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The value of wellness white paper EN
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Welcome to Horizon’s white paper on the valuation of wellness for organizations operating in
remote locations.
This white paper, written in association with Dr. Tom Cooper of the Faculty of Business
Administration at Memorial University of Newfoundland examines an approach to valuing
wellness within a remote location organization. The research effort for this briefing comprised
two initiatives: Dr. Cooper reviewed numerous academic studies in the field of wellness
valuation specifically looking at remote locations and helped Horizon develop the conceptual
model for valuing wellness. Secondly, this research was supplemented by a number of
interviews and field research conducted by Horizon.
Organizations should realize that the numbers and value for wellness within an organization will
vary on a case by case basis. The paper outlines a methodology and variables for examining
wellness that is proprietary to Horizon. If you would like to discuss any of the issues addressed
in this briefing, please speak to Mike Wahl at mwahl@definitionsonline.com.
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TABLE OF CONTENTS
Introduction.....................................................................................................................3
Cost Minimization Vs. Value – Building the Case for Wellness........................................3
Working in Remote Locations – the Case for Wellness...................................................3
Modelling the Case for Wellness in Remote Locations....................................................5
Sustaining Wellness........................................................................................................6
What is the Value of a Wellness Program?..................................................................7
What Drives Wellness?................................................................................................7
What does Horizon mean by Value of Wellness?............................................................9
The Cost of Wellness for Senior Management ..............................................................10
Horizons’ Model for Valuing Wellness...........................................................................10
Conclusion....................................................................................................................14
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INTRODUCTION
Organizations frequently ask Horizon specific questions around the cost of wellness. How much
does it cost to run a ‘best practice’ wellness program, how much should our cost be relative to
our risk in an approach to employee’s wellness and are our current wellness arrangements
cost-effective? The reason for focusing on cost is that financial directors, board members and
human resources directors have all identified cost minimisation as a critical element in ensuring
an efficient and effective approach to an employee’s wellness as part of a wider human
resources and operational strategy. Horizon believes that examining the cost of wellness is just
one part of the equation. Organizations also have to examine the value a wellness program
provides.
COST MINIMIZATION VS. VALUE – BUILDING THE CASE FOR WELLNESS
Cost minimization is just one element in examining wellness. Placed within the broader context
of operating in a remote location, examining the cost and value of a wellness program becomes
even more complicated. Further, when you add in a workforce that may be starting to
experience increasing wellness issues – such as a predominantly male workforce engaged in
blue or grey collar jobs – there is even further complexity for most organizations working in a
remote location. Undoubtedly, cost minimisation is a critical element, but only one, of a wider
approach to how well a wellness program operates – especially in a remote location.
Working in a remote location can be extremely stressful and demanding on an employee’s
wellness. Physical workload, dissatisfaction with safety and contingency measures are only
some of the factors affecting wellness. Moreover, stress caused by intrinsic features of the job
description and perception of risk (Ulleberg and Rundo 1997) are all issues for wellness
programs to address in remote locations.
The purpose of this paper is to outline Horizon’s approach to valuing a wellness program.
Horizon believes that a wellness program needs to be seen as an integral part of any
organization’s operations and cannot be considered a ‘one-time’ cost and subsequent short-
term benefit. Instead, wellness has to be valued across an employee’s time with an
organization, the benefits accrued, the costs which are saved and the risks that are managed.
WORKING IN REMOTE LOCATIONS – THE CASE FOR WELLNESS
After a number of high-profile disasters (most notably the Ocean Ranger disaster and Piper
Alpha in 1988 in which 167 personnel lost their lives), oil and gas industry companies as well as
other organizations working in remote locations are making every effort to ensure that their
accident rates are kept as low as possible. The focus on ‘accident’ prevention is the main driver
for most Health, Safety and Environmental (HS&E) programs. For most industrial accidents,
there is a causal chain of organization conditions and human errors with Reason (1990)
indicating that human-factors causes can be attributed to 70-80% of accidents in high-hazard
industries.
Horizon`s research and working with companies and employees operating in remote locations
makes us believe that focusing solely on accident prevention is not a strategic approach to
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addressing wellness. Focusing on wellness, improving the overall organization’s and
employee’s health is a significant way of driving down not only accident incidents but also
overall operational cost.
Working in remote locations such as the offshore drilling process is inherently dangerous,
arduous and socially isolating (Elliott 1985; Ulleberg and Rundo 1997). The environment is
characterized by constant noise and activity, and the employees live and work in a restricted
working location for a period of time without any breaks. Most of the workforce is male, engaged
in blue and gray collar jobs, and there is a significant portion of the population at risk
The Waist/Hip Ratio (“WHR”) is the ratio of the circumference of the waist to that of the hips. It
measures the proportion by which fat is distributed around the torso. The concept and
significance of WHR was first theorized by Dr. Devendra Singh at the University of Texas at
Austin in 1993. A WHR of 0.7 or less for women and 0.9 or less for men have been shown to
correlate strongly with general health and fertility. Women within the 0.8 range have optimal
levels of estrogen and are less susceptible to major diseases such as diabetes, cardiovascular
disorders and ovarian cancers. Men with WHR's around 0.9, similarly, have been shown to be
more healthy and fertile with less prostate cancer, testicular cancer, cardiovascular disease,
and diabetes.
Consequently the working environment in a remote location contains many environmental and
organizational factors that are potential sources of ill health, i.e. demands in an individual’s
environment that are perceived to be a threat to the individual (Caplan et al, 1975). The
combination of heavy equipment, immense physical forces and geological uncertainty with
numerous personnel creates an overall risk to wellness.
Several studies on working in remote locations show there is an association between job stress,
strain and health problems (Theorell and Karasek 1996; Ulleberg and Rundo 1997). Other
studies have shown that social support – such as a wellness program - can have a positive
effect on workers’ well-being and health (Parkes et al. 1994; Ulleberg and Rundo 1997). The
need for a comprehensive wellness program in a remote location to manage stress, risk and
employee health becomes clear. The question is whether the value that accrues to an
organization is worth the cost incurred?
In the case of the offshore oil industry, the fundamental nature of offshore operations is unlikely
to change in the short term and some aspects like geological uncertainty will always be present.
However, the focus on HS&E prevention has typically been placed on short-term management
rather than an overall approach to employee’s wellness.
In years to come, shifts in industry structure (majors versus independents), aging infrastructure,
deep water operations, new drilling and production technology, more complex wells, and the
turnover of the owner and contractor operations workforce may affect company-level and
industry-wide HS&E performance (Jablonowski 2006).
Horizon believes that wellness programs can be a major source of HS&E performance
improvement. Moreover, by shifting the focus to value and cost savings there can be significant
benefit accrued to the organization’s operations – including direct costs such as decreased
used of medicines, reduced medical benefits as well as indirect costs such as lower recruitment
and training expenditures. Further Horizon believes that senior management trying to make or
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understand the case for developing a wellness program, can begin to model the cost using the
variables below. By modelling the potential cost and subsequent value that a wellness program
presents to organizations working in a remote location, the need for a wellness program
becomes strikingly clear.
MODELLING THE CASE FOR WELLNESS IN REMOTE LOCATIONS
Horizon, through the work it has been doing in the North Atlantic offshore oil fields, believes that
this company-level and industry-wide HS&E performance can be improved and managed from
a strategic, risk based perspective through a better focus on wellness – especially long term
wellness at both a company and employee level.
Later in this paper Horizon presents a conceptual model for analyzing the overall value a
wellness program to a company and an individual.
Theoretical models have been developed to represent the effects of extended work hours on
health (de Vries-Griever and Meijman 1987; Knutsson 2003) and to predict risks associated
with particular shift patterns (Spencer et al. 2006) as part of a wellness program. However there
are few quantitative studies that outline the benefits of a wellness program.
Maniscalco et al. (1999) outlined a study on offshore oil workers which suggested a decrease in
the number of injuries in association with exercise and perhaps with modification of
psychosocial risk factors suggested a cost savings of over $800,000 and a return on investment
of $2.51, as well as avoidance of pain and injury.
Another study by Musich and Napier (2001) on long term employees showed that low-risk
employees from a workers compensation perspective had the lowest costs. In this population,
85% of workers compensation costs could be attributed to excess risks (medium- or high-risk)
or non-participation in a wellness program. Among those with claims, a savings of $1,238 per
person per year was associated with a wellness approach.
Moreover, Musich and Napier (2001) argue that focusing on employee health status provides
an important additional strategy for health promotion programs. Wright et al. (2002) showed that
time away from work costs, 36.2% was attributed to the excess risks of the medium- and high-
risk individuals or nonparticipants in a wellness type program compared with low-risk
participants. If time away from work costs follows risk reduction, a potential annual savings of
$1.7 million could be achieved.
However, it is important to put this potential cost savings in context. In recent years, HS&E
performance in the oil and gas industry has received increased attention from operators,
contracts and regulators worldwide. Significant investment has been made in risk assessment,
process improvements and advancing HS&E management philosophy and practice – an
approach that Horizon sees as a focus specifically on short-term management centred on
operational cost savings. These efforts on accident prevention management have transformed
industry culture and generated tangible short-term results. However, the management priority
now is to sustain these gains and to continue to seek new opportunities for improvements.
Wellness programs are a key element in performance improvement in the HS&E field.
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SUSTAINING WELLNESS
Horizon believes that wellness is a strategic issue. Horizon’s work with companies and
individuals in remote locations shows that recognizing the strategic value of a wellness program
can be quite positive for a company – specifically on brand awareness, equity as well as
decreased recruitment costs.
At Horizon, we believe that HS&E programs centred on accident prevention cannot be
sustained without a focus on wellness. Wellness, programs are a primary tool in sustaining long
term competitive advantage in operating in a remote location. Initial compliance based
strategies focusing on short-term expenditures and not value may ultimately create more
operational costs in the long term. Horizon believes that most health and safety programs do
not recognize the value of taking a wellness approach. This means that there is not only a lack
of long term value but a potential failure of corporate responsibility and ultimately a loss
opportunity for performance improvement.
Employers have a corporate responsibility to provide a safe workplace to enact measures to
reduce the likelihood that employees are injured (Jablonowski 2006). There are also direct
economic consequences of HS&E events, and it is in an organization’s best economic interest
to improve wellness performance.
Estimates suggest that it costs between $50,000 and $100,000 to administer a lost time injury
(Buchan 1999). This does not include other costs such as lost productivity, sick pay, equipment
damage, increased medical premiums, the cost of medicines to treat the injury, increased
insurance premiums or costs of legal action should a claim arise, which could be several times
as much (Flin and Slaven 1996; Sumrow 2002; Jablonowski 2006). Moreover, it does not
include operational costs such as the extra recruitment needed to replace workers, additional
workforce to provide excess capacity in the case of accident and time away from work as well
as training for new or replacement workers.
Moreover, given the spotlight on companies conducting business in remote sites, especially
from opponents in many of the locations where they operate, means that organizations must
remain proactive if they intend to maintain their overall license to operate. Critics often cite
HS&E performance as a reason to limit exploration and production (E&P) activities (Brinded
1998; Gidley and Hall 2002). Wellness programs can therefore be seen as a license to operate
issue.
For example, as outlined by (Jablonowski 2006), in the U.S. Gulf of Mexico, the Minerals
Management Service (MMS), an organization in the U.S. Department of Interior, is charged with
the management of offshore oil and gas leasing and regulation. The MMS has become
increasingly aggressive in its assessment of individual operators with fewer inspections and
less oversight.
Companies with healthier performance (including less occupational and non-occupational
injuries and illness) should incur lower compliance costs. Also good performance across the
industry may drive broader reform than reduced compliance costs. Clearly companies benefit
both individually and collectively from improved HS&E performance focused on wellness.
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What is the Value of a Wellness Program?
Wellness is a difficult area to examine, primarily because ‘cost’ is defined in a number of ways
and used in diverse contexts by different organisations. The complexity around examining the
issue means that it is a problematic area for organizations to begin to identify and manage.
The area of ‘value of wellness’ is further complicated when the term ‘wellness’ is applied
specifically to HS&E management. ‘Value of Wellness’ in HS&E management usually refers to
the ‘cost’ of lost days from accidents, injuries and deaths.
Horizon takes a broader view. Specifically, in working with organizations we encourage the
examination of cost and value within the context of the overall performance of a wellness
program throughout the operations of an organization – including human resources, risk
management, finance and operations.
Horizon believes that in addressing the overall value of a wellness program, organizations
working in remote locations can take on the challenge as to how this affects operational
efficiency and effectiveness. Through undergoing this examination, organizations working in
remote locations will begin to examine how wellness links into broader issues of strategy and
assists in improving operational performance. Horizon believes that a comprehensive wellness
or Health Risk Prevention Program (HRPP) can make not only individuals but organizations
perform better.
What Drives Wellness?
The drivers for examining the value of wellness and its link to performance in remote locations
organizations are numerous. These external drivers include:
An increasing need to attract skilled and technical employees
Regulatory guidance, including that emerging from HS&E management executives
Increasing liability issues and more linkages on workplace environmental issues to
overall health and wellness
Environment responsibilities, governance and senior management responsibilities
Requirements from suppliers and buyers including those specifically mentioned in
service level agreements
Senior management responsibilities
Increasing needs for companies to compete on their corporate responsibility towards
their workforce
As well, there are a number of internal drivers that all firms working in remote locations should
be considering. These include a focus on:
The competency of the existing wellness function
A predominantly male workforce – more prone to wellness issues
Lifestyle issues in the workforce
Increased use of medicines and medical premiums
The need to have adequate skills to address wellness within an organization
The role of the wellness function within the organisation
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Links between wellness and other business units including human resources and risk
management
The need to ensure efficiency and effectiveness in all operations
Time spent on dealing with past failures due to health and safety breaches instead of
improving wellness and planning for the future
It is important to recognise that in addressing cost and value of wellness, the driver is not solely
regulatory or government compliance. Rather, it remains good business sense to manage and
control wellness in a workforce and organization as well as understand the elements that
underpin how a strategic approach to wellness affects performance and ultimately value to the
organization.
Equally, many of the issues highlighted here are not restricted to organizations operating in
remote locations. Instead creating an approach to wellness represents a challenge for any
organization interested in improving their employees and overall approach to health.
At Horizon, we believe that organizations operating in accordance with best practice on
wellness will understand that there can be, and arguably should be, a baseline cost saving.
Value is achieved when organizations add wellness programs initially to key business units, and
then to the organization as a whole.
The approach that Horizon takes is to strategically target a number of critical elements and
ingredients in a wellness program. Some of these ‘critical ingredients’ will be addressed in this
paper but they vary by organization and are dependent upon the size, type of business activity
and organizational culture.
Horizon believes to generate value in an organization, wellness programs have to be tailored for
the employee, the occupation, the environment and ultimately the organization.
For example, understanding the role and effective expense of hiring another person, both in
terms of what issues are to be addressed and their subsequent cost, can be critical in justifying
the role of a wellness program and its cost relative to the organization’s operations. Some of the
other critical elements that can be fully addressed through analysing wellness costs and its link
to performance include:
Where to place a wellness program versus other programs in an organisation
The role of wellness within the business – what part does it play – what part should it
play?
Utilising management information systems and tracking to drive forward the importance
of a wellness program
Fully understanding and addressing the importance of people-risk
Wellness monitoring, the role of management assurance and human resources
All of this issues pale in comparison to the absolute savings, both from a financial and a
corporate responsibility standpoint, of preventing a death or counteracting a critical illness.
However, the first step in approaching these crucial elements is understanding what exactly is
meant by the term ‘cost of wellness’ and how it relates to value.
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WHAT DOES HORIZON MEAN BY VALUE OF WELLNESS?
Horizon’s approach to wellness in remote locations has been featured nationally for our efforts
in improving health and reducing injury rates among our clients (IADC Drilling Contractor and
HSE conventions, Oil and Gas Magazine and Progress) developed explanations around the
concept of wellness. However, for the purpose of this paper specifically we want to focus on
three concepts:
Wellness value – the overall value (both financial and operational) that an approach to
wellness gives an organization, its employees and other stakeholders
Wellness risk – the risk of impairment to the organization’s business model, operations,
reputation, and financial condition from failure to address wellness. This means that the
organization does not meet expectations of key stakeholders such as customers, employees
(both current and future) and society as a whole, laws and regulations as well as internal
standards and policies.
Wellness programs - the proactive mechanisms by which organisations exploit and manage
wellness risk.
When organisations talk about ‘wellness cost’ essentially they should be focusing on the costs
of identifying and controlling wellness risk as well as developing the proactive mechanisms of
a comprehensive wellness program.
Regulators and other stakeholders may take a more narrow view, for instance, looking at
wellness costs as specifically those related to reducing accidents and other health and safety
incidents. However, taking a holistic approach to wellness is more appropriate to the everyday
health and safety manager, human resources director, as well as the broader operations within
an organisation.
For example, Gerard has just been hired to work at your mining site. An experienced heavy
equipment mechanic he has worked in the field for over fifteen years starting at the age of 22.
His job is physically demanding and is a specialized skill set for your operations. Gerard is
moderately overweight and after a year working with you has developed obesity and extreme
hypertension. This is predominantly because of your nutritional policy on site and the lack of a
wellness program. Gerard is advised by his Doctor to go off work and to start an expensive
round of medicine to combat the illnesses. You are also forced to recruit an additional mechanic
and this has to be done in quite a short timeframe as Gerard operates on a three weeks on,
three weeks off period.
So in Gerard’s case there are costs and issues to be addressed by the health and safety
manager, human resources director and by operations. However, if Gerard’s continuing
wellness issues are not addressed then there are significant issues related to critical illness as
well as potentially death.
Understanding that addressing wellness directly links into senior management concerns as to
how their own individual liability risks are being addressed is also key in understanding its
value. Ultimately, the value of a wellness program is derived from operations cost savings as
well as risk management.
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THE COST OF WELLNESS FOR SENIOR MANAGEMENT
For health and safety directors, focusing the ‘cost’ of wellness on identifying and controlling
wellness risk within a specific department or business unit may be sufficient.
However, for finance directors, CEOs, board members and other stakeholders there may need
to be a different approach to costs. For them, cost can normally relate to a number of areas,
including:
Cost of Recruitment – the cost of recruiting new staff since existing staff decided to
leave due to health related reasons
Cost of Retention – the cost of retaining existing staff
Liability – costs related to issues which lead to death or critical illness
Medicine and Medical – based programs that add cost to the organization
Wellness activity based costs – looking at the cost of activities such as monitoring
health, policies towards wellness, oversight, reporting, rectification etc.
Remediation – the cost of remediation to employees as well as any related internal
costs and those associated with disciplinary action, e.g. fine for health and safety
violations
Business review – the cost of assessing whether there are problems in the business
related to wellness – including root cause analysis
The model below outlines some of the drivers to the cost of wellness.
For executives, board members and finance directors, the actual cost of a wellness program is
relevant only in respect of how it performs and adds value to an organization.
If the wellness program does not perform or meet expectations then there is an increased risk
to the business and individual senior managers/directors. If this risk is not addressed, the result
may be increased fines, considerable medical premiums including medicine costs, individual
liability for health related failings, employee retention issues – with the associated costs and
risks, potentially significant remediation costs and license to operate issues.
At its core, the question senior management has to ask itself is, therefore, that given the current
level of costs, is the existing approach to wellness performing and what is the value a wellness
program should be giving the organization?
HORIZONS’ MODEL FOR VALUING WELLNESS
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When it is clear that the wellness function is performing it is then necessary to quantify that cost
so as to ensure that the firms’ strategy supports that level of overhead.
Horizon has created a model to help Senior Management address the cost of wellness within an
organization and to build the business case for its inclusion as a fundamental part of the
organization’s operations. Through modelling the cost and value of wellness, senior
management can understand whether their organizational approach to wellness is performing
and how it creates value. Moreover, senior management can then make the case for either a
decrease or increase in investment as well as whether there needs to be further work to be
done to make sure there is adequate performance. This is especially crucial for organizations
operating in a remote location.
In the model outlined below costs may differ by organization. However, in Horizon working with
major companies in the offshore oil and gas industry we believe these estimated costs are quite
conservative.
The model is based on an individual (male) coming to work for an organization working in a
remote location, such as an offshore oil and gas company. The individual is 35 plus and the
costs are based on their lifetime within the company between 15 to 20 years.
The first three costs – Direct Cost to the Organization, Indirect Cost to the Organization and
Medical Programs and Medicine Costs can be seen as annual costs. Time Away from Work,
Death and Critical Illness as well as Training and Recruitment Costs should be considered
hopefully as ‘one-time’ costs.
Horizon has developed the model for examining the value of a wellness program for senior
management.
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It is important to explain how the model works so that senior management, in developing the
business case for wellness, are cognisant of the full impact that wellness may have on an
organization.
Regulatory Compliance Costs and License to Operate
There are two main drivers that senior management have to understand when valuing wellness
- how it affects how it both the contextual and situational environment in which the organization
operates.
At a situational level, taking a strategic approach to valuing wellness reduces regulatory
compliance costs along with license to operate issues. While it may be possible to quantify
some of the regulatory compliance savings on a year-by-year basis, this is an intangible cost
that only senior management focused on regulatory risk management will truly appreciate.
Also at a situational level, license to operate and corporate responsibility issues also have to be
considered within a broader context of examining wellness. Organizations, as outlined above,
should start to see employee-specific and an overall approach to wellness as part of their
corporate responsibility.
Ultimately, Horizon believes, that wellness will become – just as safety is already – an essential
license to operate issue.
Organizations that begin to address wellness start to address wellness and recognize it as a
fundamental part of their corporate responsibility will be able to create competitive advantage
and sustain growth related strategies – particularly within the competitive remote location
industries such as mining, oil and gas and construction.
Brand Equity and Company Loyalty
At a contextual level, organizations who take a strategic approach to wellness may be able to
develop further brand equity and company loyalty. Horizon, in working with organizations in
remote locations, has seen increasing competition for workers – especially those with specific
skill sets. Research has shown that workers increasingly want to be employed by organizations
with a good brand equity – that is they are seen as a good place to work. This means that there
is a reduced overall cost of recruitment because of the existing brand equity. Further, workers
are more likely to remain loyal to a company where they like to work and where their needs –
not only financial but also their health and mental wellbeing – are managed and considered.
Horizon has found that a comprehensive wellness program greatly assists in building brand
equity and ultimately loyalty in an organization. Employees feel that the company is looking
after their interests and providing them with an environment to work that is not only safe but
also considers their health and overall wellness.
Ultimately this brand equity and loyalty is difficult to measure and value. However, senior
management involved not only in wellness program management but also recruitment,
operations and managing the increasing cost of human capital recognize the importance of
brand equity and company loyalty in a competitive world. Wellness programs are a way of
increasing both brand equity and loyalty creating huge value to the organization.
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Wellness at the Start of the Employment Lifecycle
When an employee joins an organization, there may be a number of different motivators in
joining. There may be increased responsibility, better pay and benefits or be perceived as a
good place to work. Ultimately, even with the dangers of working in a remote location,
employees do not want to work where their short or even long term health will be put at risk.
This is against human nature and organizations, who for whatever reason cannot manage this
risk perception, will have to pay an additional cost in having the new employee join the
company.
It is also important to recognize that most wellness programs do some sort of assessment of
health and wellness when an employee joins an organization. This can be instrumental in
identifying potential problems and engaging in preventative measures to encourage health and
wellness right at the beginning of an employees` time in an organization. This preventative
approach, rather than a remediation one later on, can have a significant cost savings and can
create much value to an organization.
For example, Bob has recently joined your company from a competitor. As an experienced
offshore oil worker he has been in the field for ten years – with seven years with your
competitor. Bob was attracted to come work for you, as although the money was similar, he
wanted a better working environment and your commitment to an employee’s overall wellness
was well-known within the industry. As part of your wellness assessment, including nutritional,
health and exercise programs – you identified that Bob had a specific health related issue that
although outside of a typical medical assessment, if left untreated would mean significant time
away from work. By developing a specific wellness program for Bob, you were able to engage
in a preventive activity reducing the risk for the organization and ultimately creating more loyalty
from the employee. Bob appreciated the fact that his health and wellness issue was being
addressed – something your competitor would not consider.
Ultimately, a wellness program can also assist in identifying which employees are at high risk or
a lower risk for potential health and safety costs in the future. This assists with human capital
management and can result in significant direct cost savings. Once again, through a programs’
assessment of health and wellness, the value of a wellness program can be significant
throughout the employment lifecycle.
Direct Costs within the Employment Lifecycle
The employment lifecycle will differ by employee and organization. Some organizations would
hope to have an employee for five years, others for twenty. For the purposes of illustrating the
model, we have gone with a best case estimate of twenty years with the same organization.
The illustrative numbers are indicative and will vary on a cost by cost basis. Clearly, companies
with a higher turnover may have increased costs (due to the accrued costs savings from a
wellness program).
There are also some direct costs that can be reduced through a wellness program.
Direct Cost to the Organization of Injury and Illness – Horizon has seen that a wellness
program can have a direct cost savings to the organization through injury prevention.
Depending on whether an employee is at a high or low risk, we have seen direct cost savings of
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injury and illness prevention being at a high of $30,000 to a low of $5,000 per employee. This
includes the time spent on injury assessment as well as preventing illnesses that may exist
because of stress or other environmental factors commonly seen in working in a remote
location.
Indirect Cost Due to Injury and Illness – there is also an indirect cost due to injuries and
illness. Indirect costs could include an increased regulatory burden, investigations as to why the
injury actually incurred, increased insurance premiums and lost management time in addressing
the issue of injury. An injury prevention program that focuses on wellness can have significant
cost savings and add value to an organization. Once again, depending on whether an employee
is at a high or low risk, we have seen direct cost savings of injury prevention being at a high of
$60,000 to a low of $10,000 per employee. This is particularly difficult for companies to quantify
as the indirect costs can be much higher than $60,000 but we believe this is a reasonable
amount to use in the modelling as an estimate of indirect costs.
Medicine and Medical Costs – Horizon has seen this as an increasing cost for organizations –
especially those operating in the United States and other territories which require private
medical insurance. Ultimately, if a worker has a specific related illness – such as hypertension –
that can be partially or completely treated through a wellness program – this will have a reduced
cost on the organization. In addition, an overall approach to wellness should result in decreased
medical premiums and an ultimate cost savings for the organization. Indicative costs are for a
lower risk employee only incurring approximately $20,000 in medicine and medical premiums.
On the other hand, a high risk employee may incur significant insurance premiums for medicine
and medical related issues (a conservative estimate of $70,000) that can be reduced through a
wellness program.
Time Away from Work – is a significant cost and will depend on whether the employee is away
from a substantial amount of time. An employee who is off work up to a year may cost the
organization up to $150,000 in lost time. On the other hand, a lower risk employee may be
much less expensive for a company – in the $40,000 range.
Death and Critical Illness – is never something that an organization wishes to address and the
cost of a life is unquantifiable. However, if someone is making $100,000 a year and they are no
longer able to make this salary then the company may be liable for up to the full salary over the
employment lifecycle - $2 million. On the other hand, if there is a critical illness that is less
significant then an employee may only require to be absent from work for six months or less
which will have a significantly reduced cost of $50,000. Once again, these numbers are
indicative but if one employee was saved from either death or critical illness because of a
wellness program then there is a corporate responsibility met and an ultimate value to the
company.
Recruitment Costs – are also significant – recruiting one or more individuals in high risk
specialist positions can be quite expensive – with the inclusion of management time up to
$40,000 – for positions that are less specialized somewhat lower at approximately $10,000.
Recruitment costs will be incurred when an employee has to leave an organization due to a
wellness issue. This excludes recruitment fees which can be up to six months of a new
employee’s salary.
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Training and/or Retraining Costs – are related to recruitment costs but will vary with up to
$20,000 training individuals for new positions and/or to replace workers departing the
organization to issues with wellness and health. This is a direct cost that is not usually attributed
to a wellness program.
Overall Value of a Wellness Program – taking all the direct costs together than a wellness
program can assist in a cost savings of up to $125,000 per employee on a yearly basis within
an employment lifecycle when seen within the entire spectrum of operational costs.
The ‘one-off’ costs such as Time Away from Work, Training and Recruitment could save a
company an addition $150,000 over the employment lifecycle. Based on a twenty year lifecycle,
this will result in savings of $2.650 million – excluding the potential costs of death and critical
illness which would potentially double that amount.
Ultimately the value is not only direct cost savings, but also intangibles such as brand equity
and license to operate issues. However, for senior management, direct cost savings can be
estimated using activity based costs and it is clear that there is significant direct costs savings
that a wellness program may prevent over the course of an employee’s time within an
organization.
For senior management, the ‘bottom-line’ number for the business case for wellness will clearly
depend on the organization, its operations and the nature of the work in remote locations but
nonetheless the value of a wellness program becomes clear.
CONCLUSION
At Horizon, we believe that the cost and value of a wellness program has to be considered both
from a ‘bottom line’ and ‘forward-looking’ perspective. Our research and working with numerous
industries, companies and employees in remote locations, has demonstrated to us that the cost
of a wellness program should be seen primarily from savings accrued to an employer
throughout the time an employee works for a company – the baseline for the overall value of a
wellness program to an organization.
Savings through the establishment and implementation of a comprehensive wellness program
can be seen, not only from a health and safety perspective, both also from operational
effectiveness. We believe our research shows that there is significant value accrued to an
organization through the establishment of an effective wellness program.
17. 16
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