From The Ergoweb® Learning Center

Building the Financial Case for Change

Safety professionals, as well as ergonomists, have long had to struggle with the costs of proposed improvements.  Although many companies will claim that safety projects, ergonomics included, do not need to be cost justified, this is rarely the actual case.  Cost justification is especially difficult when the change is proactive, that is, in response to a problem that has not yet occurred, or when a change is not specifically required for compliance with a law or regulation.

Imagine the response, for example, of proposing that all airline passengers remove their shoes before boarding an aircraft and that every piece of carry on luggage be x-rayed — on September 10, 2001.  Imagine recommending changes to O-rings or foam insulation used on the NASA space shuttles prior to the respective Challenger or Columbia disasters.

Ergonomists are very good at reacting to events that have already occurred, and relatively weak at “what if. . .”  Similarly, management is more receptive to spending money to solve problems they have experienced, especially if those problems have personally cost them money.

Unfortunately, this is a consequence of how many people view the concept of “risk.”  There is an assumption that safety is binary, that is, things are either safe or unsafe, versus a continuum of risk (“more safe” or “less safe”).  A second assumption is that compliance with standards and regulations will protect against any reasonable potential hazards. And, thirdly, that despite precautions, a certain number of undesirable things will happen anyway, a view summarized by the popular bumper sticker $*@% happens.”

This is why the risk management function in many organizations is focused on buying insurance, an activity that is technically considered financing of risk, rather than risk prevention or risk reduction.  A common refrain heard from management is, “That’s what I have insurance for.”  Despite efforts by loss control experts to educate companies on the cost of risk, many managers simply view insurance rates as part of the cost of doing business and not something that they can control.

This is especially a problem with mid-level management, when the costs of injuries are not directly attributed to their department’s budget.  In larger organizations, insurance costs are distributed as part of overhead, whereas changes are paid for by the department, so there is little financial incentive to invest in changes that reduce the cost of injuries that are covered by insurance.

In extreme examples, managers reject requests for relatively inexpensive items, such as wrist rests or foot rests for VDT workstations because that $13 or $20 came out of their supplies budget, while recharges for worker’s compensation and employee medical costs were based on headcount or payroll rather than on actual costs incurred.  In many situations, supervisors and managers have no idea what the actual direct and indirect costs are for injuries sustained by their employees.  In others, they are so focused on short term financial performance that they are willing to bet against the likelihood of compensation costs for injuries with a long latency, like work related musculoskeletal disorders.

Building the financial cost for safety-related changes, therefore, has to include more than the costs of injuries which have already occurred at a particular location.  It has to include the likelihood of those injuries, based upon what others performing similar tasks in other organizations have experienced.  It requires a clear understanding of the total direct and indirect costs of injuries.  And it requires a long term perspective on the nature of those injuries, and the steps that can be taken to reduce those risks.

Philip Jacobs, CPE, CSP
President, Jacobs Consulting, Ltd.
Saint Paul, Minnesota

This article originally appeared in The Ergonomics Report™ on 2004-03-01.