Direct costs of workplace injury just tip of iceberg

by Haig Neville

for the Business Journal

The accident took place in an instant. The worker received prompt first-aid attention, and the injury was treated. The after-effects of the accident, however, transpired more slowly.

Workers who witnessed the scene were too shaken up to resume their duties. Production stopped until the damaged equipment was cleared and replaced with new machinery. Managers reassigned the injured worker, called in a replacement and introduced him to his new duties.

The supervisor filled out a lengthy accident report and several regulatory forms. And the plant owner prepared himself for possible litigation. What are the organization's cost implications of these inter-related events?

Many such accidents, and the accompanying loss of production and efficiency, can be avoided through establishing manager/employee safety committees, instituting regular training programs and inspections, conducting emergency drills, etc.

Certainly the most quantifiable benefit resulting from the successful introduction of a safety program is a reduction in casualty and workers' compensation insurance rates. Less measurable benefits, however, involve the avoidance of the indirect costs of an accident.

Indirect costs. The indirect costs of an accident take into account the sometimes immeasurable costs of lost production and efficiency on a company-wide basis. They include the following:

?Cost of wages for lost time of uninjured coworkers. Workers adjacent to the accident scene who stop their work to watch or offer assistance, or talk about the accident need to be considered when assessing the financial impact.

?Cost to repair or replace damaged material or equipment. This includes the time to order, deliver and test the new machine following the accident.

?Cost of training replacement workers. Recruiting and training temporary or permanent workers, and all the costs incurred by administrative personnel, need to be factored.

?Cost of overtime. Extra costs of employee overtime to make up lost production frequently occur after a workplace accident.

Other indirect costs of an accident also result in loss of productivity, including:

?Cost of foreman's diverted activity. Supervisory wages for time attending to the accident must be assigned to the total costs of the accident.

?Wage cost due to reduced production. The cost of wages for the handicapped worker's return to a job for which he is reasonably suited could also be a factor, due to the decreased performance level of the worker.

?Cost of clerical supervision and accident investigation. Filing accident and investigation reports to the insurance company and regulatory agencies, and the expense of accident investigation and recommendations for preventative measures are to be considered.

?Remedial and compliance costs for equipment safeguards. Following the event, response to regulatory hearings and equipment modifications for compliance can be costly, including special safety training, procedures and monitoring of results as directly related to the accident.

Cost of criminal negligence. Finally, there is a potential cost experienced by high-level executives who might be found guilty of violating workplace safety regulations.

Consider the outcome of the tragic 1991 fire at Imperial Food Products' poultry processing plant near Charlotte, N.C. In one of the worst industrial accidents in the state's history, 25 workers were killed and 50 injured due to illegally locked or blocked doors.

A federal judge ordered the insurance companies to pay $18.1 million to settle claims, and as a result of the safety violations, Imperial Food's owner was sentenced to 19 years in prison on 25 counts of manslaughter.

In another example, the Illinois Supreme Court ordered five senior officials of Chicago Magnet Wire Co. to stand trial on criminal charges that they were responsible for job-related injuries to their employees.

The decision stemmed from charges that the officials allowed more than 40 workers to become ill from exposure to a dozen hazardous chemicals. Legal experts say the decision is likely to lead to additional charges against corporate officials in worker-injury cases in other states.

The real story. According to the National Safety Council, the indirect costs of industrial accidents is a magnitude of four times the actual direct costs. In other words, the real costs of workplace injuries are several multiples of the calculable workers compensation and employee disability payments.

When this calculation is combined with the potential costs incurred by executives defending against criminal negligence, the true cost of workplace injuries becomes staggering.

These costs, however, are unnecessary. A recently released study notes about 85 percent of all workplace injuries and fatalities can be avoided.

The findings state that most workplace accidents and injuries stem from human error or inattention that can be prevented by making sure employees have been properly trained for their jobs; by introducing and requiring all employees to adhere to safe workplace practices; and by getting managers, as well as the rank-and-file, to make a genuine commitment to worker safety.

The factors listed are among the components the Occupational Safety and Health Administration recommends as part of a health and safety program.

Safety from the top down. Study after study has shown the crucial role that management plays in effective safety programs.

Such concern is manifested in a number of ways: appointment of a high-level safety officer, rewards to supervisors on the basis of the safety records of their subordinates, and comparison of safety results against preset objectives.

Management's good example completes a loss-control program. If hard hats are required at a particular operation, then executives should wear hard hats, too. If employees see executives disregarding safety rules or treating hazardous situations lightly by not conforming with regulations, then they will feel that they, too, have the right to violate the rules.

In short, organizations show their concern for loss control by establishing a clear safety policy and by assuming responsibility for its implementation.

Essential steps to safety. Investing in a safer workplace cuts the expense of treating injured workers and helps companies control insurance premiums and prevent workplace accidents.

Equally important, effective safety standards in the workplace boost employee morale by conveying the message that the company cares enough about its people to protect their health and safety.

Safety problems are easily and inexpensively avoided with the following steps:

?Tighten up housekeeping. It sounds simple, but such activities as keeping floors swept and obstacles out of the way make a major contribution to reducing accidents in both factories and offices.

Pay special attention to seemingly harmless items that can easily become hazards. An example is water spilled around a water cooler or pathways obstructed by wires or boxes.

?Conduct regular safety checks. Unless your company is large enough to hire a full- or part-time risk manager, consider retaining a safety consultant to inspect the premises once or twice a year. To find one, consult your insurance company.

It may offer to do the inspections itself or suggest other specialists. The cost is typically $300 to $400 for one day which is the time required to make a safety inspection at most small companies.

?Institute regular fire drills. If you retain a safety consultant, ask for suggestions on the frequency of fire drills. As a rule, businesses need drills two or three times a year, but some types of companies handling flammable materials should hold drills more often.

?Train employees to be safety-conscious. Alert workers to areas that pose potential safety risks, such as stairways, light fixtures, etc. Many accidents can be avoided by orienting new employees to their environment or by reminding workers of past accidents and the procedures for avoiding them in the future.

?Continuously improve safety training. Few companies would let untrained employees operate heavy machinery, but a surprising number allow them to use everyday office equipment that can also cause injury.

Training basics include instructing all employees in safe machine operation; stating safety procedures in employee handbooks; and supporting employees in first-aid training offered by the Red Cross and other civic organizations.

Each one of these suggestions can be implemented inexpensively and has reduced workplace injuries in organizations of all sizes.

Real life benefits. An example of this positive outcome is seen at MetroParks Recreational Authority of Suburban Detroit, Mich. The organization cut workers' compensation premiums by more than $150,000 after experiencing a 50 percent reduction in accident frequency and severity.

In consultation with its insurance company, the park-and-golf-course system implemented a rigid workplace safety program. The program consisted of safety training seminars, inspection of work sites and working procedures, combined with investigation of accident causation and prevention with constant monitoring.

In addition to the reduction in insurance premiums, the organization experienced an increase in worker efficiency and morale.

As your company undertakes a safety program, consider the cost/benefit an-

alysis outlined above. Beyond mere regulatory compliance, you have a number of options regarding the degree to which your company invests in safety.

Underlying these efforts is a conviction on the part of many firms that it is morally right to improve job safety and health, and that doing so will enhance the productivity and quality of work life of employees at all levels.

(Haig Neville is a principal with Haig Neville Associates of West Bloomfield, Michigan.)

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