Safety Risk Management ROI - The Safety & Numbers work safety blog

Budgeting for Work Injury Prevention & Safety Risk Management Strategy

As we begin to budget for strategic objectives in 2015, several work safety topics centered around an important theme come to light. Posts ranging from safety training to workers comp/EMR risk, the importance of conducting fall hazard assessments and engineering fall prevention design — each capture elements of what I believe to be the annual theme for our blog, and what may be the most notable national work safety theme of 2014: Preventive Safety Risk Management Strategy.

Comprehending and preparing for the preventive work safety trend will prepare you for 2015 budgeting and set your organization on the path towards a beneficial work safety culture. While this may sound complicated, strategy setting will become easier after considering the benefits of preventive safety strategy.

First, Consider the Benefits of Safety Risk Management

The concept of pursuing Injury Prevention tactics for Safety Risk Management is not a revolutionary approach, nor is it a simple strategy to follow. The motivation behind injury prevention strategies that minimize risk to reap long term safety benefit is based in the complementary advantages provided by a preventative safety culture. Risk prevention strategy involves foresight and planning, and requires a greater upfront investment cost. Over time it will result in fewer injuries, worker lost time reductions, improved workers comp rates, and other indirect savings and benefits. From this perspective, preventative safety risk management ultimately provides inherent value to businesses that are financially stable and well-managed. These businesses are typically set up to plan ahead strategically and invest accordingly. If they are able to effectively implement safety risk management strategy, they will thrive when compared to protection-focused strategies with stringent safety controls.

…then brainstorm Injury Prevention Strategies

The elements of successful injury prevention strategies are not unlike those of a typical work safety program, with respect to procedural elements. Hazard assessments, incident recording, policies and training remain standard work safety objectives. The subtle difference between injury prevention through safety risk management versus protection and control strategies is that prevention policies and controls are engineered to prevent risk, as opposed to simply identifying risk areas and protecting workers. For example, while injury risk hazard assessments are an element of most work safety programs, an overarching preventive strategy will interject that step into the initial processes of any new development or work activity. The goal is circumventing, not simply mitigating, potential risk areas. With this in mind, preventive strategy is most effective when work safety culture is established and new initiatives are supported by an acknowledged organizational safety commitment.

Preventive Safety Incentives & Training Ideas

In support of building a work safety culture that values and supports injury prevention ahead of protective measures, safety incentives should be structured to reward preventative innovation as opposed to strict adherence to performance metrics such as injury rates or lost time. For example, an organization might hold a contest that challenges employees to propose an injury risk prevention strategy that reduces injury risk for the work process that had the highest injury rate the previous year. This approach delivers the strategic preventative message while working to solve a problem, and also helps to increase employee commitment through involvement. Similarly, training documentation should emphasize the importance of avoiding unnecessary risks as much as utilizing the proper protective equipment or following the recommended procedure. In an injury prevention safety environment, the goal should be to efficiently avoid risks, not plow through them with precautionary measures.

Now You’re Ready to Budget Your Injury Prevention Risk Management Investments

We at the Safety & Numbers blog encourage you to invest in injury prevention engineering strategies and equipment as you write the 2015 budget. Establishing preventative work safety as a cultural value will not only offer the ‘usual suspect’ benefits (monetary expenses, less lost worker time, improved morale, etc.). Over time it will provide indirect benefits such as workers comp rate and hiring advantages. Need help with your injury prevention safety planning? Contact IAS

Fall Prevention Through Design: A Case Study from ASSE

Putting safety first applies not only in day to day operations, but also in the planning stages of new projects, investments and expansions. In 2012 ANSI/ASSE created a consensus standard to promote this mentality. Prevention Through Design as a concept in work safety began in the 1940’s and today has gained enough momentum and regulatory support to provide several models that prove its effectiveness. A recent article at ASSE.org charts the effectiveness of engineering safety controls in the design process while considering the defeatability of safety hazard risk.

The most effective controls include elimination, substitution and engineering solutions, each ideally suited to be planned in the design phase of new projects. Doing so will provide safety, productivity, and cost benefits. In fact, the cost of implementing fall prevention through design can be thousands of times less expensive than the same solution integrated post completion. Compromised solutions are often less effective, leaving hazard risks and associated costs.

Fall Prevention Design Case Study

The ASSE article provides a case study from a petrochemical organization building a new offshore platform. The company had experienced the challenges of implementing fall prevention after the design stage and instead chose to hire a fall protection consultant early on to assist the engineering design team. The combined expertise resulted in fall prevention safety measures that focused on productivity and risk abatement. The process consisted of the following steps.

Kickoff Meeting with Design team
Virtual Fall Hazard Risk Assessment
Design Team Workshops
Specification Binder for Hazard Abatements
Follow-Through During Construction Process

The benefits of foreseeing and engineering fall prevention through design are long term: safety advantages, productivity gains, and ultimately lower costs. The case study resulted in hazard risk controls addressing elevated platforms, floor openings, ladders, and stair guardrails, helping to prevent the need for PPE and optimize processes, equipment placement and usage. Indirect long term benefits included ‘less equipment purchases, less training and fewer elements to manage.’

Innovative Access Fall Prevention Design

Contacting a consultant while engineering an offshore platform was effective for the company from the ASSE case study. The consultant costs were compared favorably to erecting scaffolding, the cost of which would have been required to address just one of the safety risks post-completion. Innovative Access Solutions is available to contribute similarly during the design or redesign stages at your organization. IAS has worked with Fortune 500 companies as well as SMB businesses to design solutions that provide long term cost and productivity benefits and accomplish your safety goals. IAS designs ladders, platforms and fall prevention equipment and has provided solutions for a range of industries. For a brief review of our access solutions, visit us at IAScustom.com. Or call (800) 388-6884 to schedule an appointment with our team.

Workers Comp EMR Risk Management Sample Case

EMR, or Experience Modification Rate, is the most direct method of determining the effect that claim history has on the annual premium a business pays for workers’ compensation insurance. In technical terms, it is defined as follows.

The adjustment of annual premium based on previous loss experience. Usually three years of loss experience are used to determine the experience modifier for a workers’ compensation policy. The three years typically include not the immediate past year, but the three prior. Source: http://en.wikipedia.org/wiki/Experience_modifier

An average Workers Comp EMR rate is 1.0. In essence, an average EMR means that the actual losses during a 3 year period is equal to the expected losses for that period. Since EMR functions as a multiplier, a company with an average EMR rate will pay precisely the calculated premium based on industry, number of employees, and other risk factors. From a work safety perspective, it would appear that these companies are effectively but not optimally preventing work injury hazards that drive EMR risk.

A Sample Workers Comp EMR Calculation

Workers’ comp EMR rates are lower or higher if a business incurs total losses that are lesser or greater than expected losses in the applicable 3 year time period. For example, a company with more losses than expected may have an EMR of 1.1, and thus their premium is 1.1 times the base premium for their business. At the same time, if that business experiences fewer losses over the next 3 year period, their EMR may be 0.9 and they will pay less than the base premium.

Minimum Workers’ Comp EMR and Controllable EMR

EMR values can and often do vary more than 0.1 above or below average. Each business has a minimum EMR that they can strive to reach in order to pay their lowest possible workers comp insurance premium. If Company XYZ has a Minimum EMR of 0.85 and a current EMR of 1.1, they have a Controllable EMR of 0.25 [1.1-0.85]. Here is where the bottom line effect should get the attention of business owners, as seen below.

Effective Safety Reduces EMR Risk and Saves Money

Effective work safety and EMR risk management has many positive effects. Improved morale, hiring and employee retention advantages, lost time reductions, and project timeline improvements to name just a few. While these factors are difficult to monetize, the bottom line effect of improved workers comp EMR and resulting workers’ comp premium savings illustrates how effective safety can be at providing long term profit advantages and improved cash flow. It’s clear that from a financial perspective, managing work safety is a win-win for businesses of all sizes or strategies.

Learn how to Lower Your Workers Comp EMR

The Rent vs. Own Decision and Equipment Investment Safety ROI

In preparation for the 2014 budget, many companies are making strategic decisions related to equipment investment. The decision often comes down to rent vs. own. Determining whether a piece of equipment will support multiple projects, considering interest rates, and other basic factors aside, long-term risk and opportunity considerations are a critical decision making variable. When making equipment investment decisions, market indicators and risk factors must be projected in order to assess return on investment. Work safety is an important risk factor to consider, but strategic decisions are based on a variety of factors.

One such factor is illustrated by Oil & Gas Industry growth.

“I never imagined when we acquired Beckwith Machinery in October of ’05 that oil and gas would become a significant contributor to our performance. We had no visibility to it even though the first oil well was drilled in Pennsylvania many years ago,” says Cleveland. “We certainly had no idea how big it would be for us. In the downturn of ’09 there was some talk about oil and gas. And then as 2010 rolled out, that’s what really brought us back from the doldrums. Pad development came on full force throughout 2010 and then a lot of drilling after that.

Source: Rental Equipment Register

Equipment companies in western and central Pennsylvania experienced a market shifting increase in rental demand in 2010 when the oil and gas fracking industry increased by 6 times. Shortly after the 2008 recession it was made public of a successful shale well drill that has placed the region at a level of production to rival Saudi Arabia. Projections continue to grow for the region as the country seeks a more effective energy plan.

Market Factors Affect Investment Decision Making for Multiple Industry Players

Presented with increased rental service activity as new contractors entered the market, many rental companies invested in new equipment to meet demand. Investing in drilling pads and related equipment allowed businesses such as Cleveland Brothers to overcome the recession and claim new market share.

In this case, the Rent or Buy decision could be viewed from multiple perspectives: Rental companies were challenged with the risk and reward of buying equipment to service the growing industry. Contractors new to the market or region were able to alleviate risk by renting equipment. Other existing contractors such as heavy/highway construction were provided the opportunity to expand into the market. The influx of oil and gas industry work also boosted the economy in other markets, such as infrastructure and hospitality, and increased the demand for related equipment such as light towers and work platforms.

Long-Term Strategic Factors and their Relationship to Work Safety

In addition to projected industry demand, long term strategic factors can include

Advantages of new equipment with respect to technology and regulations
Supply/demand and price points of rental equipment
Labor availability and expertise
Equipment maintenance and repair needs
Capability to apply internal resources for unique needs
Safety factors for aging equipment and as scale grows

Each of the above long-term strategic decision making factors can be applied to safety equipment investments. New equipment is typically equipped with more current safety features, thus purchasing or renting newer equipment will often provide safety risk management ROI. This will reduce the liability of lost worker time and the frequency of equipment repairs, freeing up resources for profit driving activities. Overall, the rent vs. own decision will be based upon a variety of industry factors, but business owners and executives should also factor in safety to optimally assess the ROI decision.

The Cost of Work Injuries: Direct, Indirect, and Hidden

A worker injury comes packaged with costs far beyond worker’s compensation claims and potential litigation expenses. Direct costs are significant; In 2009, worker’s compensation benefits paid totaled $58 billion, a 150% increase from only 6 years prior. Yet, considering direct costs alone when factoring a return on safety investment or justifying safety and health initiatives is painfully incomplete. Companies that have dealt with even minor worker injuries have experienced the hidden costs and indirect bottom line factors that can lead to catastrophic side effects or unanticipated benefits. Studies have shown that work injury prevention programs are effective both on a bureaucratic and a business level. Considering the complete picture of a work injury can be the most effective motivator for investing in safety risk management programs.

Hidden Costs of Work Injuries

The worst case scenario for a work injury, a death or debilitating injury, carries the most hidden costs for a business organization. Large workers’ comp claims hike up premiums and can even lead to inability to change or acquire insurance. From here, consider the effect on the co-worker when an employee suffers an injury on the job. In the worst case, counseling may be required for co-workers, as the work facility becomes a haunting reminder of the incident. Lack of sensitivity to this scenario can lead to worker absenteeism and forge foundational cracks in the management-employee bond. Injuries don’t have to be major to carry hidden costs, however. Companies with a reputation for aloofness to safety, experience a large number of worker injuries, or fail to support national and economic safety initiatives can have a hard time retaining and hiring employee at competitive salary levels.

Indirect Costs of Work Injuries

The indirect costs of a work injury are more easily foreseeable but still difficult to factor in monetary terms. It is important to realize their reach to fully anticipate the event of a work injury, even if the variability of the costs makes them difficult to forecast. Indirect costs can include training and compensating replacement workers, damaged property, production delays, administrative expense, and morale and reputation factors. These side effects and reactionary costs can add up to total up to 20 times the direct costs and are usually considered as a multiple factor in projections.

Indirect Safety Benefit & Opportunity Cost

Remember the hidden costs of a work injury? Hidden benefits are just as closely tied to safety initiatives. Safety programs are beneficial for the business, the worker, and the economy as a whole. A 2001 Liberty Mutual report on Safety Investment ROI shows that 61% of executives see a 3-1 return for safety investments, likely due to improved morale, productivity, industry reputation, community support, and HR advantages. Safety can be a core business value and produce competitive advantage as a positive safety reputation becomes recognized by customers, vendors, and staff. It doesn’t have to be though. An attentive and effective safety program can economically support strategies ranging from quality to customer service, while still producing indirect benefit. Ignoring this agenda for lower return investments is often an opportunity cost for businesses.

When a complete picture of work injuries and safety benefit is considered, it’s easier to see the wisdom in investing in injury prevention and championing proactive safety programs.

Protect Workers from Falls for Risk Management ROI

Fall protection is a topic that small business owners often overlook. It may seem taxing to invest in equipment that provides safety features such as three points of contact, slip resistant flooring, and safety guardrails, but a reassuring way to look at it is as an ROI investment. The potential for employees to fall and injure themselves, particularly at heights greater than 4′, is a significant cost management risk which can be mitigated at marginal investment cost. Consider the following risk factors associated with failing to protect your employees from injuries resulting from falls.

Workers Comp Claims: The cost of broken bones is one of the most expensive worker’s compensation claims.
Insurance Premium Rates: When an employee is injured at work, Workers Comp premium rates may increase as your claim risk factor is increased.
Lost Time: In addition to monetary costs associated with injuries and insurance claims, lost time while an employee recovers may lead to staff shortages.

Build Culture: Safe Workers Work Harder

Another factor to consider is employee morale. Small businesses must function as a well-oiled machine to meet the demands of a growing customer base. Even the slightest hit to morale resulting from an injured co-worker can affect performance, quality and timelines. Research has shown that a safe working environment supports optimum productivity and employee satisfaction. Taking steps to protect employees that work at heights will provide risk management benefit and support your goal of attaining high productivity.