By Phil La Duke
A LinkedIn contact asked me if I could provide some guidance on how to build a business case for safety to, as she put it, shut up some water heads. I am going to warn you right now I am going to use some words that will make some of you squirm—words like “profit” and “return on investment”. I know for some of you the thought that money spent on safety is simply the right thing to do and talking in terms of costs and money are coarse and dirty. Well, you can stuff that hippy crap and stop reading right now. The purpose of all organizations is to survive and to survive they have to make money. So if you think that what you spend on safety doesn’t have to show a return you are deluded and don’t have a firm grasp on business or reality.
It’s hard to quantify the cost of safety—I mean you are essentially trying to quantify the absence of all risk—but the Quality Function figured out a solution and came up with the concept of the Cost of Quality (COQ) and have successfully embedded that into the collective business lexicon. COQ is essentially the same thing as the Cost Of Safety (COS) in that we aren’t really putting a price tag on safety, we are putting it on the lack of safety.
Building a business case is easy. First, you calculate the cost of the problem (in the case of safety injuries) and you compare it to the cost of the solution. Next, you calculate how long before the solution solves the problem and stops the cash bleed. So essentially you answer three questions: 1) How much does it cost to continue to do nothing, 2) how much will it cost to fix it, and 3) How long will the cash be encumbered (here’s a tip, a LOT of executives expect a return on investment in three months or less.
Never mistake a reluctance to invest with indifference. I once had an outraged plant manager scream at the safety professional “when have you ever come to me with a business case for safety and have me turn you down? When you act like a businessman you will get treated like one, but I don’t give out blank checks!” He was right and I liked him from that moment on.
So let’s take a look at the costs of injuries. And to talk about costs I like to use the tired old, clichéd metaphor of an iceberg. The portion above the water line are the direct costs, and these are easy to see and calculate, while the portion below the water line are indirect costs which are harder to see and even harder to calculate. Another cost above the waterline is a fixed cost, which we will get to in a moment.
Fixed costs are the expenditures on things for which you are going to make irrespective of injuries, they include:
- Safety employee salaries & benefits
- Medical supplies and floor space
- MSDS/SDS Sheets
These costs are fixed because it really doesn’t matter if you have an excellent record or an abysmal record you have to shell out money for these things.
So you start with the fixed costs, why? Because your executive looks at you with a dollar sign on your face and is always looking for a way to reduce costs. If you bring it up before your executive you gain credibility and diffuse a potentially explosive conversation.
Never use a multiplier from the National Safety Council or average cost for your industry, Doing so creates a defensive “that’s not true here” argument. So we avoid all the arguments by calculating the cost of injuries:
- Cost of incident response
- Injured worker wage x the time he or she is unproductive (this is a hard figure and difficult to dispute)
- First responder wage x the time he or she is dealing with the injury
- Escort’s (the person who will be taking the injured worker to the medical department or clinic) wage x the time it took to travel to the clinic (there and back)
- Supervisor wage x time to return to normal
- Replacement worker wage x the time on the job
- Cost of lost production
- Cost of Incident Investigation
- Injured Worker Wage x hours of investigation (assuming he/she is able to participate
- Witnesses wages x hours of participation
- Safety personnel wages x hours of investigation
- Other participant wages x hours of investigation
- Cost of reporting
- Safety wages x time to report
- Workers’ Compensation claims
- Cost of claims settled
- Cost of case management
- Cost of litigation
- Turnover. Workers who have witnessed or simply heard about an injury often decide to find employment elsewhere. You can’t know how much of your turnover is related to safety, however.
- Morale. Worker injuries sap morale.
- Loss of Business. An increasing number of companies will not source business to companies with poor safety records.
- Damage to corporate reputation. Companies spend tens of thousands of dollars paying marketing to increase their reputations, but one high profile injury can destroy any gains made in this area.
- Higher insurance premiums. Insurance claims for injuries equal higher premiums or encumbered cash for Workers’ Compensation.
- Training of replacement workers. In cases where the injured party is off work a prolonged period of time, another worker must be trained to fill in.
- Loss of productivity. Nearly all well-run businesses calculate their efficiency and can assign a cost to it.
Even these indirect costs can be calculated, although it can be a bit more difficult to do so. What’s more, even if you do manage to calculate the cost of injuries you should be prepared for the dimwits who don’t care. I had one executive tell me that even at a million dollars injury costs were a drop in the bucket. No, calculating the costs isn’t enough, you need to also translate the cost of injuries into whatever the company cares the most about. So if your company is obsessed with sales you have to say, “to cover the cost of injuries we would have to increase our sales x% just to maintain the status quo,” or if it is production “we would have to build x more tractors just to pay for our injuries.”
By equating it to something that they most care about, you get them to care about the financial impact of injuries and you have taken the philosophic and made it tangible and real.
If you enjoyed this post you probably would enjoy my books. My second book, Lone Gunman: Rewriting the Handbook On Workplace Violence Prevention. is all new material that cannot be found anywhere else. In light of all the talk and panic around gun violence, and the shamefully bad advice some “experts” are giving I hope some of you will read it and pass it along to your executives and HR leads (go ahead, expense it, they will be glad you did.)
I should warn you, this isn’t a book that is pro- or anti-gun ownership rights.The book has extensive sections on spotting an unstable employee (some people’s lives will take a dark and desperate turn long after you have hired them but there are always signs), the types of work environments that tend to trigger these events, and I recently returned from Dublin, Ireland where I spoke on how companies can leverage technology to protect workers from workplace violence. But all the books, and magazines, and speeches in the world won’t change a damned thing if you keep thinking that it can’t (or probably won’t) happen to you or someone you love. You can bet your life that we will see more similar shootings in the weeks or months as people who are currently at the brink of sanity see the news reports and think, “now’s the time”. WAKE UP, PEOPLE!!!! This book is pepper with the sarcasm, self-deprecating humor of the first book, but it also makes use of my extensive knowledge of violence prevention in the workforce (that I gained as head of training and OD for a global manufacturer.)
Of course, my first book is still for sale, and you might rightly ask yourself, why on God’s green Earth would I read a book that contains previously released material? Simple, like the rainforest and the polar bears my work is disappearing from the web very quickly. All but a handful of my works for Facility Management Magazine is gone, and you can basically only go back 2 years on my blog (8 year’s worth of my work that ranges in quality from magnificent to mindless dreck.) And besides, about a third of the book is new material that cannot be found anywhere else. So buy it. It will teach you, entertain you, and make you want to read more it can be ordered here I Know My Shoes Are Untied. Mind Your Own Business or on Barnes & Noble.com.