Calculating the Costs of Poor WHS Management

Costs of Poor WHS Management

There are health and safety learnings from overseas and the recent report from the European Agency for Safety and Health at Work (EU-OSHA) on the costs of accidents, death and ill health at work is an excellent example of this. This high quality report demonstrates that costs can be significant for employees, employers and society.

The report groups costs across quality of life, health care, productivity, administration and insurance and provides national and international figures, including the UK economy of GBP 13.4 billion in 2010/11 (1% of GDP), the Australian economy of AUD 60.6 billion in 2008/09 (4.8% of GDP) and the Netherlands of EUR 12.7 billion (3% of GDP).

Headlines such as these are regularly quoted, however it’s important to note that facts and figures relating to incidents or ill health within an organisation are generally more powerful and helpful to those making business decisions than large headline figures.
Similar to the report concluding that policy makers in Europe need to understand the scale and scope of costs to implement effective measures, if a business understands the scope and scale of costs, or potential costs, within their own organisation, these will go a long way in informing decisions on resourcing and implementing WHS management. When faced with ‘real’ data, managers and decision makers are well placed to ask whether they can afford workplace injury or ill health and what actions they should take to prevent this.

Calculating the Costs

Organisations would ideally put a process in place for calculating costs as part of the WHS management system, either before or in response to an incident or ill health. Calculations can be for a single, perhaps significant incident or can be a wider calculation over a period of time. Calculations can be organisation wide or focus on work areas or parts of an organisation.
Calculating costs involves accounting for the many and varied ways in which the organisation is impacted. This may be immediate such as first aid, medical care and loss of productivity and longer term such as sickness absence, replacing staff, re-training, administration, medical care, insurance premiums and legal fees for a common law claim or prosecution.

Costs to Consider

Costs will depend on the type of incident and injury or ill health and typically include incident costs, investigation, damage and replacement costs, loss of productivity and administration and legal costs.
Workplace Health and Safety Queensland have a simple but effective Injury Cost Calculator on their website. A major component of the calculation is time, which is based on hours and multiplied by the person’s wage or hourly rate. If more than one person completes the task, each person’s time must be added together. Time also includes fees for external specialists, such as lawyers and consultants. Other costs that are less tangible but equally important include poor employee morale, absenteeism and negative customer relations and business reputation.

Presenting Costs

Having established costs its important this is analysed and presented in a way that can be clearly understood. It’s relatively easy to produce graphs and visuals and these are an excellent for presenting data, particularly within a WHS performance report or business case for management. Where graphs are provided, some additional commentary and interpretation of information is useful. Incident data provides a good base for benchmarking against other organisations, the wider industry and nationally available figures.

By taking the time to calculate costs, an organisation will have an understanding of the range of costs incurred and the extent of these. For those organisations who need to determine resourcing for WHS or demonstrate a return on investment, this can be done by presenting costs as well as savings that have been or could have been made by preventing work place incidents, injury and ill health.

Jo Kitney is the Managing Director of Kitney Occupational Health and Safety, providing health and safety expertise across a range of industries. You can contact Jo at www.kitney.com or call us on 1300 773801.