ROI (return on investment) has historically been used as a decision-making tool for company financial operations. But an increasing number of companies now expect their safety directors to use it to evaluate and justify safety investments. This series is designed to acquaint safety professionals with ROI and how to measure it. Last week, we looked at the elements of ROI. This week, let's talk about some of the problems that arise in calculation.

Variables in the ROI Equation

In case you missed last week's issue, the ROI equation is:

ROI = Net Benefits x 100 %
Costs

Although the equation is pretty straightforward, there are some subtle variations in application. You need to talk to your company's financial officials to make sure you know which formula your own company uses:

• Are net benefits calculated before or after taxes?
• Are net benefits calculated before or after depreciation?
• What ROI levels does the company expect to approve investments outside safety? If the ROI on your proposed investment isn't competitive with other proposals within the company, it obviously won't stand much chance of being adopted.
• How immediate must ROI be? Does your company insist on recouping all costs within the fiscal year? Within one full year? Over the life of the project? The more immediately you can show a positive ROI, the better your chances of winning financial support for the proposal.

Impact on the Safety Program

Using ROI to justify a safety program may also have implications on how you go about managing it. ROI works best when benefits are easy to identify, measure and manage. Unfortunately, benefits in the safety realm generally don't meet these criteria. Or, more precisely, the back-end or "trailing" indicators such as rates of recordable injuries that safety directors have traditionally used to measure the success of their safety programs don't work well with ROI models.

That's why using ROI to sell safety might necessitate adopting "leading" indicators that are more predictive of injuries and accidents.

The Procter & Gamble Example

The consumer products giant Procter & Gamble (P&G) is an example of how to use leading indicators to measure the success of an environmental, health and safety program. P&G identified nine "key elements," or indicators of success in the safety realm, including safe practices and effective training sessions. It then asked each of its facility administrators to rate the facility's effectiveness for each element on a scale of 0 to 20.

After four years, all scores were added up and compared to the facility's injury rates.
Result: P&G identified that a score of 8 or better was a strong indicator of low injury rates. Consequently, all facilities falling below an 8 had to develop an action plan and a time frame for reaching a minimum score of 8.

Conclusion

ROI works best as a decision-making formula when it incorporates measures that are predictive rather than reactive. Next week, in Part 3 of this series, we'll look at the metrics in greater detail and explain how to move from an accident-based reactive measurement system to a performance-based predictive one.

BY THE NUMBERS

Death on wheels : truck wreck in Lawyer, TN

Work-Related Roadway Deaths

By Glenn Demby

Roadway crashes remain the leading cause of work-related fatalities, by far. Here are some grizzly statistics that document the dimensions of the problem:

4:
The average number of civilian workers who die in road crashes each day. (Source: Bureau of Labor Statistics, Census of Fatal Occupational Injuries).

22:
The percentage of work-related deaths caused by roadway crashes between 1992 and 2001 (as compared to 13% from homicide and 10% from falls). (Source: BLS, Census Fatal Occupational Injuries).

$61 billion:
The total amount of lost wages and benefits for crash victims (occupational and non-occupational) in 2000. (Source: National Highway Traffic Safety  Administration).

Vehicles Involved:
* Semi-trucks—28%
* Automobiles—24%
* Pickup trucks—12%
(1992-2001 figures. Source: National Institute for Occupational Safety and Health).

Industries Involved:
* Transportation—33%
* Services—14%
* Construction—11%
(1992-2001 figures. Source: National Institute for Occupational Safety and Health).

Accident Characteristics:
* 49% were collisions between vehicles
*54% occurred between 7 a.m. and 4 p.m.
* 38% took place on U.S. and state highways
* 89% of fatally injured workers were male
(1992-2001 figures. Source: NIOSH).

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