BLEEDING MONEY: HOW MUCH DOES SAFETY REALLY COST?
By Phil La Duke
The unsafe workplace costs a lot of money. The financial magnitude of expenses incurred in operating an unsafe workplace must be understood. This examination of the true costs associated with poor safety uncovers how far they extend beyond simply counting the cost of safety glasses or wages paid to the safety department.
A dangerous thought may cross your mind in this world of economic uncertainty: What if we cut back on safety expenditures? You may conclude that your organization is spending too much on preventing injuries that may never happen.
It’s not a bad question: Does it really make sense to spend $100 to prevent $10 worth of injury costs in a lean manufacturing environment?
Continuous Improvement involves a function called “Cost of Quality” (COQ) that, on the surface, might appear to be counter-intuitive because it doesn’t refer to the money you must spend making certain that your products and services are delivered at the highest possible quality. Instead, COQ deals with the money that manufacturers lose by screwing things up.
You might wonder why those who coined the phrase didn’t just call it “Cost of Defects” or “Cost of a Lack of Quality.” But the term, as misleading as it may seem, dives past the surface of direct costs attached to yield, scrap material and rework and into the deeper layer of indirect costs related to the loss of faith on the part of the customer. Far more complex than a handful of metrics, COQ attempts to paint a fuller picture of the true costs associated with poor quality.
Safety professionals can learn a lot from this. If, for example, you examine the true costs associated with poor safety in “Cost of Safety” (COS), you’ll discover they extend far beyond simply counting the cost of safety glasses or wages paid to the safety department.
Instead, COS refers to the real costs inside an unsafe workplace that go much deeper than obvious expenses tied to treating injuries. The financial impact of not working safely can be calculated by tracking both the direct and indirect costs associated with not just injuries (including first aid cases and near misses), but also the ancillary costs within the infrastructure that is required to react to the problems that so often accompany an unsafe workplace.
Any responsible safety professional should understand the magnitude of the costs incurred from operating an unsafe workplace.
These expenses include the obvious accounts that are easy to calculate and tend to be associated with the immediate, or close to immediate, reaction to an incident. They include:
Medical Treatment. When workers get hurt the injuries must be treated. Spiraling medical costs are at the forefront of most businesses and yet, strangely, few connect injuries with medical costs. The cost of medical treatment for injuries generates an easily quantifiable effect on the company bottom line, yet many companies fail to see the connection. Everything from Band-Aids and aspirin to surgeries, casts and crutches should be included in this calculation.
Fines. As much as manufacturers want to do the “right thing” to protect workers (and in some industries their customers), regulatory fines have the most pronounced influence on whether or not hazards are corrected in a timely manner. Fire code violations, governmental citations, and fines associated with injuries all fall under the umbrella of “fines.” Each should be tabulated into the overall cost of injuries.
Wages for Medical Personnel. A significant cost of an unsafe workplace involves the wages to plant nurses and doctors, or the annual fees paid to clinics for those facilities without on-site medical departments. These expenses are often incurred whether or not any medical care is actually provided. That said, the more unsafe the workplace, the larger the medical infrastructure.
Record Keeping and Paperwork. Injuries require a high volume of paperwork and record keeping. Every page generated has some form of clerical or administrative wage associated with it.
Workers’ Compensation Costs. Workers’ Compensation payments are determined by the cost of worker injuries, but often these figures are treated as independent overhead costs. It is mind-boggling how many company controllers jealously guard these figures from safety professionals and operations leadership. In too many organizations, Workers’ Compensation is seen as a problem of fraud or poor case management.
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About the Author: Phil La Duke is a partner in the Performance Assurance Practice at ERM: Environmental Resources Management, 3352 128th Avenue, Holland, MI 49424, 313-244-2525, www.erm.com. You can also follow Phil and reach him on his blogs at www.philladuke.wordpress.com.