Creating a business case for safety is challenging. Safety is often perceived as an expense rather than an investment.
This article covers the components of a business case, barriers to success, and methods for overcoming them, as well as the data that supports investing in safety.
A business case is a formal document, presentation, or verbal value proposition that outlines the justification for starting a project or specific task. Building a business case for investing in safety, whether it involves equipment, software, or training, requires preparation, data collection, and effective delivery.
The business case for safety must clearly define the problem, detail the cost-benefit analysis, outline the desired outcome, provide an implementation plan and budget including ongoing maintenance, estimated time and resources needed, explain consequences of inaction, and discuss alternative solutions and their disadvantages.
Building Your Case
Safety leaders are typically driven by the principles of doing what is right and compliant, believing that safety contributes positively to business performance. Decision makers might share these values but often perceive safety as an expense. Therefore, it is important to demonstrate to decision makers that safety is an investment that will yield future benefits.
In formulating the business case, it is also necessary to comprehend management’s perspectives on safety, their perceptions of safety and the safety profession, current business challenges, the economic climate, and financial performance. Management may hold the view that safety is not a critical business issue or may perceive the safety profession as rigid and inflexible, unwilling to consider viable alternatives.
To address these barriers, it is crucial to be prepared, flexible, exercise sound business judgment, and support logical arguments with factual information. Collaboration is also important. Seeking the assistance of someone in a leadership position (such as a chief operating officer, chief financial officer, or director of operations) can help identify potential barriers and anticipate questions from decision makers.
The business case should use a balanced approach that addresses both negative and positive outcomes as well as management priorities.
Negative outcomes of inaction include fatalities, increases in injury and illness rates, worker compensation claims, and OSHA penalties. Positive outcomes consist of the benefits of investment such as improved employee morale, retention, recruiting, and customer perception. Management priorities may include cost savings, return on investment, organizational competitiveness, community relations, and company reputation.
Timing is critical in presenting a business case. It is essential to be aware of the company’s business planning cycle and fiscal year. The initiative should commence no fewer than 120 days before the budgeting cycle begins. This timeframe ensures sufficient opportunity for fact-finding, research, and collaboration.
Understanding how decision makers prioritize their decision-making process and reasoning is essential. Typically, decision makers focus on several key factors in the following order: return on investment (ROI), direct and indirect cost savings, improvement of organizational metrics such as total recordable injury rate (TRIR) and lost workday rate (LWR), reduction of financial risk, enhancement of compliance, and alignment with corporate values. Given that ROI is a primary consideration, it is essential to effectively communicate costs or savings as a percentage of payroll, production, and sales, or on a per-employee basis.
The better a company’s safety and health performance, the harder it is to justify additional investment in safety. However, data can still support the business case for such investments.
One of the key reasons for investing in safety is to eliminate or reduce the total cost of injuries. The total cost of injuries includes both direct and indirect costs. Direct costs involve worker compensation, medical expenses, and administrative expenses. The direct cost of a medically consulted workplace injury is estimated at $45,000, while the average direct cost of a work-related fatality is estimated at $1.4 million. Though this may seem expensive, it pales in comparison to the indirect costs.
Indirect costs of workplace injuries include disruption, productivity loss, worker replacement, higher insurance premiums, attorney fees, regulatory penalties, and negative impacts on human resources, sales, and marketing. According to the National Safety Council, indirect costs are more than twice the direct costs.
If identifying injury cost data to support your business case proves challenging, consider using OSHA’s Safety Pays Tool, which offers a method for determining the total cost of injuries by type, incorporating assumptions such as the company’s profit margin. It can also calculate the actual total cost of injuries for companies with existing worker compensation costs and injury data. Furthermore, it provides the amount of sales required to cover the total cost of injuries and estimates the expected direct and indirect injury costs each year based on either assumptions or actual data.
The tool also allows comparison with top performers in the selected industry. Utilizing this tool, along with estimates from OSHA and the American Society of Safety Professionals (ASSP), builds a robust foundation for any business case. According to ASSP and OSHA, every dollar invested in safety yields savings between $2 and $6, and implementing injury and illness prevention programs, such as training, inspections, and written programs, can decrease injury rates by 15% to 35%.
Safety is frequently perceived as an expense rather than an investment. However, presenting a well-developed business case can influence the perspectives of decision makers. Success hinges on thorough preparation, gathering pertinent data, and delivering the information effectively.
Joe Mlynek is president and safety and loss control consultant for Progressive Safety Services LLC, Gates Mills, OH; 216-403-9669; and subject matter expert for Safety Made Simple, Olathe, KS.
Sources
“The Business Case for Investing in Safety,” The National Safety Council, nsc.org.
“Making the Business Case for Safety,” ehstoday.com.