Strategic Management Systems Pty Ltd
“We Exist to Assist”
They Cost More Than You Might Think
The indirect costs of industrial accidents which take into account the
sometimes immeasurable costs of lost production and efficiency on a
company-wide basis-can be several times the costs of calculable workers'
compensation and employee disability payments. These costs, however, are
Offering unnecessary. A recently released study notes that about 85 percent of all
Professional workplace injuries and fatalities can be avoided by making sure employees
have been properly trained for their jobs-by introducing and requiring all
Support In employees to adhere to safe workplace practices, and by getting managers
as well as the operational staff to make a genuine commitment to worker
Human Resources safety.
Safety Systems Design The accident took place in an instant. The worker received prompt first-aid
Trauma Recovery attention and the injury was treated. The after-effects of the accident,
however, transpired more slowly. Workers who witnessed the scene were
Premium Discount Scheme too shaken up to resume their duties. Production stopped until the damaged
Psychological Interventions equipment was cleared and replaced with new machinery. Managers
360° Performance Analyses reassigned the injured worker, called in a replacement, and explained the
Executive Coaching duties. The supervisor filled out a lengthy accident report and several
regulatory forms. The plant owner prepared for possible litigation. What
Medico-Legal Assessments are the cost implications of these interrelated events?
In most cases, such accidents and the accompanying loss of production and
efficiency can be avoided by establishing manager/employee safety
committees, instituting regular training programs and inspections,
Suite 4 conducting emergency drills, and other steps. Certainly the most
Hazelrigg House quantifiable benefit resulting from the successful introduction of a safety
464 High Street program is a reduction in workers' compensation insurance rates. Less
MAITLAND NSW 2320 measurable benefits, however, involve the avoidance of the indirect costs of
P.O. Box 250 Indirect costs
MAITLAND NSW 2320
AUSTRALIA The indirect costs of an accident take into effect the sometimes
immeasurable costs of lost production and efficiency on a company-wide
basis. They include the following costs:
Wages for lost time of uninjured co-workers. Workers adjacent to
Tel: 61-2-49343653 the accident scene who stop their work to watch or offer assistance
Fax: 61-2-49343651 or talk about the accident need to be considered when assessing the
Mob: 0411-252534 financial impact of an accident.
Repair or replacement of damaged material or equipment. This
includes the time to order, deliver, and test the new machine
following the accident.
Training replacement workers. Recruiting and training temporary or permanent workers-
and all the costs incurred by administrative personnel-need to be considered.
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 the following:
Foreman's diverted activity. Supervisory wages for time attending to the accident must be
assigned to the total costs of the accident.
Wages spent on reduced production. The cost of wages for an injured worker's return to a
job could also be a factor, if the worker's performance decreases.
Clerical supervision and accident investigation. Filing accident and investigation reports
to insurance company and regulatory agencies, and the expense of accident investigation
and recommendations for preventive 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
There is a potential cost experienced by high-level executives who might be found guilty of
violating workplace safety regulations. In the United States legislation allows senior executives
to be goaled for breaches of workplace health and safety and THEY HAVE BEEN! Consider the
outcome of the tragic 1991 fire at Imperial Food Products' poultry processing plant in North
Carolina. In what has been one of the worst industrial accidents in the state's history, 25 workers
were killed and 50 injured because of illegally locked or blocked doors. A federal judge ordered
the insurance companies to pay US$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
In yet another example, from the litigious United States, 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 stems from charges against
the officials of allowing 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.
Before we get to smug in the Antipodes it is important to realise that the State of Victoria has
“Industrial Manslaughter” as a charge and there have been managers charged. In most other
states the jurisdiction does allow for imprisonment; although we are yet to see it applied. Maybe
it is “about time”.
The real story
According to the National Safety Council, the indirect costs of industrial accidents are
approximately four times the actual direct costs. In other words, the real costs of workplace
injuries are several times the calculable workers' compensation and employee disability
payments. When this calculation is combined with the potential costs incurred by executives in
defending against criminal negligence, the true cost of workplace injuries becomes staggering.
These costs, however, are unnecessary. A recently released study notes that 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
operational staff to make a genuine commitment to worker safety Interestingly, the factors listed
are among the components the NSW Consolidated Regulation of 2001 advocates..
Study after study has shown the crucial role that management plays in effective safety programs.
Such concern is manifest 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 to
regulations, then they will feel that they also have the right to violate the rules. In short,
organisations show their concern for loss control by establishing a clear safety policy and by
assuming responsibility for its implementation.
The biggest “stumbling block” is the manager who makes “all the right noises” but in their
observed practice continues to place other factors, such as productivity, as a higher priority.
Operational staff see this dichotomy (some might go so far as to suggest hypocrisy) and behave
accordingly in their own approach to safety management.
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 can be easily
and inexpensively avoided by taking 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 the number of
accidents in both factories and offices. Pay special attention to seemingly harmless items
that can easily become hazards-e.g., 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 or suggest other specialists. The cost is typically $300 to $400 for one day--
the time required to make a safety inspection at most small companies.
Conduct 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 and light fixtures. Many accidents can be avoided by orienting
new employees to their environment or by reminding current workers of past accidents
and 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 St John’s Ambulance or Red Cross etc.
Each of these suggestions can be implemented inexpensively and has reduced workplace injuries
in organisations of all sizes.
An example of this positive outcome was seen within a local government organisation that I
provided services to. The organisation cut workers' compensation premiums by more than
$200,000 after experiencing a significant reduction in accident frequency and severity. In
addition far more structured programs for assistance with workplace reintegration were
implemented which resulted in a Return to Work Rate of 100% over three years.
Unfortunately this organisation made a decision to modify its approach to safety management
and is now confronting increasing costs again.
As your company undertakes a safety program, consider the cost/benefit analysis outlined above.
Beyond mere regulatory compliance, you have a number of options regarding the degree to
which your company invests in employee 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.