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1. COST OF ACCIDENTS:
( 1 ) D I R E C T A N D I N D I R E C T C O S T S & T H E I R R A T I O
( 2 ) U S E F U L N E S S T O C O N V I N C E M A N A G E M E N T
ECONOMICS OF SAFETY

2. Financial costs:
 1. Financial costs to individual, his family,
organization and society.
 2. Cost compilation procedure.
 3. Utility and limitations of cost data.

3. Budgeting for safety:
1. Purpose and procedure of safety budgeting.
2. Consideration of Performance Rates.

4. ACCIDENT COST TO THE MANAGEMENT
 1. Direct or Insured or Tangible Costs and
 2. Indirect or Uninsured or Intangible (hidden Costs). –
 Direct Costs:
 This includes the compensation paid to the injured person, or
insurance premium, medical and hospital charges, transport
charges directly paid by the employer.

5. Direct Costs
 Direct costs are easy to calculate as their money value is
directly available. Workers' legal compensation or accident
insurance premiums (net premiums after deducting refund if
any), medical expenses of doctors' bills, medicine bills,
hospital/ dispensary charges etc., extra compensation paid to
the injured worker or his family and all other direct
expenses/expenditures paid, by the employer due to the
accident, constitute direct costs.
 If hospital charges' doctor's bill, medicine bill or other
expenditure is paid by insurance company, only premium cost
should be considered. Direct cost includes insured
expenditure and direct payment only.

6. Indirect Costs :
 Indirect costs are of many types and need careful
consideration to determine their 'equivalent.
 ‘Money value'. Use of cost data sheets and other
methods have been developed to calculate indirect
costs.
 They include following
 1. Cost of wages paid for working time lost by injured
workers, other than workers' compensation payments.
 2. Cost of wages paid for working time lost by workers,
other than the injured worker(s).

7. Indirect Costs
 3. The net cost to repair, or replace material or
equipment that was damaged in accident.
 4. Extra cost due to overtime work necessitated by
accident.
 5. Cost of wages paid to supervisors for their time
required for activities necessitated by accident.
 6. Wage cost due to decreased output of injured worker
after return to work.
 7. Cost of learning period and preparation of new
worker(s).
 8. Uninsured medical cost borne by the company.

8. Indirect Costs
 9. Cost of time spent by higher officers, outsiders and
clerical workers on investigations.
 10.Cost of time spent in restarting the production.
 11.Cost of time spent in processing compensation
application, procedure and other administration.
 12. Cost of work interruption due to idle machine, work
stoppage or spoilage.
 13. Cost of property (including material and
equipment) damage due to accident.
 14. Uninsured other costs and the miscellaneous
unusual costs.

9. RATIO OF INDIRECT TO DIRECT
COST OF ACCIDENT
 H. W. Heinrich :The ratio 4 is to 1 : In 1927, H. W.
Heinrich presented a paper at the National Safety
Congress(USA), and placed the indirect cost as an
average 4 times the direct cost.
 Frank E Bird, Jr., accepted the iceberg principle of
hidden costs, dividing them into two categories:
a)uninsured costs of property damage which can be
easily quantified
b) uninsured miscellaneous costs which are difficult to
quantify.
His estimates of each are higher than original 4 to 1
estimate as shown in Fig. 5.2

10. Bird's Iceberg concept

11. Part A : Insured costs
1. Medical
2. Compensation
Part- B : Uninsured costs
1. Building damage.
2. Tool & equipment damage.
3. Product & material damage.
4. Production delays & interruptions.
5. Many items such as hiring & training,
investigation time etc.

12. Utility (Usefulness) of Cost Data to Convince
Management:
 Direct cost of accident is directly available and is very much
useful to calculate expenditure and budgetary estimate on -
predictable accidents or fire / explosion and other risks.
 Indirect costs are also real costs and they should be
calculated to quantify or demonstrate in meaningful way.
Such unproven costs may seem unreal to the management
and it may not be convinced.
 However Safety Officer should try to quantify these hidden
costs, to explain the iceberg concept (above fig.)to the
management and to draw a conclusion that 'preventive
costs may be less than the total costs of accidents' -
a powerful stimulus for the management to invest for
accident prevention' work.

13. Financial costs
Limitation of Costs Data:
 The data of direct cost is easily available as insurance
premiums or direct compensation costs or other
medical and safety expenditure from records.
 It is the indirect (uninsured) and other
intangible(Hidden) costs which are not directly
available and are to be calculated from other data.

14. Limitation of Costs Data:
Except a very few companies, hardly data is available on cost of time
spent by the injured worker due to accident.
 Time spent by co-workers, supervisors and others in inquiring or
investigating that accident
 Time spent by idle machine or interruption or production loss.
 Money value of repair or replacement.
 Money value of delay in fulfilling orders.
 Money value in preparing a substitute.
 Cost of damage to public or public liability claims.
 Loss of profit due to cancelled contracts or orders.
 Cost of excess spoilage by new employees and demurrage etc.
 Cost of damage to environment.
 Cost of court penalties
 Due to accident cases are also unpredictable. This indicates the
limitation of cost data.

15. ACCIDENT COST TO THE INJURED PERSON AND HIS
FAMILY .
 Accidents are costly to the injured person, to his family,
to the management and to the society. Let us see how
much an injured worker would lose due to an accident
to him.
 In addition to pain, suffering, worries, incapacity, wage
loss, medical and other expenses, he also suffers as
under.
 If a worker is not covered by any insurance scheme, he
has to bear the loss of wages and the cost of medical
expenses, transport, fruits, food etc. If he suffers
permanent disablement, he loses his earning capacity
for life.

16. ACCIDENT COST TO THE INJURED PERSON AND HIS
FAMILY
 If a worker is insured under any scheme, he gets some
compensation, medical expenses and some daily
allowance which are hardly adequate. No costing is
possible for his suffering, pain, worry and
incapacitation. Even after return to duty, he is unable
to perform his normal work for many days and
therefore may lose incentive and overtime wages
during that period. Another loss is his mental setback
and inability to social functions and recreation.

17. ACCIDENT COSTS TO THE SOCIETY
 The society suffers losses in three ways :
 1. The family - a part of the nearest society suffers pain,
financial hardship and service or maintenance loss by the
injured person or his death.
 2. The society as consumers pay the increased cost of
production due to direct and indirect cost to the
management.
 3. The society bears the social and financial burden of
maintenance of all injured persons and their families. Thus
knowingly or unknowingly every member of the society
bears a proportion of the costs of accidents.
 4. The society losses service or help by that person.
Therefore employee, employers and society all have to
work collectively for accident prevention.

18. BUDGETING FOR SAFETY
 A budget is a plan for any period to show proposed or
future anticipated and correctly estimated figures for
money, material, time etc. to start or continue work for
desired goals.
 Many elements of accident or safety costs and
suggests need of budgeting for safety. It is important to
know such costs for planning and budgeting for safety
in industry.

19. BUDGETING FOR SAFETY
 Money is an important measure to evaluate company
performance and if it can be proved that there is a
financial return for money allocated to Safety
Department, the top executive will certainly support it.
 Financial or economic benefits or costs savings by
Safety Department should be properly exhibited to the
top management in the form of budget for safety.

20. BUDGETING FOR SAFETY
 While discussing budgetary requirement, it should be
emphasised that safety is a legal requirement as well as
moral, humanitarian and social duty also and
ultimately it results in productivity (uninterrupted
production or less shutdowns), in reducing accident
costs and maintaining workers' interest, morale and
cooperation.

21. BUDGETING FOR SAFETY
 In a big or well organised factory, officers of safety or SHE
department should sit together to design and fill a budget
proposal form and after due discussion it should be
finalized and sent to the top management for approval.
Approved budget should be properly and timely utilized.
 Budget procedure (process) has four steps.
 1. Planning and Projection.
 2. Use of the money allotted.
 3. Feedback or control by comparing real expenditure with
the budgeted amount.
 4. Corrective action to re-adjust the budget for the rest of
the period.

22. BUDGETING FOR SAFETY
Normally following items are considered for safety budget:
 1. Respiratory Personal Protective Equipment.
 2. Non-respiratory Personal Protective Equipment.
 3. Anemometer(Measuring Air velocity) .
 4. Gas tight suits.
 5. Acid/Alkali/Chemical Splash Contamination Suits.
 6. Fire Proximity Suits.
 7. Flame retardant suits / overall.
 8. Water Gel Blankets.
 9. Safety Hand-lamps with charger.
 10. Safety Torch (explosion proof).
 11. Flame arresters for vehicles.
 12. Safety showers

23. BUDGETING FOR SAFETY
 13. First Aid Kit for ____ persons.
 14. Labelling/Printing Machine(Pamphlets, rule book, stickers) .
 15. Safety Display Boards with Stand.
 16. Display cabinet for safety items.
 17. Air movers.
 18. Roof top safety ladders (crowling boards).
 19. Gas detection tubes.
 20. Road closed barriers with board and stand.
 21. Barrier cream.
 22. Wind sock set / cloth.
 23. Chlorine leakage control kit.
 24. Ammonia leakage control kit.
 25. Multi-gas detectors (e.g. CO, H2S, HC, Cl2, NH3).

24. BUDGETING FOR SAFETY
 26. Oxygen meters.
 27. Hydrogen detectors.
 28. Safety stickers.
 29. Boiler Inspection.
 30. Construction or up-gradation of Safety Centre for Exhibition and
Training.
 31. Painting / Re-painting cost for safety boards, banners, slogans etc.
 32. Travelling charges to attend Govt Offices for safety or statutory work.
 33. Fees, travelling and other expenses to attend safety seminars,
programmes etc.
 34. Vehicle charges for Safety Department.
 35. Printing charges for safety information booklets, emergency
instruction booklets, trem-cards etc.

25. BUDGETING FOR SAFETY
 36. Stationary items, Xerox, and other printing charges.
 37. Mock drill of On-site /0ff-site Emergency Plans.
 38. Celebration of National Safety Day and other safety
award programmes.
 39. Computer software for gas dispersion models and
consequence analysis etc.
 40. New safety products like non-asbestos blanket, splash
guard, flange guard etc.
The top management must make adequate provision for
safety budget every year based on above considerations.

26. Consideration of Safety Performance Rates
 Safety Officer or Department should calculate such
different rates applicable to the factory.
 Cost of annual average man-hours or man-days lost ,
annual medical and other expenses for accidents
happened during previous year should be considered and
projected as budgetary estimate for the next year.
 Expenditure estimate’s necessary for preventive
measures to reduce such accidents rates should also be
considered and included in the budget.
 Performance rates and expenditure in controlling them
should be compared from year to year to monitor
decrease in such expenditure.