Incident Prevention Pays - Strategies for Reducing the Cost of Workplace Incidents.

Money and safety - two important components of every business, and yet, we sometimes get a little squeamish connecting the two. We’ve all heard the classic phrase, “you can’t put a price on safety,” and while some of us may use that from time to time to help influence a decision, the unfortunate reality is, that we absolutely can put a price on safety. Safety has a cost, and, worse, NOT having safety has an even higher cost.?

While having a robust safety program with quality safety professionals will be an overhead cost for most businesses, it is often considered a “value-added” cost. A value-added cost is incurred when a resource is consumed to increase the value of goods or services to the consumer. So it makes sense – put some money towards safety, and you can reduce injuries, while increasing productivity and profits. The end goal is that the added safety value outweighs the implementation cost.

When an incident or injury occurs, we tend to focus on the right things – getting the employee any treatment they need, repairing any damages incurred, and investigating the incident to ensure future similar events do not occur.??But how often do we go back and look at the overall cost of the incident? If you are a safety professional looking for a good bargaining chip or want that silver bullet in your chamber for when you need it, helping senior leaders realize the actual cost of incidents and injuries can be impactful.?

There are two types of costs when it comes to incidents and injuries – direct costs and indirect costs. Direct costs are those incurred as a direct result of the incident or injury. These are typically covered by an insurance company and can include the following:

• Healthcare provider costs which include medical treatment and rehabilitation for injured employees, which can include hospitalization, surgery, physical therapy, follow-up appointments, etc.?
• Workers' compensation costs which include the cost of workers' compensation benefits, disability payments, and medical expenses. These costs can be significant, particularly for serious injuries or long-term illnesses. ?Equipment and property damage costs which include the cost of repairs or replacement of damaged equipment and property.?
• Legal costs which include the cost of defending lawsuits, or the cost of settlements or awards related to incidents and injuries.
• Increased insurance costs, including higher insurance premiums as a result of incidents and injuries, can be based on the frequency and severity of incidents.

These direct costs are something we can calculate easily, especially for higher-profile incidents or injuries. What we don’t always see or calculate are the indirect costs of incidents and injuries. We know they are there, but how often do we bring them to light? We can have a wide range of indirect costs that can be difficult to quantify but can significantly impact a business. These are things like:

• Lost productivity. Incidents and injuries can result in lost productivity due to employees being unable to work due to injury or time taken to recover. Even if an employee returns on light duty, there is likely a productivity impact in some capacity. Lost productivity also includes the downtime for investigating an incident, cleaning or repairing the area, or management’s time away from the workplace to manage the incident.?
• Replacement costs. This includes the time and resources associated with recruiting and training new employees. As we can acknowledge, it takes significant time and money to bring some new in and get them trained up. You may be paying the person the same as the recently injured worker, but there is likely a significant production gap to start.?
• Decreased morale and employee engagement. Incidents and injuries can also hurt employee morale and engagement. This can result in increased turnover rates and reduced employee commitment and productivity. It can be difficult to determine just how much an individual incident can impact the attitudes and behaviors of a group and how that can affect their work. Often this is something that only comes to light when we talk to our employees and, unfortunately, something that only time can fix despite our best efforts to implement the corrective actions necessary to prevent incidents in the future.?
• Damage to reputation. Incidents and injuries can also damage a business’s reputation, leading to decreased customer loyalty and a loss of business opportunities. This can be particularly impactful for companies that must bid and win project work. Frequently, clients examine contractor safety records before awarding high-dollar contracts. There are several ways a bad safety record can manifest itself and harm a company’s reputation: a news story covering a significant incident, poor safety statistics, your experience modification rating rising, or even word of mouth.?
• Increased insurance costs. Incidents and injuries can also lead to increased insurance costs, as insurance providers may view a business as a higher risk, and charge higher premiums. Most insurance companies use a multi-year loss calculation to determine premiums, so a single significant incident or injury could be something you “pay” for several years.?
• Regulatory fines and penalties. Some incidents and injuries may result in regulatory fines and penalties for non-compliance with safety regulations. This could be combined with legal costs if you need legal counsel to represent you against OSHA or MSHA. Depending upon the nature of the citation, your business may also be required to implement or retrofit equipment, machinery, or workstations.?

As we can see, several types of costs are associated with an incident. And, again, while our priority after a significant incident or injury will be the well-being of an employee, tabulating all of these costs can help paint a whole new and ugly side of incidents.?

Unless you work for a government institution or a non-profit, the goal of a business is to turn a profit. Just like safety is often judged based on injury rates, companies judge themselves on profits (generally speaking). There is no better way to ruin profits than having to put money towards fixing preventable injuries. And just how much in product or services you have to push out the door to make up for the incidents and injuries is not that difficult to calculate:?

Revenue Required to Offset Loss = Total Injury Costs / Profit Margin (%)

After every single incident, a business must sell a product or service to cover the cost of the said incident. Most direct costs may be covered by insurance, but some may not. The indirect costs are typically not covered. Let’s say you have an injury where the total cost is $10,000, and your average profit margin is 10%. That means your business must produce $100,000 in goods or services to compensate for that incident. Worse, the time, resources, and capital spent on recouping that cost is a sunk cost. Now depending on your company’s bottom line, this may or may not be a substantial cost, but if you factor in the indirect costs associated with the incident, as discussed above, and multiply that out for three or four incidents, you can see how quickly costs can get out of control.?

Controlling these costs should be a key component of every safety professional’s scope of work. There are several ways we can reduce these costs.?

• Eliminate. Implementing a comprehensive safety program that proactively evaluates and eliminates incidents and injuries will obviously be the best cost-reduction method: no incident, no injury, no cost.??
• Partner with your insurance company. Insurance companies will typically have a risk engineering or loss control consultant that can work with your business to identify high-risk areas that need to be addressed. They can also provide you with two additional pieces of information:

1. Your company’s historical loss reports. Having a thorough understanding of the losses previously sustained, you can identify areas to focus your risk-reduction efforts.
2. Industry-wide loss trends. The insurance company will be able to detail the types of injuries or incidents that lead to large-scale or frequent losses that are common in your industry. It may also help prioritize which higher-risk tasks you want to target. If you have a large group of workers doing a job that may lead to high-cost injuries, this would be a good place to focus or reinforce efforts.?

• Investment in ergonomics. As the average age of your workforce increases, you may start to see more injuries or illnesses that you would not usually see in a younger workforce. Investing in the equipment and machinery that helps reduce ergonomic burdens on the body may help offset the costs of new injuries.?
• Return-to-work programs. One of the best ways to reduce worker compensation costs is to get the employee back to work as quickly and safely as possible. A robust plan for returning employees to work should be a staple in your medical case management program. This can include having a list of light-duty jobs, job modifications or accommodations, or even developing training courses that employees can attend while they heal.?
• Improve compliance in your processes. A well-developed Health and Safety program involves thorough job safety analyses that identify hazards and document how to control them. By standardizing processes and enforcing compliance, you should be able to create streamlined processes that improve efficiency and reduce risk. The more vague a process is, the greater the opportunity to introduce the types of errors that lead to incidents and injuries.
• Promote mental health and wellness. As the workplace evolves, we are seeing more and more emphasis being put on “Total Worker Health”. Total Worker Health collectively addresses not only safety but the employee’s health and well-being as well. You can begin this process by integrating mental health and wellness information into your safety meetings. Quite often, non-work-related factors play a role in incidents or injuries. Just because an employee is not physically at work during work hours doesn’t mean the employer should stop investing in them. Improving education and training on basic health and wellness subjects like sleep and fatigue, nutrition, and stress management, could pay off well down the road. You could see an improvement in morale, a decrease in inattention, a reduction in employee absenteeism, and an improvement in overall workforce fitness.?

Any of these could help reduce the likelihood of an incident or injury or, at the very least, help you control the costs if an incident or injury does occur. Reducing these costs is an excellent way to demonstrate the financial benefits of a comprehensive health and safety program.?