Bottom Line Safety 2 Goals Part One: Understand... The direct, indirect and unknown costs associated with workplace accidents The benefits of paying for safety proactively The tools and techniques to measure those costs and benefits Part two: Be able to... Estimate direct and indirect costs of an accident Determine the potential risk: probability and severity of an accident Complete a cost/benefit analysis including return on investment, business volume and units required to cover costs, payback period, and costing-back.
Bottom Line Safety 3 Form Groups Introductions Elect a group leader Select a spokesperson
Bottom Line Safety 4 The Legal Imperative The Fiscal Imperative The Social Imperative Why do employers “do” safety?
Bottom Line Safety 5 Workers Compensation Basics How are rates determined? Manual rating - Basic rate applied to all industries of the same type or standard industrial classification (SIC). Expressed as: Dollars per $100 dollars of payroll Example: $3.15 per $100 dollars of payroll. Experience Rating - used to vary the company’s own rates, depending on its experience by comparing actual losses with expected losses.
Bottom Line Safety Manual Rate MOD Rate Average Accident Rate Below Average Accident Rate Above Average Accident Rate
Bottom Line Safety 7 Instructions 1. Become familiar with XYZ, Inc. background information and your group’s assigned scenario. 2. Complete assignment one and stop. XYZ Inc. Safety Costs at XYZ INC.
Bottom Line Safety
9 Assignment One: Determine the nature of the Hazard Hazardous Conditions Exposure/Work Practices Root Cause Factors - Management systems Most Probable Outcome
Bottom Line Safety 10 Budgeted Losses Planned Direct costs Workers compensation Medical costs Unbugeted Losses Unplanned Indirect costs 2-10 x direct costs (severity) 5-50 x direct costs (labor/capital investment) Assignment Two: Determine the costs
Bottom Line Safety 11 Indirect to Direct Cost Ratio: Total Estimated Direct Accident Costs $ _______________ Total Estimated Indirect Accident Costs: $ ________________ Indirect Costs = Direct Costs ______ to 1 Total accident costs Direct Costs$ + Indirect Costs = $______
Bottom Line Safety 12 Risk = Exposure x Probability x Consequences Step 1: Determine the risk Assignment Three: Prioritize Hazards Risk Score = E __ x P __ x C __ Risk Scores Scenario #1 = _________ Scenario #2 = _________ Scenario #3 = _________ Scenario #4 = _________ Scenario #5 = _________ Scenario #6 = _________ Using the information from the three charts above and the risk score formula, determine the risk associated with your scenario.
Bottom Line Safety 14 Cost/Benefit Analysis Techniques Return on Investment ROI = Total Estimated Accident Costs Total Investment Using the formula, determine ROI for the corrective actions your group developed. Assignment Five: Determine the Costs/Benefits
Bottom Line Safety 15 Business volume required to cover cost Volume = Cost of Loss Profit Margin Determine the business volume required to cover the cost of the potential accident which might occur in your scenario.
Bottom Line Safety 16 Units required to cover costs Units Required = Business Volume Unit Selling Price Determine the number of humidifiers that must be produced to cover potential accident costs.
Bottom Line Safety 17 Payback Period Payback Period = Total Investment Potential Accident Costs Determine the payback period for the corrective actions for your scenario.
Bottom Line Safety 18 Assignment Six: Determine the adjusted profit margin What will be the impact on XYZ, Inc. if management does not take action on these hazards? Total estimated accident costs for all scenarios Scenario #1 = $ __________________ Scenario #2 = $ __________________ Scenario #3 = $ __________________ Scenario #4 = $ __________________ Scenario #5 = $ __________________ Scenario #6 = $ __________________ Total$ __________________ Annual net profit $1,200,000 Total accident costs - $ __________ Adjusted net profit$ __________ Adjusted net profit margin Adjusted net profit = ________ Annual Business Volume = ________ %