Focus
Costs of Job-Related Injuries and Diseases
July 1999
Sheila Pantry, OBE
Managers and workers in industry know that accidents cost money. Whether people are injured, plant and machinery damaged or product wasted, organisations lose money. Large scale losses such as those arising from major fires or explosions, or involving loss of life, are very visible and some have been costed on an individual basis. For example, the Piper Alpha explosion involved the loss of 167 lives and is estimated to have cost over £2 billion, including £746 million in direct insurance payouts. BP estimate that the refinery fire at Grangemouth in 1987, in which one person died, cost £50 million in property damage and a further £50 million due to business interruption.
Compensation
Financial compensation for people who suffer injury at work is a considerable cost. According to the UK TUC, unions secured awards totalling £304 million for workplace injuries and ill health to their members in 1995. At an individual level there has been an award of £235,000 for back injuries suffered by a volunteer worker in a hospital. Less well understood, however, is the nature and extent of loss from accidents of a more routine nature: those accidents which injure but do not kill people, which damage plant and interrupt processes. The costs of these sorts of accident can often be hidden in sick pay, increased insurance premiums or maintenance budgets.
A 1997 US report states that injuries both on and off the job cost employers about USD 200 billion annually, or USD 1,700 per employee, and overall, injury accounts for 19% of employers' health care costs and 46% of disability costs.
Cost of accidents
Few firms have the mechanisms to identify them separately and fewer still actually identify and examine the costs of accidents systematically. Twenty-five years ago the UK Confederation of British Industry (CBI), in evidence to the Robens Committee on Health and Safety at Work, said: "At the company level, if a readily applied and simple formula could be devised by which the financial loss caused by accidents and disease could be measured ..., it would make a valuable contribution towards reducing industrial accidents and occupational ill health. Safety and Health at Work, Robens Committee Report Vol 2 (Cmnd 5034) HMSO 1972 ISBN 0 10 150340 7
Methodology
Since then, although there have been attempts to estimate the costs of accidents, usually concentrating on those involving personal injuries, there remains no generally accepted figure or methodology. Much of the previous work has focused on the retrospective analysis of data collected for other purposes such as litigation and insurance claims.
Against this background, in 1989 the UK Health and Safety Executive (HSE) Accident Prevention Advisory Unit (APAU) - now Operations Unit (OU) - began a series of five case studies with organisations from various sectors of industry. The aim was to develop a methodology to accurately identify the full cost of accidents, to publish the results and thereby provide an incentive for all organisations to take the management of health and safety more seriously. HSE has for many years advanced the view that there is no contradiction between health and safety and profitability, a view to which an increasing number of managers in industry subscribe. Those organisations which perform well and have high standards of health and safety are often the most successful, irrespective of size or industry. The common thread running through these organisations is the application of the principles of sound and effective management to health and safety, together with the integration of health and safety into their overall management agenda.
Successful health and safety management
In Europe the Framework Directive now requires all Member States employers to have effective arrangements in place for managing health and safety. The UK the HSE guidance on health and safety management includes Successful health and safety management HS(G)65 HSE Books, revised 1997 ISBN 0 7176 1276 7 which is based on the principles of loss control and quality management. HSE's advice is not prescriptive and variations of approach may be necessary within individual organisations. However, an important common denominator is the adoption of a total loss control approach which seeks to identify and eliminate underlying failures of management control, irrespective of whether or not they lead to personal injury. In loss control theory, the relationship between accidents is often expressed as accident pyramids.
Accident pyramids
These are used to show the relationships between the numbers of accidents involving fatal injuries, non-fatal injuries, property damage and near misses, forming the peak, middle and base of the pyramids respectively. The severity of the outcome of an accident often depends on chance if organisations fail to identify hazards and control risk. For example, if a person slips on a patch of oil leaked from a machine, the consequences may range from soiled clothing to fatal injury. Coincidentally, the leaking oil may be a contributory factor to machinery breakdown or lead to fire causing major or minor damage. Therefore, as the precise outcome of an accident cannot be predicted the only effective way to reduce accidents is to control the underlying causes. Controlling the causes (inputs) of the patch of oil therefore has the potential to prevent a whole range of possible consequences (outputs).
Loss control
Managers now increasingly use the principles of loss control to minimise accidental losses. In recent years the loss control approach has been supplemented by the various schools of 'quality' management, including aspirations to 'total quality'. Total quality is defined as: 'a way of managing to improve the effectiveness, flexibility and competitiveness of an organisation as a whole' .Total quality management: the route to improving performance, by Professor John S Oakland (2nd edition) 1993 Butterworth Heinemann ISBN 0750 609 931.
Costings
The costings methodology developed by HSE's APAU attempted to identify the cost of all accidental losses that were considered to be preventable and that an organisation committed to loss control would aim to eliminate. To achieve this objective the methodology was based on a wide definition of the term 'accident'. AN ACCIDENT WAS REGARDED AS ANY UNPLANNED EVENT THAT RESULTED IN INJURY OR ILL HEALTH OF PEOPLE, OR DAMAGE OR LOSS TO PROPERTY, PLANT, MATERIALS OR THE ENVIRONMENT OR A LOSS OF BUSINESS OPPORTUNITY. For a number of months five case studies were followed and all accidents meeting this definition and involving loss above an agreed threshold were recorded. The cost of each accident was then assessed and a judgement made on whether it would have been cost effective to prevent it.
So how much do accidents actually cost you?
Many organisations believed that they are immune to accidents, and are seriously underestimating how much day-to-day accidents are costing the business.....they could be costing you far more than you think. Minor injuries can cost more than the price of a plaster - anything from £5 to £100. This is because of other costs such as the first-aider's time and the injured person's absence, particularly if a trip to the hospital is needed. Also, think about how the costs of these minor accidents can add up over a year.
Your total accident bill will depend on how many people work for you, the type of work you do and the value of your raw materials, product or service. However, over a year the total cost can be significant. Case studies reveal that a transport company losses represented 1.8% of their operating costs, or put another way, 37% OF THEIR ANNUAL PROFITS.
Sadly, in some cases a single accident can mean the end of a business...a site employing thirty people was contracted to supply chemical products. A serious fire interrupted production for over three months. As a result their client terminated the contract. This loss of business and the costs associated with the fire meant that production at the site was no longer viable, resulting in the factory being closed and all the workers made redundant.
Accidents can also result in increased insurance premiums. And there are the consequences of accidents that cannot be easily calculated - damage to your company's image, loss of business, effects on your workers' morale and reduced efficiency.
Still not convinced?
More information from worldwide sources on the costs of accidents can be found in authoritative CD-ROMs such as OSH-CD, OSH-OFFSHORE, OSH-ROM, FIRE-CD, FIRE WORLDWIDE.
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