Today, companies in resource-intensive foundational industries are seeking to boost sustainability and profitability at the same time – an approach known at AMCS as Performance Sustainability. Performance Sustainability enables companies to achieve growth, while prioritizing social responsibility, safeguarding the environment, and reducing operational risks – including risks to the health and safety of their workforce.
There are two reasons managing directors usually focus on health and safety: liability and responsibility. Associated costs are on the other side of the coin. That’s why, in many companies, it’s common for occupational safety specialists to showcase the economic viability of occupational safety and health.
In many cases, they will seek to show how planned or implemented measures contribute to overall company success. Compliance with laws, unnecessary costs due to accidents or illness, staff shortages, property damage and production downtime are all strong arguments for robust occupational safety and health measures and resources. But other smaller things can also help you convince internal stakeholders including employee satisfaction and company reputation. And of course, ethical arguments also matter. Ultimately, every employee should return to their family and friends safe and sound at the end of a workday.
When building your case, management will expect you to use sound facts and data to back up the positive relationship between occupational safety and health and the company's success. Therefore, in this article, we highlight a range of arguments that prove the economic value of health and safety including:
- The return on prevention
- The cost of accidents at work
- How a safety management system (SMS) pays off
- Why reputation is at stake
- Employee recruitment and corporate branding
1. the return of prevention
There are various national and international studies that illustrate the economic efficiency of occupational safety and health. One such example is the German Social Accident Insurance (DGUV) "Calculation of the international 'return on prevention' for companies".
But what exactly is the Return on Prevention (RoP)? As you might imagine, the RoP determines the extent to which investments in occupational health and safety are economically worthwhile, highlighting that a low number of accidents at work increases a company’s productivity.
The international DGUV study comes to the conclusion that the RoP factor is 2.2. This means that every euro invested in prevention brings a return of 2.20 euros from a business point of view. This key figure was calculated based on numerous interviews and expert surveys, with full details of the exact procedure available on the DGUV website.
Of course, the outcome will depend on the size and industry of your company and therefore cannot always be transferred one-to-one, but RoP remains a useful argument to explore. If the economic benefits of occupational health and safety still seem too abstract, you should draw on specific facts from your company – such as the number or frequency of accidents at work.
2. the cost of accidents at work
When putting together your case for investment, you can use key performance indicators (KPIs) such as the Lost Time Injury Frequency Rate (LTIFR), the Severity Rate, or the Lost Workday Rate to help visualize the status quo of occupational health and safety in your company. But how do KPIs ultimately support your argument?
- They can be used as a comparison with other companies
- They illustrate the development/stagnation of the success of your occupational safety and health measures
- They help to illustrate the costs of accidents at work.
This final point in particular, is important in your argument. An investment in improved occupational safety and health will depend on whether the expenses are profitable and the accident costs (such as continued payment of wages, compensation, damage to property, repair costs, production losses, administrative costs, etc.) are considerably reduced.
Example calculation: LTIFR
Here’s an example to illustrate the point. A construction company has 200 employees who work 328,000 hours. In 2020, 26 personal injuries occurred that resulted in a loss of working hours. In total, employees were absent for 325 days (a total of 2,525 hours) due to accidents.
LTIFR = personal injury with loss of working time / working hours x 200,000 = 26/328,000 x 200,000=15.8
In this example, each work accident with downtime leads to an average of 12.5 days of absence, and a total of 325 days of absence annually. Converted, that's almost two full-time positions. If one assumes that an accident hour costs 50 euros, accidents with loss of working time totaling 2,535 lost hours would result in costs of almost 130,000 euros.
In addition to absences, it’s also important to consider minor accidents. These are incidents that don’t lead to downtime, but cause delays and disruptions in the production process.
If we follow the conditions assumed in the Dupont accident triangle, there are 10 times more minor incidents than accidents with downtime, and 10 times more near misses and critical situations. Of course, the cost of this is difficult to predict, so here’s another example calculation to illustrate the point.
Example calculation
If, due to the high number of work delays and assuming the same costs as for accidents at work, the total cost of accidents and near misses amounts to around 260,000 euros. That means the accident cost is 1,300 euros per year, per employee.
Finally, bear in mind the following additional costs, which may not have been taken into account:
- Contractual penalties due to late order fulfillment
- Repair or replacement of machines and equipment
- Clean-up work
3. a safety management system (SMS) pays off
One thing your organization can do to minimize costs associated with occupational accidents is to introduce a suitable safety management system (SMS). If you haven’t yet introduced an SMS, a calculation example can help support your request.
Successfully implementing an SMS begins with the introduction, implementation, and testing of four central elements of occupational health and safety:
- Risk assessment
- Safety instructions
- Training
- Equipment testing
During the risk assessment phase, evaluate and identify the risks associated with individual activities along with various measures the company can implement to address this risk. Think about workplace conditions including ergonomics, lighting, climate, or physical stress. Not every measure will be feasible, nevertheless, it is advisable to assess factors holistically with regard to preventive occupational health and safety.
When establishing safety instructions, discuss all hazards in the workplace, and explain measures for prevention or minimization. In some cases, it will be necessary to conduct exercises with equipment or personal protective equipment (PPE). Those responsible are encouraged to subject instructions to an effectiveness check.
The same approach will be necessary to establish suitable training sessions. Discuss all the potential risks, devise relevant training to minimize these risks and evaluate the effectiveness of such training sessions. Written proof of training is also required.
Finally, when it comes to equipment testing, specify an interval and scope for any tests. This information will come from the manufacturer's specifications and official requirements for plant safety. Additionally, note the competence of the examiner in the risk assessment.
All four elements require documentation in which the people responsible and implementation dates are specified.
By improving the organization of your occupational health and safety, you can protect your company from unnecessary costs. Presenting management and leadership with a solid argument for the use of an SMS can significantly increase the likelihood of investment approval.
Example calculation: SMS
Assuming that the introduction of the SMS incurs costs of 25,000 euros and thus reduces the accident costs (of 130,000 euros) in the first year by only 10%, the investment in our example company has already been returned after two years. However, a realistic target should be a much higher rate of reduced accidents at work.
4. why reputation is at stake
In addition to the major factors listed above that play a role in influencing investment, minor factors can also support your argument. Specifically, occupational health and safety can have a significant influence on the way others view the company.
Image and reputation are central 'value drivers' for management today. Stakeholders expect companies to take responsibility, and work to ensure occupational safety along the entire value chain. Inadequate occupational health and safety can lead to employees or external parties reporting on abuses in social media – and thus quickly reaching the public at large. Furthermore, if there are fatal accidents, a company will have to manage serious crisis communication.
In these situations, the media response often lasts a long time. This can lead to long-term loss of sales and liquidity and if legal proceedings are initiated, further costs may follow. These types of crises are particularly sensitive for public companies since the financial markets are sensitive and are often influenced by the media.
Occupational health and safety, on the other hand, should be holistic and measures ideally go beyond legal regulations. A good health and safety record therefore supports the good reputation of a company and this is something that can be integrated into reputation-promoting CSR communication.
5. employee recruitment and corporate branding
The responsibility a company assumes for its employees’ health and safety has an immense effect on the satisfaction and retention of the workforce, and on the recruitment of new employees. One thing is clear: healthy workers are more motivated. In view of the current shortage of skilled workers, this argument is gaining additional weight.
If the usefulness of this argument isn’t convincing enough, you can also evaluate this factor monetarily. Employee retention is cheaper than recruiting. High turnover requires constant recruitment, which results in high costs. Non-monetary costs include the loss of knowledge, time for personnel recruitment, and resources for the induction of new employees. Equally important is a loss of sales due to employee shortages.
Preparing for your discussion with management
Many measures for occupational safety and health don’t require persuasion as they are legally binding. Most protective equipment falls into this category, however, if you want to invest in a large asset, such as an SMS, you’ll first need management approval.
Careful preparation can help you put together a sound case for investment. Along with the tips we have listed above and any additional research, you could contact institutions and individuals that are involved with occupational safety and health.
These include:
- The company doctor (occupational physician)
- Safety officers / specialists for occupational safety
- Other experts including hazardous substances officers, environmental management officers, or waste officers
- Works council/trade union
Once you’ve developed a comprehensive plan and numerous strong arguments, the next step is to prepare for the conversation itself. Bear in mind that managers often have precious little time so it’s important to describe your concerns concisely yet comprehensibly.
When communicating with management, it’s important to consider the following:
- Focus on the benefits of the desired measures for your company and employees
- Prepare several variants of an implementation plan (if possible two or three)
- Explain the advantages and disadvantages of each alternative
- Be transparent about the costs, but also highlight the advantages with a calculation
- Be prepared for questions and also for resistance including "Is this necessary?" "What laws or regulations dictate this?" "Can we implement it differently for a lower cost?"
- Arrange binding deadlines and define responsibilities for the implementation of the adopted measure
- Create a summary document containing all the important points
In some cases, you might be referred to the appropriate department to discuss further details. In this case, ask the managing director or plant manager to inform the person responsible about the upcoming meeting.
Communicating with the specialist department
Here, too, preparing for your discussion with a specialist department is advisable, although this conversation will differ from the one you had with the manager.
The following guidelines can help things progress smoothly:
- Avoid professional paternalism, try to take on a consultant role
- Take advantage of the expertise of your interlocutor, involve him/her
- Allow new ideas and proposals, as long as they are conducive to achieving your objectives
- Ask for necessary help and support from other areas or departments
- Agree on a binding timetable for the implementation of the measure
- Discuss an appropriate time to monitor effectiveness
Many of the elements of your conversation with management may re-appear in the specialist department discussion. Once again, it’s crucial to communicate the advantages and benefits the measure will bring to employees. Use your experience from the conversation with the plant manager, and explain the benefits and advantages that the measure brings for each type of employee.
To keep everyone’s attention, it’s important to use simple and understandable language. Create a dialogue atmosphere, and remember that the measure will only be implemented successfully if it’s understood and accepted by the employees.
employee health and wellbeing matters in business
As you can see, several tools are available to help represent occupational health and safety support in a positive light. Arguments can range from "major" calculation examples to minor factors that have an indirect effect on profits, but it’s important to remember that occupational safety should always be considered holistically. Financial arguments are only a part of the discussion and while compliance with laws and financial statements is important, ethics also matter: companies have a responsibility to safeguard the health and safety of employees.
Applied correctly, the arguments and approaches we’ve outlined will help you present the value of occupational safety and build a good business case. But in fact, all levels of your company, from management to the very last employee, should recognize the benefits of well-organized and systematically applied occupational health and safety effort because for any company committed to boosting both sustainability and profitability, caring for the planet, and for the workforce, is simply good business.
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