Accidents:the real cost

01 May 2008

A platform in Switzerland receives some attention from the police authorities.

A platform in Switzerland receives some attention from the police authorities.

You might think that the cost of an accident is the bill you received from the doctor to treat an injured employee. You might think that the cost of an accident is the check you wrote to repair the damaged fence your driver drove over on the jobsite. You might think that the cost is the customer who calls you up to complain that you are late with a delivery because you have an employee off work because he was injured the day before.

In all these cases you would be right. These are the consequences or real costs of an accident. The differences in the above examples are: some are tangible, or hard costs, like the doctor bill and the fence repair, and some are not tangible, or soft costs, like the unhappy customer.

Before we discuss costs I believe we need to change some words we use when we talk about accidents and risk to help everyone understand the real costs of an accident.

First we must define an accident. An accident is simply an unexpected or undesirable event. Does that really describe what happened? Is this unexpected event really unexpected? Many investigations indicate that some people involved knew beforehand that something undesirable might happen, but they took the chance or risk anyway. Until you do a thorough investigation you cannot know if the “accident” was truly unexpected, a true accident. Therefore, it is best to describe an “accident” as an “incident.” An incident is simply an occurrence or event causing or likely to cause a crisis.

“Studies have shown that soft costs can be three to 50 times the hard costs of an incident. The hard costs, the bills you write a check for, plus these soft costs add up to the real costs of an accident.”

All workers take on some risk when performing their assigned tasks. When taking on these risks staff have to make decisions as to how much risk to take. Without some information on the consequences of accidents, there is no way that these workers can completely assess the risk related to their task. Risk is the possibility of harm or loss. Most workers will avoid harm or loss to themselves first, then to others second, then to property orequipment third. How do workers assess risk without the big picture of what the consequences or costs are for taking on that risk? As an employer we have a responsibility to makeall employees aware of the consequences of taking on that risk. Consequences are all the costs of that incident.

Now that we are speaking the same language, lets move on to the consequences or costs.

One of the first consequences everyone is aware of is insurance costs. That premium you pay that is supposed to take care of everything related to these incidences, does it really take care of everything? Not hardly. Not even close.

Many insurance policies-whether workers compensation, auto or property casuality, and liability coverages-have large, self-insured retentions, also known as SIRs. You might call them deductibles. When the insured takes on more of the costs or risk by paying more upfront costs, the SIR or deductible for a claim, the insurance premiums go down. So you, the employer, might directly pay a large portion of a claim before insurance comes into play. Some SIRs can be as little as $10000 to as large as $1 million per claim. The initial cost of your SIR or deductible is one of those costs that your workers may not be aware of. I believe your workers need to know this information in order to assess the risk they will take in performing their tasks or duties.

“How do workers assess risk without the big picture of what the consequences or costs are for taking on that risk? As an employer we have a responsibility to make all employees aware of the consequences of taking on that risk.”

Other costs relating to incidences that your workers need to be aware of include: immediate action costs that take place at the time of the incident, which includes treatment, transportation, and securing the area and staff downtime (multiples). Realize that four workers standing around for only 30 minutes after an incident adds up to two lost working hours.

Follow on costs mount

Add the cost of the investigation. This can include staff time, meetings and time with the local authorities, first responders and organizations like the Occupational Safety and Health Administration (OSHA), etc. Then add business costs, like the salary of the injured worker, salary of the replacement worker, lost work time (other people), overtime costs, recruitment, contract penalties, job delays, late deliveries and cancelled order(s). You might want to calculate the cost of your actions to safeguard future business, such as reassuring customers.

Mix in some sanctions and/or penalties from OSHA, litigation, and people's time dealing with all the above items, and on top of that, increased future insurance premiums, and all of a sudden you're talking real money.

Studies have shown that these soft costs can be three to 50 times the hard costs of an incident. The hard costs, the bills you write a check for, plus these soft costs, add up to the real costs of an accident.

While putting a dollar cost to each incident is a major task itself, remember that these costs, as they affect your profit-and-loss statement, are expenses and require revenue to pay for them. Many frontline managers and even middle managers don't have a full grasp of this accounting fact, so it is not likely your front line workers understand this either. This means that, if your total real incident costs are $10000 and your company operates at a 10% profit margin, you will need $100000 in revenues to pay for those incident costs, just to stay even.

We have a responsibility to explain all the costs, hard and soft, to our workers. We need to explain to them that this is their money, their pay raises, their bonuses and their future.

While you probably can put a cost to all these “other” items, the one item that is almost impossible to assess is morale. The morale of workers is certainly affected by any loss and can be very difficult to put a price on. Lost or reduced production can last weeks after a serious incident simply because workers are thinking and talking about the loss and how it happened.

As employers, who pay the bills, we have a duty to make our workers aware of all the consequences of their daily decisions and the risks they are taking. We hope that they will make better and safer decisions that will save you costs in the long run and bring that worker home, safe, each night to their family.

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