As a business owner, you have a vested interest in protecting your people and your bottom line. Keeping employees safe is the right thing to do, but does following safety best practices also have a return on investment?
Safety programs and procedures are often looked at through a compliance lens to ensure Occupational Health and Safety Administration standards are met. At best, safety is seen as a cost center that keeps employees safe on the job but doesn’t directly contribute to an organization’s profitability. However, when looked at closely it is easy to see the correlation between workplace safety and key performance indicators (KPIs).
Hard and soft costs of workplace injuries
The avoidance of any injury, any damage, and fines can result in quite substantial cost savings throughout multiple areas of any business – and any size of business. When a business experiences workplace accidents and injuries, its people and resources are spent cleaning up the mess instead of working and being productive. Saving those resources allows the company to grow.
There are hard and soft costs of workplace injuries. A hard cost is any cost to your organization that is easily trackable and billable. For example, a claim may cause your work comp insurance premiums to grow substantially, as well as general liability across all of your insurance. You may also be exposed to fines by governmental regulators. If an injury does occur, and you’re required to report that to OSHA, and they’re likely to respond to that injury, visit your site and determine whether a fine is appropriate.
Often, incidents also come with repair work. If a company truck gets wrecked, the business owner not only has to deal with work comp; they also have to fix the truck. There’s damage and re-work: was product ruined during the incident? Those are all hard costs.
Soft costs are things like lost productivity, time to recruit and train new employees, damage to brand reputation and reduced employee engagement. The soft costs can add up to significant damage to a business. In an interview with EHS on Tap, Senior Safety Trainer Mark Woodward referred to this as the ‘iceberg effect.’
“You’re only going to see the top 10 percent of the iceberg sticking out of the water, but everything below the water line – 90 percent of these costs – are difficult to track and assign a dollar value to,” Woodward said.
How can safety professionals use this information to support safety initiatives with senior management or executives? We recommend regular reporting on both proactive and reactive safety and work comp activities.
In a recent episode of the WorkSAFE Podcast, we discussed safety’s impact on an organization’s bottom line with Pamala Bobbitt of Cority.
“Everybody talks about lagging indicators around making sure that your lost-time incident rates are below industry standards and you hear all these initiatives around zero accidents,” Bobbitt explained. “The hidden thing that nobody realizes is that it actually saves the company money and makes them more profitable as well, because it helps cut down on operational expenses.”
Companies are often chiefly focused on lagging indicators. These are output-focused KPIs including income, revenue and growth. They’re historical numbers that tell you how your organization has performed.
In a workplace safety context, lagging indicators are metrics including:
- Injury frequency
- Injury severity
- Lost time due to injury
- OSHA citations
- Experience modifier (e-mod)
Examining lagging indicators is like looking in the rearview mirror. They reflect the injuries and claims that your organization has already experienced. At this point, your employees have already been injured and your bottom line is already suffering.
In contrast, leading indicators are metrics that precede your traditional KPIs. They’re indicators for your indicators. These are the numbers you can track, but don’t yet show a direct impact on your company’s health or your employees’ safety. They are metrics including:
- Training completion rates
- Safety meeting participation
- New policy and program implementation
- Policy enforcement
- Employee perception of the organization
Benefits of leading indicators
Let’s say that a medium-sized organization has seen a significant increase in employee lost time due to on-the-job injuries. Company leadership tasks the safety director with addressing this growing concern. So, how do you decrease the amount of time employees are off the job due to injury? Get them rehabbed and back to work quickly? Or simply decrease the number of injuries – no problem, right?
Instead of focusing on the lagging indicator (lost time), the director could flip this question around to look at a leading indicator. When examining the company’s disorganized safety records, the director may notice that the policy on record requires employees to complete 40 hours of safety training annually, but documentation shows that only half of employees have met that goal.
So, how can the director increase the percent of employees who complete the full 40 hours of safety training? That problem is much easier to get a handle on. Here are a few next steps:
- Ensure that documentation is thorough and is clearly communicated
- Incentivize participation
- Show employees how to find the safety resources
- Provide on-the-clock time dedicated to completing the training
By looking at the leading indicator, training completion rate, the safety director can proactively improve injury rates and lost time at the company.
Connecting the dots
Leading indicators are critical because they help environmental health and safety professionals identify problems before they become serious concerns—and often prevent workplace injuries before they occur. However, no organization will be successful with leading indicators alone, and your chief financial officer probably won’t abandon the traditional balance sheet any time soon.
Lagging indicators function as emergency alerts for a safety professional. If a KPI is suffering, something has already gone wrong. Think of leading indicators as “service engine soon” signals – if they go awry, a piece of the organization may need your attention. They can help you complete the full picture and catch problems early on.
Are there gaps in your workplace safety KPIs? Brainstorm with your team about which leading indicators make sense to add to your safety program. Want to learn more about how to prove the return on your safety initiatives? Listen to the full interview with Mark Woodward on the WorkSAFE Podcast: Return on Safety with EHS on Tap.