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Risk Management Roi Presentation

The ROI of Safety: Making the Business Case for Safety and Health

April 12, 2022
Workplace safety is an issue businesses can manage and control—if they have the right tools to measure the economic impact of occupational injuries and illnesses.

The road to workplace safety and health regulations is long and twisty. Over the years, millions of workers have died as a result of injuries and illnesses caused by their work or workplace—caused, in fact, by employers that perceived safety as a cost center and workers as an easily replaced commodity.

In the 1968 article, “The Economics of Safety,” Joseph J. Spengler asked: “How [can] an optimal balance … be achieved between the value of varying degrees of safety and the cost of providing these degrees?” and “How [can] combinations of rewards and penalties … give rise to a degree of safety that is neither excessive nor deficient but optimal in the sense that its value and cost are in balance?” 

The prevailing attitude of the time (and earlier) was that safety—both in the workplace and consumer safety—was a resource-absorbing “product” with associated costs that didn’t necessarily outweigh the benefit of not injuring or killing employees. Injuries and fatalities were (and are) perceived by many organizations as part of the cost of doing business.

This perception stemmed, in part, from consumer safety. Companies felt it was cheaper to pay a large legal settlement than change a manufacturing process or product design.

Probably one of the most well-known safety advocacy efforts was the fight to install seat belts and other safety-related equipment in automobiles, a move fought by automotive manufacturers because of the additional manufacturing costs associated with installing seatbelts and airbags as well as redesigning popular car models to remove structural hazards.

Safety advocates took on these issues in the 1960s, 1970s and beyond, believing that the ultimate ROI of these measures was protecting lives. Meanwhile, a similar battle was being waged in the workplace.

When Safety Fails: Making Headlines 

It’s difficult to calculate the cost of events—chiefly workplace fatalities and injuries—that don’t happen. Unlike consumer safety issues, workplace injuries and deaths are often handled outside of the courtroom, by employer attorneys negotiating citations and fines with regulatory agencies and the filing of workers’ compensation claims.

Only high-profile cases with large numbers of casualties or those that have an impact on the surrounding community or environment make the news, such as the Deepwater Horizon drilling platform fire and explosion, the Bhopal methyl isocyanate gas leak and the Upper Big Branch Mine disaster.

Investigations of these tragedies often highlight issues similar to those found in consumer safety cases:

  • Employers that knew about—and ignored—hazards, believing the likelihood of a major incident to be negligible or the cost of a solution to be too high in terms of resources and cost;
  • Copies of reports about safety concerns ended up in someone’s bottom desk drawer;
  • Deferred maintenance; and
  • Pressure to meet production deadlines that superseded safety.

The Financial Cost of Injuries

Not all workplace injury and illness cases or fatalities make headlines—in fact, most do not—but that doesn’t mean that they don’t carry an economic cost as well as an emotional and physical toll on the workers and their families.

Workplace fatalities, injuries and illnesses cost employers billions of dollars every year. In its 2021 Workplace Safety Index, Liberty Mutual estimated that U.S. employers paid more than $1 billion per week for direct workers’ compensation costs—a total of $58 billion per year—for disabling, nonfatal workplace injuries.

That total doesn't factor in indirect costs, including training replacement employees, accident investigation and implementation of corrective measures, lost productivity, repairs of damaged equipment and property, and costs associated with lower employee morale and absenteeism.

The National Safety Council (NSC) estimated that U.S. work-related deaths and injuries cost the nation, employers and individuals $171 billion in 2019. These cost estimates are a measure of the economic impact of preventable injuries and may be compared to other economic measures, such as gross domestic product, per capita income and personal consumption expenditures. The costs reflect the impact to society, not specifically to employers.

According to NSC, the total cost of fatal and nonfatal injuries per worker—all workers, not just injured workers—in 2019 was $1,100. This includes the value of goods or services each worker must produce to offset the cost of work injuries; it is not the average cost of a work-related injury. Cost per medically consulted injury in 2019 was $42,000, while the cost per death was $1.22 million. These figures include estimates of wage losses, medical expenses, administrative expenses and employer costs but exclude property damage costs, except to motor vehicles.

CSR and ESG: Protecting Valuable Assets

Fifty years later, after groundbreaking changes to consumer safety laws and with the costs of injuries steadily rising, society is embracing the belief that corporate leaders and their boards of directors have more than a moral and ethical reason to protect workers; they have a fiduciary duty to do so. The rollout of corporate social responsibility (CSR) and environment, social and corporate governance (ESG) guidelines and reporting have made employee safety and health high on the list of corporate values required by companies wishing to remain sustainable, viable and profitable entities.

That said, international injury and fatality statistics are staggering. Each year, more than 2 million men and women die from workplace injuries and illnesses, according to the International Labour Organization. Businesses need to understand two things:

  1. That workplace safety is an issue they can manage and control, and
  2. That safety professionals need better tools and technology for measuring the economic impact of occupational injuries and illnesses.

Both CSR and ESG place great emphasis on creating a safe work environment for employees, and the value a safe and healthy work environment brings to a company’s reputation and bottom line. A 1996 study by Turban and Greening 1996 found that a higher level of corporate social performance “may provide a competitive advantage by attracting more applicants.” They also showed that “job applicants have a higher self-image when they work in a socially responsive firm.”

CSR should be seen as an investment policy in human resources—employees are, after all, a company’s greatest and most valuable asset—and can help to reduce turnover rate, retain the most productive employees, retain high levels of employee engagement and reduce the risk of conflict long-term.

Paul O’Neill and the Story of Alcoa

There is one legendary story that does a better job than any other of linking safety performance with operational excellence. Through the years, many corporate leaders have embraced safety as a measurement of operational excellence, but none so famously as Paul O’Neill.

O’Neill, who was CEO of the Alcoa Corporation from 1987-2000, made waves when he addressed a group of 250 Wall Street analysts and investors in October 1987. “I want to talk to you about worker safety,” he told them. “Our safety record is better than the general American workforce, especially considering that our employees work with metals that are 1500 degrees and machines that can rip a man’s arm off. But it’s not good enough. I intend to make Alcoa the safest company in America. I intend to go for zero injuries.”

Then O’Neill dropped the biggest bombshell of all: “We’re going to put safety over profits,” he added, causing one shareholder to declare that he was a “crazy hippie” who was going to “kill the company.”

“Focusing on worker safety can transform an entire organization and dramatically improve culture, quality, productivity, communication and ultimately profits,” O’Neill theorized. In the case of Alcoa, he was right. Under O’Neill’s watch, Alcoa dropped from 1.86 lost workdays per 100 workers to 0.2. A year after O’Neill’s speech, the company’s profits hit a record high. With O’Neill as CEO, Alcoa’s market value climbed from $3 billion to $27 billion, and its annual net income was five times higher than when he started.

Author Charles Duhigg refers to Alcoa’s focus on safety as a “keystone habit,” something that created a change that rippled through the corporate culture at the company in his 2012 book, The Power of Habit: Why We Do What We Do in Life and in Business. According to Duhigg, the focus on worker safety revealed an inefficient manufacturing process, one that created substandard products and was dangerous for workers.

“All that growth occurred while Alcoa became one of the safest companies in the world,” Duhigg wrote. “Before O’Neill’s arrival, almost every Alcoa plant had at least one accident per week. Once his safety plan was implemented, some facilities would go years without a single employee losing a workday due to an accident. The company’s worker injury rate fell to one-twentieth the U.S. average.”

The Rise of Safety Technology

O’Neill noted that technology advancements—specifically the ability to track injuries in real time—gave Alcoa the ability to transform its safety culture. O’Neill credited the development of a safety-data system at Alcoa for being a catalyst for dramatic improvements in the company’s safety record during his 13-year tenure as CEO.

Shortly after joining Pittsburgh-based Alcoa in 1987, O’Neill tasked several Carnegie Mellon University graduates to develop the IT infrastructure for a real-time safety reporting system. O’Neill’s vision was to have Alcoa facilities post all injuries and incidents within 24 hours after they occurred, along with the corresponding root-cause analyses and corrective actions. O’Neill wanted the reports to include the names of the employees involved.

In a keynote address to attendees at the 2013 National Safety Congress, O’Neill said, “One of the things I’ve learned is if you’re managing numbers, it feels a lot different than if you’re dealing with individuals, human lives and injuries to people.” The point of sharing the names was not to penalize the injured employees, he said, but to make those injuries feel “real” to other employees. “I wanted their co-workers to know, ‘My friend got hurt.’ This is another human being. This is not about OSHA recordable rates or something—this is about individual human beings who are part of our family.”

Alcoa’s safety and financial success under O’Neill undermined the long-standing assumption that injuries and accidents were inevitable byproducts in the quest for profits. “People confused the idea that customers and production were the most important thing with the idea that workers had to put themselves at risk for the greater good of the company,” O’Neill told the NSC audience. “It was always a stupid idea. But it took a while to get people to believe that it was neither right nor necessary.”

Sandy Smith is director of global content with Intelex Technologies, a provider of EHSQ management software. She is an award-winning newspaper reporter and business-to-business journalist who has spent 20+ years researching and writing about EHS and networking with EHS professionals, including her previous tenure as content director of EHS Today. This article was condensed from the Intelex ebook The ROI of Safety: Making the Business Case for Safety and Health.

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