In manufacturing as in most businesses, every dollar counts. And putting those dollars towards new safety initiatives might not be a top priority. Who needs another expense in these economic times? But money spent on safety is often an investment that improves the bottom line. Here’s why:
Employers across the United States pay almost $1 billion per week in direct workers’ compensation costs alone. The tab for lost productivity from injury and illness runs to roughly $63 billion annually. The Occupational Safety and Health Administration (OSHA) says that companies that institute safety and health management systems can reduce those costs by 20 to 40 percent. Further, a safe workplace boosts employee morale, which also impacts the bottom line.
In one notable example, the American Society of Safety Engineers reported that implementing an OSHA consultation program reduced losses at a forklift manufacturing operation from $70,000 to $7,000 per year.
Yet the ROI of a safety program can be difficult to measure, and sometimes even more challenging to demonstrate to management. How do you balance the investment and the return to make sure a program is effective, especially considering the intangibles like team morale? There are many different approaches, but here are a few thoughts:
Have a goal. Any safety program should have a specific and measurable goal. That might be a reduction in the number of sick days, or greater efficiency as measured by production output over the course of a quarter, or any number of other things.
Understand hard and soft costs. The expenses associated with safety can be divided into two categories: hard and soft costs. Hard costs include safety wages, operational costs, insurance premiums, attorney’s fees and fines or penalties. Soft costs include accident investigation, administrative expenses, lost productivity due to worker stress or morale in the wake of an accident, and reputational damage, which can make it more difficult to attract skilled workers.
Soft costs obviously are more difficult to measure. One rule of thumb is that for minor accidents the soft costs are about four times greater than hard costs. In the case of a serious accident, those soft costs might be 10 to 15 times more, especially if the outcome involves OSHA fines or litigation.
Focus drives improvement. “What gets measured gets managed,” goes the saying. It’s interesting to note that the very act of measuring something can drive improvement as those involved in providing the data become more aware of costs and begin managing them. And to quote another business axiom, “what gets rewarded gets repeated,” leading to a snowball effect of costs going down.
In the end, safety is about the health and well-being of your team members, which is far more important than any costs or statistics. But according to OSHA studies, every dollar invested in effective safety programs can return $4 to $6 as illnesses and injuries decline. So safety is about not only healthier employees but a healthier bottom line.
Questions about safety programs or other risk management issues? Contact Consolidated Insurance.