PayneWest Blog

Calculating Your Safety ROI for Your Construction Company

According to the Occupational Safety and Health Administration (OSHA), businesses spend at least $97.4 billion a year on costs associated with occupational injuries and illnesses—expenditures that come straight out of company profits. Indirect costs associated with these losses, such as lost productivity and employee replacement, can often double the amount an employer ends up spending. However, workplaces that establish safety and health management systems can reduce their injury and illness costs by 20% to 40%. In today's business environment, these costs can be the difference between operating in the black and running in the red.

Measuring the Cost of Safety

Demonstrating the value of safety to management is often a challenge because the return on investment (ROI) can be cumbersome to measure. Your goal in measuring safety is to balance your investment vs. the return expected. Where do you begin?

There are many different approaches to measuring the cost of safety and the way you do so also depends on your goal. Defining your goal determines what costs to track and how complex your tracking will be. For example, you may want to capture certain data simply to determine what costs to build into the price of your services, or to track your company’s total cost of safety to show increased profitability. This would include more specific data collection like safety wages and benefits, operational costs, and insurance costs. For measuring data, safety costs can be divided into two categories:

 

1. Direct (hard) costs, such as:

  • Safety wages
  • Operational costs
  • Insurance premiums and/or attorney’s fees
  • Accidents and incidents
  • Fines and/or penalties

 

2. Indirect (soft) costs, which go beyond those on paper, such as:

  • Accident investigation
  • Repairing damaged property
  • Administrative expenses
  • Worker stress in the aftermath of an incident resulting in lost productivity, low employee morale, and increased absenteeism
  • Training and compensating replacement workers
  • Poor reputation, which translates to difficulty attracting skilled workers and lost business share

 

How to Show ROI

OSHA studies indicate for every $1 invested in effective safety programs, you can save $4 to $6 as illnesses, injuries, and fatalities decline. With a good safety program in place, your costs will naturally decrease. It’s important to determine what costs to measure to establish benchmarks, which can then be used to demonstrate the value of safety over time.

Safety as a Core Business Strategy

Industry studies report that companies who focus on safety as a core business strategy come out ahead. For example, the American Society of Safety Engineers reports that a fall protection program implementation by a U.S. construction company reduced their accident costs by 96% —from $4.25 to $0.18 per person-hour.

Considering the statistics, safety experts believe there’s direct correlation between safety and a company’s profit. We’re committed to helping you establish a strong safety, health and environmental program that protects both your workers and bottom line.

 

 

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This content is provided by Marsh & McLennan Agency for informational purposes only.  Consult your actual insurance policy for details regarding terms, conditions, coverage, and exclusions.

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