Carl's Finger

Carl is a senior line worker in the packaging department of an automotive manufacturing plant. One day, while operating a conveyor fed industrial wrapping machine, he accidently gets his finger caught between two rollers and suffers a broken bone and significant tissue damage. As a result of his injury he he requires outpatient surgery and limited duty for three months. Luckily, his employer has limited duty work Carl can do but he will need a replacement. This is the first significant injury in the company's history. A mostly clean track-record resulted in an OSHA inspection but did not include a fine.


The total expense for treatment, medication, physical therapy, and follow-up visits costs the employer $50,000 (direct cost)--the remainder is paid by their workers' compensation insurer. The indirect costs were estimated to total $90,706 and are listed below:

  • The entire packaging department losses two hours of production for investigation, clean-up, and a review of the operator's manual for the wrapping machine.

  • The HR department spends two hours posting a job ad and reviewing resumes.

  • The department manager spends three hours interviewing potential replacements.

  • The packaging department has a 6% decrease in production associated with training the new employee and their lack of experience.

  • The organization has a slight increase to their EMR, thus increasing their premium over a three-year period.

Let's do the math.

The total cost of this incident is $140,706.

The company has an 12.6% profit margin. This equates to $1,116,714 in total sales.

In the above case study we can see how prevention of the finger crushing injury could have saved the company a significant amount of money. Just as an organization wouldn't let an employee outright damage a piece of equipment or ruin the relationship with a client valued at $140,000, they should take an active role in preventing the financial losses associated with injuries and illnesses.

Calculation

OSHA offers a helpful tool on their website to assist safety professionals and business owners calculate the actual and potential financial losses of occupational injuries and illnesses. The $afety Pays Program uses the average costs of an injury or illness (by type) to estimate direct and indirect costs to provide a total cost. The program will also let you list multiple injuries and illness for a year total.


Factoring in the organization's profit margin and an indirect cost multiplier, the $afety Pays calculator can project the amount of total sales a company would need to cover the total costs. OSHA states "The program is intended as a tool to raise awareness of how occupational injuries and illnesses can impact a company's profitability, not to provide a detailed analysis of a particular company's occupational injury and illness costs."


23 views0 comments