Page 92 - Occupational Health & Safety, October 2018

RISK MANAGEMENT
The Economics of Workplace Safety
Numerous case studies revealing the positive relationships between safety and productivity are backed up by organizations that gather global statistics on accidents and incidents.
BY R. TODD SWINDERIMAN
t isn’t a question of “if,” it’s a question of “when” your business will experience a serious work- place accident or enterprise-wide disaster. There are many things that can be done to extend the
“when,” even to the point of making “when” an almost statistical impossibility. Using conveyor design as an example, this article provides a useful methodology— which can be applied to any aspect of safety—for justifying investments to reduce the probability and severity of accidents.
Safety in the workplace is not a modern idea bred by government regulation; it is a common-sense idea as old as the first quarry. In this day and age, safety is a key factor in worker protection, reduced insurance rates, and a lower total cost of operation. However, operating budgets are often so tight, many people within an organization find themselves asking:
■ How does the Maintenance or Operations Manager convince the Plant Manager to spend money from the annual budget for safety improvements?
■ How does the Plant Manager influence corporate decision-makers to prioritize safety im- provements?
Prior to installation of safety equipment and im- plementation of corresponding procedures, there are cultural and structural obstacles to achieving a lasting solution. The main culprits are the almost universally used Low Bid process, variations in reporting incident statistics between industries/countries, and the Gen- erally Accepted Accounting procedures (GAAP) or International Financial Reporting Standards (IFRS).
Striving for Less
The conventional approach dictates that an organiza- tion should spend only enough to meet the minimum regulations needed to maximize production. Plan- ning safety upgrades based upon price alone results in the lowest-quality equipment achieving the mini- mum compliance—often with no reasonable options to rectify the problems other than spending more on another solution—rather than focusing on long- term life cycle cost. So in reality, accidents caused by shortsighted and economically driven solutions harm people, degrade the environment, and reduce the company’s bottom line.
Often when companies buy on price (Low Bid), the benefits are short lived, and costs often increase, resulting in a loss over time. In contrast, when pur- chases are made based on lowest long-term cost (Life
Cycle Cost), benefits usually continue to accrue and costs go down, resulting in a net savings over time. \[Figure 1\] In order to win the bid on price, suppli- ers only have to meet minimum quality and safety requirements, when a little additional investment for safer and more reliable equipment will usually result in a safer operation that is sustainable: easier to ser- vice, longer life, with lower costs to maintain.
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Many companies tout a focus on safety, but few fully achieve the goal. Giant billboards at plant en- trances proclaiming world-class compliance with quality and safety standards may shade a different reality inside the plant. Glossy annual reports with safety slogans and sustainability statements look nice for shareholders and investors but are often little more than words on a page. Behind the front gates and the annual reports the message is clear: Produce or be replaced.
Some companies go beyond the window dressing by continuously improving the safety culture from the top down. Organizations that embrace safety show significant performance advantages over the competi- tion. The proof is reflected in safety, productivity, and environmental records, along with above-industry- average financial returns and higher share prices.
Tangible Intangibles
Driven to report direct or tangible numbers that can be documented and are within the “GAAP or IFRS Rules,” current accounting (and reward) systems in- centivize financial managers to seek the lowest pos- sible expenditures on safety. Justifying safety invest- ments is greatly enhanced by quantifying what most financial managers refer to as “intangible costs.” With direct costs being the focus of decades of cost reduc- tion programs, there is little direct expense left to cut