Sometimes safety department heads are their own worst enemies when it comes to the costs of their programs. Too often they accept that safety is a sunk cost that doesn’t produce revenue and, as anyone with experience knows, programs that don’t produce revenue are always at risk. When it is budget time, these managers prepare their spread sheets and hope they don’t get cut too badly.
There is a better way and it starts long before the annual budget exercise. The key is remembering that there are two sides to the P&L sheet – Profits and losses. Profits are best, but reducing losses are a close second. The challenge for safety managers is to “monitize” prevention, meaning to find a way to attach dollar values to the accidents and injuries that the program prevents.
There are two good ways to do this:
- Cost of Injuries: OSHA has developed an online tool that tells you the estimated cost of most common occupational injuries. The site is called “OSHA’s $afety Pays Program.” It allows you to enter an injury and then generates the direct costs (treatment and care) as well as the indirect costs (production delays, administrative costs, etc.). Then it takes it a step further and looks at how much the company needs to earn in sales to cover the incident, factoring in the company’s profit margin to arrive at total sales. For example, the calculator says an incident that results in a concussion may have direct and indirect costs of $ 127,617. if the company has a profit margin of three percent on sales, it would need to generate nearly $4.3 million in sales to cover the cost of that incident.
So looking at your program, did you reduce incidents last year? Are your recordables below your industry’s average? Put a dollar value on it.
- Near Miss Data: I’ve written about a program called DROPS, which looks at the potential for a dropped object to result in serious injuries or fatalities. The DROPS concept is based on a recognition that an object dropped from a height may not hit anyone, but if that object had fallen just a little bit in one direction or another it could have caused a serious accident. It uses a spreadsheet formula to determine the force of the falling object (and consequently the seriousness of the incident).
Variations of that approach can be used to analyze a variety of near-miss incidents. That is one more reason why it is important to do root-cause analysis on near misses as well as incidents. Understanding the accidents that almost happened helps you avoid the real thing in the future. In the case of budgets, it lets you understand and quantify your company’s financial exposure as well.
Within a company, the financial statements are everything. Understanding how safety fits on the ledger sheet is critical to having a healthy, effective safety program.