July 31st, 2002

Indirect Costs of Workplace Injuries

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In April of this year, Liberty Mutual identified the leading causes of disabling workplace injuries and their associated direct costs using its own data, and findings from the Bureau of Labor Statistics and the National Academy of Social Insurance. ( Liberty Mutual Releases Latest Workplace Injury Data, April 19, 2002)

The direct cost of workplace injuries was tallied at $40.1 billion in the 2002 Safety Index. The total financial impact of both direct and indirect costs is estimated to be as much as $240 billion.

If you are in the business of ergonomics, you are also in the business of economics. Often those people within the company who are responsible for recognizing musculoskeletal disorders (MSDs) and implementing controls are also responsible for procuring a budget for those controls. This means convincing higher ups that poor ergonomics is costing the company, and that good ergonomics can improve the bottom line.

This is usually done by dividing the costs of poor ergonomics into two categories; direct costs and indirect costs. Direct costs are the payments made to injured workers and their medical care providers. These costs might be documented as the injury and related cost such as carpal tunnel syndrome $8,000, or low back injury and surgery $18,000. While direct costs themselves show an opportunity to save money, it may not be enough to justify larger scale controls such as implementing a conveyor line. However, direct costs are only one half of the story.

In addition to the direct costs, a workplace injury will also incur indirect costs. Indirect costs include lost productivity, overtime, value of staff time involved in accident investigation and recordkeeping, training and replacement, administrative overhead, any product damage, and possibly increased insurance premiums.

These costs can amount to more, in fact much more, than the direct cost of the injury. Liberty Mutual noted that companies absorb all of the indirect cost of a workplace injury, while the financial impact of the accident’s direct cost depends on a company’s specific workers compensation program (the level of deductible, self-insurance, et cetera). Each injury’s indirect costs are far larger than its direct costs. In fact, 56 percent of business executives from a range of geographic locations, company sizes and industries reported that businesses faced between $2 and $5 of indirect costs for each $1 of direct costs.

As a result, the $40 billion of direct costs from workplace injuries identified by the 2002 Safety Index produced $80 billion to $200 billion of indirect costs, for a total financial impact of between $120 billion to $240 billion.

When making the case for good ergonomics in your facility, figuring the indirect costs of workplace injuries is essential to your bottom line.



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