In 2017, the estimated cost of a medically consulted injury
was $39,000 and $1,150,000 in direct costs per death[1] .- That year, on average, more than fourteen workers were killed every day[2]. These very real statistics illustrate the direct financial costs of regulatory fines, workplace injuries, and fatalities. Yet, when companies evaluate their financial performance relative to projected goals, executives are typically looking for increased sales, profitable new customer projects, shorter cash conversion cycles, and a better bottom line – not for any safety-related metrics.
It’s easy to see how poorly performing, and managed companies may be enticed to cut corners in safety to boost near-term financial performance. But, a skilled Safety professional can combat this temptation by proving the economic value of the EH&S function and its positive impact on the bottom line.
Safety issues can end the viability of a company. The costs of fines, direct expenses and the resulting lawsuit were too much following the collapse of a building that Hultgen Construction, a South Dakota contractor, was working on that killed one worker and trapped another. The company received more than two dozen OSHA citations and related fines for this devastating incident. The result: Hultgen Construction filed for bankruptcy protection last year.
Public companies also experience a bottom line impact from negative safety performance A study by Qazi Kabir from the School of Economics and Business at SUNY Oneonta quantified the amount as a 1% decrease in the price of a company stock following the release of news reporting a safety-related incident[3]. An article in TheStreet from last July titled “Tesla: The Financial Risk of an Unsafe Company” described the automaker’s workplace as one that valued production volume over safety. At the time, Tesla’s (TSLA) stock price was over $300.The author highlighted past safety concerns with optimism that they could turn around the culture.
Unfortunately for Tesla, that author’s optimism for a culture shift never occurred. In fact, an article published in Forbes this month titled “Inside Tesla’s Model 3 Factory, Where Safety Violations Keep Rising” describes a company whose bottom line is heavily weighted down by safety issues. The Tesla factory has over a third fewer employees than the 10 major US auto plants combined with a fraction of the production capacity of those combined other plants. Yet over the past 5 years, the Tesla plant in Freemont California has experienced three times the number of OSHA violations and almost $150,000 more in fines! The impact? Tesla’s share price today is more than 10 % lower than it was when the previously cited TheStreet article was written.
Hope and luck make poor risk management strategies that eventually lead to costly incidents. For companies not investing in safety who don’t experience a negative safety event, the impact on the bottom line can be more insidious. Unsafe conditions and behaviors can lead to inefficient operations, higher quality defects, expensive employment impacts, and higher operating costs that present a slow financial drain.
" It is vital that we are aware of the various impacts our investments have on operations, and that we become fluent in the language of finance to communicate our positive impact to the bottom line." |
If Safety is seen as a cost center, your proposed initiatives are more likely to get reduced or cut from budgets. As professionals, it is vital that we are aware of the various impacts our investments have on operations, and that we become fluent in the language of finance to communicate our positive impact to the bottom line. Benchmarked metrics Return on Investment (ROI) or Internal Rate of Return (IRR) calculations will help establish the business case for your projects and increase their chance of approval. Suppliers, Insurance partners and trade associations can also be a valuable resource to help make a case for profitable investments in products, services and programs. Effective safety management is a critical component of a healthy business.
What have you done to demonstrate safety’s contributing to your bottom line?
[1] https://injuryfacts.nsc.org/work/costs/work-injury-costs/
[2] https://www.osha.gov/oshstats/commonstats.html
[3] https://www.emeraldinsight.com/doi/abs/10.1108/JMTM-07-2017-0133
