Measuring the Hidden Costs of Accidents
The hidden costs of accidents often surpass their direct costs, yet they're often overlooked.
Safety professionals know there are hefty costs associated with workplace accidents. Companies pay approximately $1 billion per week is paid by employers for direct workers’ compensation costs alone. Few employers, however, anticipate these expenses until they're faced with them.
Workers’ compensation benefits will cover part of the cost of a work-related injury, but not the hidden costs. The employer has to foot those entirely, including lost productivity, regulatory fines, legal fees, and the cost of finding and onboarding workers to replace injured employees.
Looking beyond direct costs highlights the urgency of safety initiatives and hazard controls. It also helps organizations track the true costs of each workplace incident.
This article will provide an overview of how to measure the hidden costs of accidents. But first, we'll look at a more surface-level approach and why it is outdated and inadequate.
Crunching Numbers and Tallying Fatalities
The Industrial Revolution was the advent of mass production, machine assisted manufacturing, and an explosion in workplace productivity.
It also created highly hazardous working conditions. The machinery that supercharged production came about before the technology and best practices that made it safe to operate them.
Employers knew that workplace accidents came at a cost, but not the extent of that cost. It was measured by a calculation that was too crude and simple to fully capture the consequences of these incidents.
When a boiler exploded, a mine shaft collapsed, or a machine malfunctioned, employers took stock of the safety outcomes primarily by tallying up the number of fatalities that resulted from the incident.
(For related reading, see Lessons from 3 of the Worst Workplace Disasters)
This is understandable. The loss of life truly is the worst possible outcome of an accident, and these tallies do tell us something about the severity of the incident.
The problem is that it's a very narrow understanding of the ripple effects of an accident. A safety program that reduces fatalities is commendable, but if that's all it does, it simply isn't adequate.
Gradually, employers began taking better stock of the broad impact of safety incidents. When regulatory bodies began issuing stiff fines for lax safety measures, these efforts ramped up significantly.
What these more comprehensive calculations revealed is that cutting corners, overworking employees, and compromising on safety measures not only failed to improve profitability, but actively worked against it. The costs were there, they were quantifiable, and it was no longer possible to ignore them.
When you consider the costs associated with a chemical spill (regulatory fines, worker's compensation, loss of productivity, cleanup costs, just to name a few), investing in preventative measures is the only financially sound choice. The up-front expenses in engineering controls, spill prevention, PPE, and employee training pales in comparison to the expenses incurred from even a relatively minor spill.
Even these more sophisticated calculations, however, fail to take into account some of the major hidden costs.
Four Hidden Costs of Workplace Accidents
There are two types of costs associated with workplace incidents: direct costs and indirect, hidden costs.
The direct costs are easily measured. You can put a concrete number to them. It wasn't long ago that companies and safety professionals took stock of these without looking much further.
Partly, that's because the indirect costs are so much more difficult to measure. Researchers can come up with estimates, but we simply can't nail down a clear figure for them.
The fact that they can't easily be measured doesn't make them less important. In fact, recent studies suggest that the indirect costs of workplace accidents can be two to ten times higher than direct costs.
Here are four significant costs that are too easily overlooked.
1. Low Employee Morale
Witnessing a catastrophic incident or severe injury on the job site can be unsettling. Even employees who are not on site at the time of the event can be affected by it. And the distress is worse for those who are friends with the injured co-worker.
The psychological effects can be quiet, but they're real and they can affect work performance. Fear and anxiety can be highly distracting and seriously hamper the productivity of workers, even if they were not directly involved in the accident.
The loss of morale is especially pronounced when workers don't see an adequate response from the employer. This leaves the feel unprotected, unheard, and worried about their own safety.
Conversely, employers who implement corrective measures, take responsibility for the incident rather than assigning blame to the workers, and provide support to those who need it can alleviate this blow to the collective morale.
(Learn more about The Three Levels of Safety)
2. Reputation Damage
It's not just worker morale that is affected. The perception that the workplace is unsafe or that the company doesn't take safety seriously can also impact its ability to retain the best workers, hire the most reliable contractors, and win the confidence of investors.
A below-average safety record is costly in part because it results in missed opportunities. Unsafe companies can't attract the best talent and investors may be wary rather than generous.
If that wasn't bad enough, it also strengthens the competition. Top talent, innovative specialists, and other assets will gravitate to companies with better reputations and cleaner safety records.
3. Loss of Expertise
There's only so much you can learn in school. Some of the most valuable knowledge in your workforce wasn't acquired in the classroom or a training program - it was learned on the job.
Losing an employee means losing all of the experience and knowledge they gained while working for the company. This includes site-specific knowledge - the intimate familiarity with the working environment and the conditions of the worksite that optimizes their efficiency.
Workers replacing injured workers or filling slots left by workers who seek a safer workplace have to start that learning process from scratch. Like other hidden costs, this one is impossible to measure, but it's effects will be felt.
4. Training Replacement Workers
Replacing a worker, even temporarily, isn't free. It involves a hiring campaign, a selective process, onboarding the replacement workers, and providing them with the training and PPE they need for their job.
Those costs can be added up. The slow-down that occurs when other employees help the new worker familiarize themselves with the job is more difficult to quantify. So is the productivity loss that comes from existing employees adapting to a new team member.
Why Measuring Matters
Even the best safety program can't prevent every workplace accident. "Zero Incidents" is a very attractive slogan. Unfortunately, it's a bit too optimistic. Not every accident is predictable. Some are simply unpreventable. And human error is always going to be a factor.
(Learn about The Real Problem with Zero-Incident Safety Programs)
Investing in safety programs, however, can minimize the number, frequency, and severity of workplace accidents.
The direct costs should be enough to convince employers that safety is about more than meeting the minimum regulatory requirements. Factoring in the indirect costs takes it one step further by showing them how much they can gain by investing in innovative, state-of-the-art safety initiatives.
Understanding the hidden costs of accidents is what takes safety from an improtant consideration to a top priority.
Calculating the direct costs of workplace accidents is straightforward: simply add up every dollar the company had to spend. Unless hidden costs are taken into account, however, companies will continue to make decisions based on too little information. They will underestimate the value of safety measures and opt for short-sighted solutions.
It's time to bring the hidden costs of incidents out in the open. Only then will employers make the smartest decisions when it comes to safety.
Written by Zac Brough | President
Zac Brough currently serves as President of SafetyWear, a division of Sullivan-Brough, Inc. Zac has over 18 years of safety distribution experience having worn nearly every hat within the SafetyWear organization. He is a second-generation owner of the family business which celebrates 40 years in 2017. SafetyWear has been a member of SMG since April, 2001 and in that time, has achieved both Gold and Peak Performer status as well as earning The President’s Choice Award. Zac has also served on various SMG distributor committees over the years.