OK, stay with me here. This is NOT a blog about accessing endless resources, As Low As Reasonably Practicable, or managers who think that accessing an online store (probably with the company credit card) is the silver bullet to improved safety performance.
The true cost of poor safety practices within your organisation is likely to be much higher than you might think.
In this blog, we are going to look at examples of the direct and indirect costs of workplace injuries, with a focus on those that lead to serious claims. To quickly define that term, a ‘serious claim’ is an accepted workers’ compensation claim for an incapacity that results in a total absence from work of one working week or more. This aligns with most Australian jurisdictions that have an employer excess of one week or less. Victoria is the exception here, but we’ll leave it aside as it’s not central to our argument.
Let’s begin with the Direct Costs.
These are generally pretty well understood – the Finance Team generally has lines in the P&L relating to them! Most relate to the lodgement of a claim and managing the employee back to health.
· Worker’s Compensation and the replacement of lost earnings.
· Or sick pay.
· Medical and like bills.
· There can be fines imposed by the regulator (depending on the incident).
· Payment to replace/repair damaged equipment and property.
· Insurance premium increases.
· The ‘excess’ on the policy – the employer pays the first part of a claim.
· Other legal costs.
Indirect costs can be a bit harder to calculate.
When one of your employees is injured in a way that results in a ‘serious claim’, the data tells us they are likely to be out of the business for an average of seven weeks.
As such, Indirect Costs will probably include:
· Productivity loss due to disruption.
· Cost of temporary workers to cover the injured worker.
· Time and cost of Corrective and Preventative actions.
· Overtime hours.
· Training of new team members or temporary team members.
· Impact on morale.
· Loss of skilled workers.
· Delays of projects and schedules.
· Even the fact that a member of the Safety Team has to stop working on prevention and start working on reactive activities.
Even in instances where a ‘serious claim’ does not eventuate, a skilled worker often needs to be replaced, most likely with someone who does not have the same level of training or skills to complete the work, or worse, covered by existing staff who now may need to work additional hours.
Consider these Indirect Costs in your business as a result of an injury and see if you could estimate the true cost on your own operations. Put a number on it and we will see how close you get.
It is estimated that for every dollar you spend on direct costs, and additional $2.12 will be incurred indirectly. These costs quickly add up.
To give you a better understanding of the costs of injuries on your business, let's use an example as generated by the Cost Calculator found on our website. Feel free to try it with your own business data to get a more accurate result if you wish.
· Your business employees 2,000 people.
· The business is Medium Risk (such as a Wholesaler or Food Production)
· The Workcover Industry Code would imply a risk rate such as 1.5%
· Average Salary per employee - $85,000
· Net Profit as a percentage of Gross Revenue – 9%
Based on this data, you would expect people in this company to be involved in 14 serious injuries and 137 minor injuries in a year. When plugged into the Cost Calculator, direct and indirect costs, the total cost of those injuries would be over $4 million per annum.
That $4 million is essentially profit that has been forfeited.
For the business to make up that $4 million in profit, they would have to sell an additional $46 million worth of product. This is the equivalent of growing the business 9%.
It can be so much cheaper to just keep those workers safe to begin with. If you could improve your safety performance by even 20% the business would see an $838,000 benefit.
The impact of your real-world safety performance is very tangible. It extends all the way from the annual return to shareholders to the empty seat on a lounge room couch while a family member recovers in hospital.
And this is where the Mastercard reference comes in!
For those who are of a certain age, you might remember the series of Mastercard ads where a dollar value was placed on an item purchased (using the aforementioned purveyor of credit), and the intangible or immeasurable feeling, look or heartwarming moment that results.
As an example: ‘New tennis shoes for your granddaughter: $89.99. The look on her face as she makes the shot: Priceless’.
So while you might be thrilled at the impact to the bottom line that can be made by managing safety more effectively, those team members at risk of an injury or illness are more likely to be impressed by the things that can’t be measured. Those things that are priceless….
Can we really put a price on these sorts of things?
· Missing out on school concerts.
· Or sporting events.
· Having to rely on someone else to go to the toilet.
· Being unable to toast a friend’s birthday as the medication and alcohol don’t mix.
· No playing hide-and-seek (unless the hiding place can hold a human and a wheelchair or crutches?)
· Missing morning teas at work to celebrate a milestone.
· What about missing a trip to Europe to visit family? Sure, the flights and accommodation might be refunded, but that’s not the essence of the trip, right?
· Even the simple satisfaction of finishing the mowing and rewarding yourself with a drink.
These (and millions more) could be the hidden or human costs of a ‘serious claim’. They will never appear on your P&L and will never form part of an Investment Proposal.
But they are part of the ‘why’ behind people coming to work.
So get safety right and your people will pay dividends time and time again. And that’s good business!