Point: Not Necessarily
By R. A. Bernard
Like many safety professionals, I've long argued that direct costs alone don't paint a true picture of what organizations pay when injuries occur because they don't account for losses such as loss in productivity, loss of the investment made in training the injured worker and administrative costs like the time the company spends investigating the incident and pursuing the claim.
Identifying direct monetary costs is relatively easy. After all, data covering such costs including medical treatment, impact of the organization's claims history on premiums, wages paid to replacement workers, attorney's fees and the like are readily available.
However, is it really fair to say that an organization faces additional losses beyond those direct costs? True, filing a claim is a time-consuming process that burns a lot of administrative energy. The same is true of incident investigations, hiring replacement workers and integrating them into operations.
But what if there's no productivity loss? After all, the resources spent to perform the additional work that follows an injury were already part of the organization's operational costs. Yes, there may have been higher than expected demands placed on those individuals impacted by the injury of a fellow worker. But that in itself, doesn't necessarily translate to an organizational loss. Only if it can be determined that there was a negative impact on the final product or service should there be argument that additional losses have been incurred - the real cost of an injury!
One can also argue that costs include the psychological factors that come into play when workers witness or experience workplace injury. For instance, the worker can suffer traumatic stress that reduces his capacity. This may be true. However, unless it results in a loss of productivity, can we really label it a monetary loss to the organization?
It could be argued that the investigation of injuries and proper administration of claims is far more value-added than the myriad of meetings, e-mails and reports that individuals in the workplace are required to deal with on a daily basis. Don't get me wrong - I'm not saying that having injuries is value-added, only that we spend far too much time on non- value-added activities to make statements that proper incident investigations are a loss.
In short, identifiable monetary expenses that an organization incurs as a result of a workplace injury should count as the real monetary cost of an injury. That would include losses incurred because of a reduction in end product or services. In addition, the time invested in peripheral activities associated with the injury by individuals already part of operational costs can be, and should be, identified and measured. However, I'm not fully convinced they should be included in the so-called real "cost" of injuries.
Counterpoint: Yes, Definitely
By Mark D. Hansen
It's been suggested that indirect costs aren't necessarily part of the operational costs of an accident if there's no loss in productivity. I disagree with this conclusion and consider the premise it rests on to be faulty. In my twenty-three years of experience as a safety professional, I have yet to witness an accident without indirect costs and resultant productivity costs impacting operations. I have never seen SOPs with procedures that state, "Employee gets hurt here, no impact to operations and the bottom-line." Doesn't that sound ridiculous?
Indirect costs are real. The issue is how to quantify them. Having an Industrial Engineering degree has taught me that everything, and I mean everything, can be reduced to a number, a number with financial value and both positive and negative attributes. Further, if you can measure it, you can manage it. And if you can manage it, you can minimize it. This is true of costs. And it's especially true of quantifying the indirect costs of accidents.
The easy way out would be to point to insurance costs which are very real and quantifiable and when allocated back to business units can have a significant impact on the business and productivity. Also, we've all seen the tables of percent profit to make up for every thousand dollars of accident costs based on documented research. The costs of physicians, replacement employees, treating employees with injuries, damaged equipment, supervisors not working on supervising, employees not thinking about the job, lost production and loss of customers, among others, have a clear impact on operations and productivity. The key is quantifying these indirect costs in a fashion that has meaning to the organization and its operations.
I submit that indirect costs have a significant impact on a company's competitive advantage. I've seen companies lose a customer's business as a result of accidents. Talk about indirect costs from a loss of revenue. The bottom line: Eliminating accidents increases profits, mismanage safety and you just might go out of business. If that's not having an impact on operations, I'd like to know what is.
I think you'll feel the truth in what I'm saying when you sit down with your company's accountant, CFO, CEO, department head, etc. Everything is quantifiable, measurable and manageable. Even "gray" indirect costs can be converted into "black-and-white" financial values, values that impact operations. You'll also see that these indirect costs clearly affect productivity and operations.
So I ask you: How can accidents not result in indirect costs and affect productivity?
Tell Us Your View
Do you have a point of view on this issue? Do you side with Bob or Mark? Or, maybe you have a completely different perspective altogether. We want to hear it. Go to the SafetyXChange discussion group and state your piece. We'll list some of the responses in next week's issue of Safety Economics Insider.
Safety Business News
Odyssey Investment Buys Leading PPE Manufacturer
May 24. Odyssey Investment Partners LLC announced that it's signed an agreement to acquire Norcross Safety Products L.L.C. for $495 million. Headquartered in Oak Brook, IL, Norcross has facilities all over North America, as well as in Germany, Holland, the Czech Republic and South Africa. It's one of the world's leading supplier of personal protective equipment and its brands include North, Morning Pride, W.H. Salisbury, Servus Footwear, Ranger Footwear, Pro Warrington, XTRATUF, Northerner, The Original Muck Boot Company and KCL. Odyssey is an investor group consisting primarily of funds controlled by Trimaran Capital Partners, John Hancock Life Insurance Company and CIVC Partners.