The ROI of safety
Experts say money spent now results in savings down the line
- Workplace injuries and deaths cost society nearly $200 billion in 2012, and a single injury can cost tens of thousands of dollars.
- Knowing how much workplace injuries cost could help convince managers and executives to invest more in safety.
- Workplace improvements may not be immediately justified outside of safety reasons, but they could yield business benefits in the future, one stakeholder says.
Would you spend $1 to save $2 in the future? How would you feel about $3 or $4 or $6 in future savings for every dollar you spend now?
The choice may seem like an easy one, but when that first dollar becomes millions of dollars, and the savings may not be seen until years later, spending money up front can become harder to justify. This is a situation in which many occupational safety and health professionals find themselves when trying to convince upper management that investing in training or equipment will lead to safer workplaces.
But experts say the savings exist, and – armed with the right figures on the costs of injuries – safety pros should be able to successfully argue that investments in safety will result in savings down the line.
The cost of injuries
Safety’s return on investment is dependent on knowing one important thing: How much does an injury actually cost?
Fully understanding all the costs associated with a workplace injury can be difficult. Several organizations – including the National Safety Council and the Centers for Disease Control and Prevention – have models that attempt to estimate the costs, but these different models can vary greatly, according to Ken Kolosh, manager of the NSC statistics department.
For example, CDC’s estimate shows a fatal injury carries an average cost of about $991,027. This average includes only hospital costs. In contrast, the NSC model puts the average fatality’s cost to society at $1.42 million.
These figures, although high, are likely to be lower than the actual cost of a single death because both models reflect only direct costs. Direct costs include workers’ compensation, medical expenses, civil liability or litigation costs, and property losses.
Indirect costs can be much more expensive: For every dollar in direct costs, indirect costs could be as much as $2.12, according to NSC. Indirect costs include workplace disruptions, loss of productivity, worker replacement, training, increased insurance premiums and attorney fees.
Using this math, a single fatal workplace injury goes from costing an average of $1.42 million to costing nearly $3 million on average.
And this may be on the low end of the scale. Some studies have indicated that indirect costs for injuries in the construction industry can be as much as 17 times more than direct costs, depending on the type of incident, NSC states.
Despite the variances in the cost-estimate models, Kolosh stressed that the cost savings from safety are real. “Safety’s not just a nice thing to do,” he said. “It has a lot of economic relevance as well.”
In 2002, France-based Schneider Electric believed it already had a good safety program. The company’s OSHA recordable injury rate was 3.6 per 100 full-time workers – below the industry average at the time. Still, the company wanted to do more to minimize the likelihood of a worker getting injured or worse, according to Rich Widdowson, Schneider Electric’s vice president of safety, environment and real estate.
“We knew that we had some issues we had to deal with, and we really wanted to improve and build a safety culture,” Widdowson said.
For Schneider Electric, the focus was less about building a business case for safety, Widdowson said, and more about identifying and eliminating hazards that could hurt someone. As a result of investing in safety, the company saw its injury rate drop to 0.5 in 2013. That equals about 900 fewer people injured than would have been a decade ago, according to Widdowson.
On top of that, Schneider Electric is seeing more than $15 million annual savings in direct costs alone – which, as previously noted, pales in comparison with indirect costs that could be 2 to 3 times more than direct costs.
Other companies have seen similar improvement. Alcoa states that when it began focusing on becoming a safer company, the Pittsburgh-based aluminum manufacturer saw its earnings increase from $0.20 a share to $1.41 in only five years, and sales grew 15 percent each year during the same period. Along with increased profits, the company reported that its lost time due to employee injuries declined over the course of 10 years.
OSHA programs also display evidence of safety’s return on investment. The agency’s Voluntary Protection Programs features companies that go above and beyond OSHA requirements and institute workplace safety and health management systems. VPP participants, on average, have a days away, restricted or transferred rate that is more than 50 percent lower than the industry average, according to OSHA, which says participation in the program can lead to increased productivity and cost savings.
For safety professionals whose bosses, managers or employers don’t “get it,” Widdowson admitted that selling the idea of investing in safety can be difficult. He suggested safety professionals first argue from the “people” side of things – invest in safety so workers do not get hurt, for example. But the financial return on investment – increased productivity, improved customer service, money savings from fewer injuries – could help with the sell too, he added.
Not every workplace safety improvement will have an obvious business benefit at first other than improved safety, Widdowson said. As an example, he pointed to a Schneider Electric facility that had a conveyer system at floor level. Although the system was considered a tripping hazard, the company believed elevating the conveyor off the ground would be too expensive. However, after an employee tripped over the conveyor and broke a hip, the company knew the system had to be raised.
The conveyer system cost about $1 million to elevate. But in addition to improving safety by reducing a trip hazard, the move improved the process and increased productivity. Since then, the conveyer system has more than paid for itself, Widdowson said.
“On the onset of the business case, there was no justification for it,” he said. “But at the end of the day, we see improvements and productivity that we didn’t see up front.”
This is something that has happened many times at Schneider Electric, Widdowson said – a process or change is approved with safety improvement being the justification, and unforeseen benefits to business coming later.
Even though cost savings are a motivator, safety’s biggest return on investment may be human capital. Employers should not base decisions on whether a particular change will result in cost savings, but instead on whether it will keep workers safe, according to Widdowson.
“I hate to go into the dollar savings. They’re there, but that’s not why we do it,” Widdowson said. “We don’t do this because of the dollars. We do this because of the people.”