TRUE or FALSE: Safety Costs Money, It Doesn’t Make Money

Some people might say “True,” because they consider safety to be a necessary part of doing business, and like operating costs and overhead it just takes away from the profit margin – it doesn’t make money. But, they couldn’t be more WRONG! In fact, many safety professionals and business owners agree that safety does make money because the return on such investments are increasing marketability, productivity, and profitability. Furthermore, numerous case studies and academic research also support this idea. For example, one study found a 65% degree of overlap between improvements in safety and productivity improvements. In other words, when safety was improved productivity also improved, though to a lesser degree, which increased profits for the company (Stewart & Townsend, 1999). 

Before we move on to how safety provides these benefits, let’s understand that not ALL investments in safety yield this return. I’m sure there are some business owners who would tell you that they have spent a lot of money on safety and have yet to see any significant benefits. Experience tells me that these business owners have most likely committed one (or all) of the following common errors:

  1. The goal of the investment was not the development of a comprehensive health and safety management program.
  2. The return on investment was not properly accounted for or reported to management.
  3. An unqualified or inexperienced  person managed the investment.
  4. Management did not do their part in the process by leading and supporting safety efforts (e.g. not committing a sufficient amount of time and/or money to the project).

Only investments that establish and support an effective health and safety management program will make the company more marketable, productive, and profitable. In other words, a company will not see a return if their investment is limited to just one aspect of workplace safety, such as training employees, while they continue having an ineffective or non-existent program and poor safety culture. Establishing an effective program requires a knowledgeable and experienced safety professional, senior management commitment, and development of a positive safety culture. However, none of this happens overnight!

How does safety impact marketability, productivity, and profits?

The goal of any effective health and safety management program is to reduce the likelihood and severity of incidents (a.k.a. injuries, illnesses, property damage, and/or environmental damage). A reduction in incidents benefits a company in several ways. Not only does the company get to save the money that would have been spent on the prevented incidents, they also benefit from a reduction in insurance premiums, costly production losses, and fines. The company also avoids the negative impacts to their safety record, reputation, and employee morale.

A safety record reflects a company’s past safety performance, and consists of statistics on the frequency, number, and severity of incidents. So if you reduce incidents, you improve the safety record. Safety records are significant because hiring companies (customers) consider them when selecting contractors and awarding bids or jobs. They do this in order to determine the future chance (or risk) of a contractor’s products or services causing or contributing to incidents that would jeopardize the success of a project. Obviously, the less risky (more safe) company is more likely to contribute to the success of a project; and therefore, will be chosen over the more risky (less safe) company. Therefore, an exceptional safety record provides a competitive edge, the opportunity to work for more customers, and improves a company’s reputation. All of this together makes the company more marketable and profitable.

Reducing incidents lowers insurance premiums because all insurance companies base the cost of coverage on past performance and the estimated chance of future risk. In other words, how likely you are to file a claim (a.k.a have an incident) in the future. Past performance refers to the number and cost of past claims. If you have ever wrecked a vehicle or had multiple speeding tickets, then you know exactly what I mean because your car insurance premium increased as a result of this poor/risky past performance. Worker’s compensation insurance works similarly, but instead, everything is based on occupational injuries and illnesses. So if you reduce the number, severity, and frequency of incidents then you will also reduce the cost of insurance premiums.

Everyone spends money on the things they view as important. So when employees see a company investing in safety – that is, making an effort to protect workers and provide a safe working environment – they feel as if they are an important part of the company and the company cares about them. In return, employees begin caring more about the company and enjoying their workplace. This increases employee morale, which causes a reduction in employee turnover and absenteeism, as well as increasing productivity and profits.

A reduction in employee turnover logically results in reduced costs associated with the hiring process because less employees are being replaced. But more importantly, low employee turnover produces an experienced and knowledgeable workforce, which in turn, further contributes to increases in marketability, profitability, and productivity. Think about it, experienced personnel can troubleshoot faster, identify and avoid hazards better, prevent more incidents, and are more efficient in performing tasks than inexperienced employees. Therefore, an experienced workforce provides efficient, high quality services and products, while enhancing the safety performance and reputation of the company.

The final benefit of investments that establish an effective safety program is enhancement of the company’s reputation. A favorable reputation benefits a company greatly because they become the first choice of customers, potential employees, investors, and suppliers. In other words, a good reputation increases the demand for a company, which in turn, increases marketability and profitability.

When you take all of this into consideration, it is obvious that safety doesn’t just cost money – it actually makes money by increasing profits directly through cost savings and indirectly through improvements in quality, marketability, and productivity.

If you would like to explore how Complete Compliance Resources can make this happen for your company, contact us today for your free initial consult and assessment!

The Proof

If you’re anything like me, then you are already thinking about reading up on the scientific research and case studies I mentioned earlier. If this is where you find yourself, I would suggest visiting the following websites:

I have also listed a few examples below. Rather than discuss the specifics of each in detail, I have provided a brief summary of the research or case study and their findings. If you would like to read more on the example, a list of the referenced material is provided at the end of this post.

The American Society of Safety Engineers’ Council on Practices and Standards (ASSE CoPS) has stated that sound safety and health management programs not only improve a company’s bottom line, they also further the interests of the United States in a globally competitive environment. In addition, CoPS has also stated that establishing an effective health and safety program with senior management commitment benefits a business in several ways, including (1) savings on worker’s compensation benefit claims, civil liability damages, and litigation expenses; (2) improving the company’s reputation, productivity, and employee morale; and (3) affording a competitive edge that makes the difference between winning and losing bids or contracts (ASSE CoPS, 2002).

D.A. Stewart and A.S. Townsend conducted a study on the link between safety and business performance at three companies. They found a strong association between improving safety and improving productivity. When they analyzed 17 years of Foster Wheeler’s Energy safety improvements and construction performance records, they found that when their frequency of injury rate was reduced by half, there was a corresponding 10% increase in productivity. In another study on a single petrochemical site, they found that reducing the frequency of injuries by half was associated with a 15% increase in productivity. In a separate case study on a meat processing company, the cost benefit of safety was calculated differently than in the other two studies. Using the old total loss control approach, they initially calculated the internal rate of return to be 7% over a ten year period. However, this approach did not account for productivity increases. When productivity was taken into account, the internal rate of return on their safety investment was in excess of 30% (Stewart & Townsend, 1999).

OSHA and the Graphics Arts Coalition conducted a case study on the implementation of a new health and safety management program at Ritrama’s manufacturing plant in Minneapolis, MN. As a result of these efforts, the plant benefitted from reduced workers’ compensation premiums in the amount of $44,000 (from 2000-2003), increased productivity and product quality, as well as improved employee recruitment and retention. Improvements in product quality were evident in reduced credits and returns to sales, which went from a high of 2.2% in 2001 to just 1.24% in 2006. This reduction in credits and returns translated into a 7.5% increase in average sales. The number of manufacturing defects were also lowered causing the amount of waste to go down from $2.7 million in 2001 to $435,000 in 2005. Now, that’s an obvious and significant increase in quality and efficiency, which would contribute to increases in productivity, profitability, and marketability. The study also noted that the costs of installing new safety equipment and hiring an outside consultant were recouped (OSHA & Graphics Arts Coalition, 2007).

Sources:

Stewart, D.A., & Townsend, A.S. (1999) “Is there more to ‘health and safety is good business’ than avoiding unplanned costs?” A study into the link between safety performance and business performance. Foster Wheeler Energy UK Ltd.

OSHA and the Graphics Arts Coalition. (2007) “Ritrama Invests in Safety and Improves Its Bottom Line.” A case study in the successful implementation of a health and safety management program. https://www.osha.gov/dcsp/success_stories/compliance_assistance/gac_case_study.html

ASSE Council on Practices and Standards. (2002) “The Return on Investment (ROI) for Safety, Health, and Environmental (SH&E) Management Programs.” A report, white paper, and set of recommendations on the ROI of SH&E management programs. American Society of Safety Engineers

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