[ad_1]
One of the reasons that safety initiatives can struggle to gain sufficient support is that those of us responsible for safety in our organizations have not consistently communicated the full cost of injuries to key decision makers. Some costs associated with an injury are apparent and easy to attribute to a specific incident. Other costs are built into larger problems or are less easily attributed to a specific injury. These two types of costs are often referred to in EHS as direct and indirect costs; however, it may be more appropriate to describe them as visible and hidden costs.
An iceberg is often used to illustrate both types of costs. Note that you will see the same concept used if you search online for “poor quality hidden cost”. This concept of hidden cost is not unique to security and is probably already understood by members of the management team. The iceberg image conveys two important aspects of the types of costs. The most obvious point is that some costs are visible but come with less visible costs. The iceberg image also indicates that more costs are hidden below the surface than visible above.
The estimated ratio between direct and indirect costs can vary widely depending on the source of the estimate, the cost elements included in the total direct costs, and the factors included in the indirect costs. Iceberg imagery may help explain some of these differences. Some costs are very close to the surface and can be included as direct or indirect costs, depending on the observer. Other costs are much more below the surface and may not be included in some models. The ratio will also vary depending on whether you are looking at the costs of a specific injury or the total cost of all injuries. OSHA has done a good job of explaining how the overhead cost ratio associated with a single injury can vary depending on the severity of that injury.
When I explain the concept, I use an indirect cost multiplier of 4 to 6 times the direct costs. However, when I financially justify program improvements or workplace improvements, I prefer to use a more conservative multiplier of 1 to 2 times the direct costs.
Direct costs of injury
The direct costs of an injury can include:
Medical treatment costs for an injured worker. In situations where employers provide on-site health services, some of these costs may have shifted to hidden indirect costs. It should also be borne in mind that, despite the legal and financial responsibility of the employer, some costs may fall on the employee.
Wages for the time lost by the injured worker. These refer specifically to lost wages through workers’ compensation. There may be additional hidden costs for time away from work for ongoing medical appointments after returning to work.
Disability agreements with an injured worker. It can also show up in reserves set aside for injury.
Case management fees. The first three costs would generally be covered by the workers’ compensation process. Depending on your specific insurance situation (general policy, third party administrator, or self-insured) this may be a directly visible cost or it may be less directly reflected by your experience modifier.
If the direct costs of an injury are not readily available, OSHA’s $ afety Country web page provides a list of average medical treatment costs by type of injury.
Indirect costs of injury
The indirect costs of an injury can include aspects directly related to the injury and other aspects related to the culture of the organization. Costs that can be attributed to an injury include:
Training costs. When a person is absent from work and other people are needed to do the person’s job, it can take time from both a trainer and the new person assigned to the task. Training costs are likely to be even higher if a temporary employee or a new hire is required for the position. Training costs vary widely depending on the skills required in the injured person’s job and the degree of cross-training that exists in the organization.
Rental fees. If someone leaves your active workforce, even temporarily, due to an injury, you may need to hire a new person. New hires may also be necessary when someone is away for an extended period. The more skills associated with the injured person role, the higher the cost of obtaining a replacement. This skills-cost relationship is true whether it is a temporary backfill or a permanent replacement.
Loss of productivity. There are almost always immediate effects on productivity after an injury. Depending on organizational differences in cross-training and the uniqueness of skills, the loss of productivity can vary widely. The more specialized the roles and skills of the injured person, the greater the continued loss of productivity. Even on a traditional mobile assembly line, the loss of productivity can be evident in more frequent line stops so that a person can keep pace or more time spent inspecting and reworking due to a new come who lacks the same speed and precision as the experienced person.
Property damage. Property damage can occur in direct combination with a safety incident or when less trained people take over the duties of an injured employee. For example, during a change, the less experienced person fails to properly secure a device, which damages the equipment.
Over time. When an employee is absent for an extended period, other people will have to assume their responsibilities. This may require the additional cost of overtime. Instead of paying regular wages for someone to do the job, you now have to pay overtime premium for the same job at hand.
Machine downtime. The machine may have been damaged during the incident. A machine can be stopped because it is not running until the cause of the incident has been fully investigated and the countermeasures implemented. A machine can also be broken down because the only person qualified to operate the machine is injured and absent from work. The overall impact on production of a critical piece of failed machinery can be far greater than the loss of productivity for that job.
Legal fees. Some injuries lead to litigation. Regardless of the outcome of this litigation, there will likely be legal costs associated with the action.
Investigation. Every incident, no matter how minor, should be investigated. This usually involves a team of people being removed from their usual duties to complete the investigation. This disruption has an associated salary cost, as well as the opportunity cost of the tasks these people could have done to help the business in other ways during that time.
Documentation. Each incident and investigation also requires documentation of the results. The more serious the incident, the more important the documentation. Again, this has salary and opportunity costs.
Product delays. An interruption in the production process can affect income. The total commercial cost of production delays can be much greater than the actual production loss. Failure to meet a customer deadline can have an impact on the language of the contract, prices and renewals.
Employee contract. A history of injuries in a work area can create a barrier to employee participation.
Loss of goodwill or reputation. A history of security incidents can affect how potential employees, the surrounding community, customers, and even shareholders view your business. For example, being viewed as a dangerous workplace by members of the community could undermine the goal of being an employer of choice in your area. This, in turn, could lead to increased hiring costs for each position.
Rick Barker, CPE, CSP is a Senior Solutions Strategist for VelocityEHS Humantech Ergonomics Solutions.
Source link
