Risk Insights – Transportation and Warehousing
Safety Programs – Good for Your Employees and Your Bottom Line
In today’s business environment, safety-related costs can be the difference between reporting a profit or a loss. In fact, according to the Occupational Safety and Health Administration (OSHA), workplaces that establish safety and health management systems can reduce their injury and illness costs by 20 to 40 percent. An effective safety program can also improve productivity and increase employee morale on the road.
When it comes to the costs associated with safety, consider the following statistics from OSHA:
- U.S. employers pay almost $1 billion per week for direct workers’ compensation costs alone, which comes straight out of company profits.
- Injuries and illnesses increase workers’ compensation and retraining costs.
- Lost productivity from injuries and illnesses costs companies roughly $63 billion each year.
The Cost of Safety – Measurement
Demonstrating the value of safety to management is often a challenge because the return on investment (ROI) can be cumbersome to measure. The tips presented in this blog will help you understand how a safety program will directly affect your company’s profitability.
Your goal in measuring safety is to balance your investment vs. the return expected. But where do you begin?
There are many different approaches to measuring the cost of safety, and the way you do so depends on your goal. Defining your goal helps you to determine what costs to track and how complex your tracking will be.
For example, you may want to capture certain data simply to determine what costs to build into the price of your service, or you may want to track your company’s total cost of safety to show increased profitability, which would include more specific data collection like safety wages and benefits, operational costs and insurance costs.
Since measuring can be time consuming, general cost formulas are available. A Stanford study conducted by Levitt and Samuelson places safety costs at 2.5 percent of overall costs, and a study published by the Economist Intelligence Unit (EIU) estimates general safety costs at about 8 percent of payroll.
If it is important for your organization to measure safety as it relates to profitability, more accurate tracking should be done. For measuring data, safety costs can be divided into two categories:
- Direct (hard) costs, which include the following:
- Safety wages
- Operational costs
- Insurance premiums and/or attorney’s fees
- Accidents and incidents
- Fines and/or penalties
- Indirect (soft) costs, which go beyond those recorded on paper, such as the following:
- Accident investigation
- Repairing damaged property
- Administrative expenses
- Worker stress in the aftermath of an accident resulting in lost productivity, low employee morale and increased absenteeism
- Training and compensating replacement workers
- Poor reputation, which translates to difficulty attracting skilled workers and lost business share
When calculating soft costs, minor accidents costs are about four times greater than direct costs, and serious accidents are about 10 to 15 times greater, especially if the accident generates OSHA fines or litigation costs.
According to the International Risk Management Institute (IRMI), just the act of measuring costs will drive improvement. In theory, those providing the data become more aware of the costs and begin managing them. This supports the common business belief that what gets measured gets managed. And, as costs go down, what gets rewarded gets repeated.
The Value of Safety
OSHA studies indicate that for every $1 invested in effective safety programs, you can save $4 to $6 as illnesses, injuries and fatalities decline. With a good safety program in place, your costs will naturally decrease, which can ultimately help drive down your total cost of risk.
VTC Insurance Group is committed to helping you establish a strong safety program that protects both your workers and your bottom line. To learn more, contact a VTC Insurance Group agent near you, give us a call, orvisit vtcins.com.
The above content is for informational purposes only and is not intended as legal advice.
