Editor's Note: Mark Hansen is one of SafetyXChange's original advisors and most prolific contributors. He has been a steady hand and a reliable friend to Catherine and me. So we think it only fitting that he should have the honor of authoring the lead story on this special day.

Happy Birthday, SafetyXChange. The subject of today's piece is one that's become an essential part of safety management and advocacy of the safety program. Return on investment (ROI) is a key meter of performance on management's "dashboard." The reason for this is simple: Stockholders and financial analysts use ROI (which is sometimes referred to as return on capital employed or return on assets) to judge the company's future. And the judgment they make often directly affects the company's future and the job security of its safety director and other employees.

The simple message: Your environmental, safety and health programs better move the needle on management's ROI meter. If they don't, watch out.

ROI and the Safety Program

I know that ROI wasn't what a lot of us had in mind when we got into safety. Our original intent was and remains the improvement of the company's environmental, health and safety (EHS) program performance. ROI maximization wasn't necessarily a part of that equation.

But we also learned early on in our careers that we couldn't get very far with our EHS plans without the backing of executive management. We also discovered that the best way to secure that backing was to ensure that our EHS programs moved the needle significantly to the right on the ROI meter.

The ROI Model

Return on investment probably exceeds the scope of the expertise most of us possessed when we started out at our companies. The ROI model is an ingenious tool to help practitioners overcome this limitation. Figure 1 illustrates this. To move the needle on the ROI meter, follow the model's trail.

Figure 1. The ROI Model

The model shows the business engine that the ROI meter is monitoring. It has two subsystems:

• Income as a percent of revenues; and
• Turnover of assets.

ROI is the product of the subsystems. They, in turn, relate revenue, expenses, income and capital, and our rent assets to each other and to ROI.

The Importance of Validating Programs

EHS programs should be validated by the impact on the engine's components. Otherwise, the impact of those programs on overall business performance is likely to be minimal and accidental.

Programs must also be validated according to relative impact on ROI. For example, a company may seek to reduce EHS expenses. However, analysis may find that increasing production from existing assets may have greater consequences for ROI.

Another example is the company that seeks to reduce investment in inventories. However, while reducing production inventories through equipment availability performance has immense ramifications for ROI, reducing inventories does not. This is because inventories represent only a small percent of total assets.

Using the Model

The ROI model has a long history of industry use. EHS practitioners can use it to set business-based direction for enhancement programs. Here is how:

Step 1: Explore and understand the nature of the business in which your company competes.

Step 2: Divide the plant into production units. Differentiate between the unique internal and external business environments, and the strategic challenges faced by each.

Step 3: For each production unit and its unique business case, establish availability-based business goals with respect to subsystems and components of the ROI model.

Step 4: Assess and compute the relative impact of goals for ROI. Set performance targets (objectives) for each goal as a result of the assessment and computation.

Step 5: Reassess, prioritize and reorganize your company's existing EHS enhancement programs to best achieve availability-based business goals and their objectives.

Conclusion

Admittedly, this brief introduction to ROI principles represents just the tip of the iceberg. Still, acquainting yourself with the principles of ROI is of great importance to your company and your career. Executive management wants to pursue market profit share; the EHS practitioner wants to pursue EHS performance. ROI enables both sides to link up and move forward in concert and in pursuit of a common objective. Thus, moving the needle on the ROI meter makes a company safer and more profitable.

THE ROI OF SAFETY
The Liberty Mutual Study

By Glenn Demby

In 2001, the workers' compensation insurance giant, Liberty Mutual conducted what remains the seminal study on executive perceptions about the ROI of safety programs. Liberty Mutual interviewed 200 executives responsible for workers' compensation at their companies - 75 from mid-size companies with100 to 999 workers and 125 from big companies with over 1,000 workers. A whopping 95% of these executives said that workplace safety has a positive effect on financial performance.

But that was just the beginning. Of this 95%, 61% reported that they get an ROI of at least $3.00 for every dollar they invest in safety. 13% reported an ROI of $10.

Here are highlights of the study:

• Safety positively affects financial performance: 95%
• Safety has a substantial positive effect on performance: 24%
• Safety has a positive ROI: 86%
• Each $1 invested returns $3 or more: 61%
• Each $1 invested returns $10: 13%
• There's a close relationship between direct and indirect costs of accidents: 93%
• There are between $3 and $5 of indirect costs for each $1 of direct costs: 40%

SOURCE: Liberty Mutual Insurance Co.: Executive Survey of Workplace Safety

Marilyn Monroe: Delivered history's most famous rendition of "Happy Birthday"

'HAPPY BIRTHDAY TO YOU' TRIVIA

By Glenn Demby

"Happy Birthday to You" is the most popular song in the English language. And you don't need the Guiness Book of World Records to tell you that. Just go out to a crowded restaurant for dinner and you'll probably hear the song at least once during the meal.

Two teachers from Louisville, KY, Mildred Hill and Dr. Patty Smith Hill, wrote the four-line ditty in 1893 as a classroom greeting. The original title: "Good Morning to All":

Good morning to you,
Good morning to you,
Good morning, dear children,
Good morning to all.

When did the lyrics change? Nobody is completely sure. But the "Happy Birthday" lyrics were published as a second verse in a 1924 songbook by Robert Coleman. In 1931, the song "Happy Birthday to You" was part of the score of the Broadway musical The Band Wagon.

The song is so popular that most of us assume it's in the public domain. But, in fact, the song was copyrighted in 1935 by the Summy Company. The copyright, which apparently generates $1 million per year in royalties, was purchased by Warner Chappell for $15 million in 1990. So, technically, each time you sing "Happy Birthday," you should pay Warner a royalty. Fortunately, the copyright expires in 2030, at which point we can all sing "Happy Birthday to You" without guilt or fear of being busted by the copyright police.

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