COST BENEFIT ANALYSIS OF SAFETY ASPECTS – A CASE STUDY

DINESH SIVARAM M RAVI MANDAL

ABSTRACT

It is a common assumption that implementing safety norms or following safety rules is expensive and not economical.

But it has been proved in the recent past that following safety norms and implementing them is actually economic

Though putting safety precautions in place can be an annoyance and an extra expense for an employer, the financial benefits can drastically outweigh the costs.

Objective To bring awareness about the importance of safety

engineering and Prove the fact that implementation and strict following of safety rules will boost the economy of the firm by increasing the profit

The International Labour Organization estimates there were 47,000 deaths from occupational accidents in India in 2003

Safety engineering

Focuses on preventing accident and lessening opportunity for human error

The process of designing safety procedures, standards and also ensuring that safe environment is maintained.

Cost benefit analysis A methodology for valuing costs and benefits that

enables broad comparisons to be made and imposes an accounting framework that prescribes classes of benefits and costs to consider, means to measure them, and approaches for aggregating them.

Monetary or safety valuation of the risk of performing a task vs. benefit of performing the task

COST BENEFIT ANALYSIS

The costs of accidents incurred by contractors Cost of construction health and safety measures

first aid; machinery; personal protective equipment; safety training; investigation etc..,

Direct costs on insurance; damage to buildings and equipments or vehicles; damage to the product; cost of health or expenditure on medical care; cost of investigation legal costs; death; permanent disability; worker illness; losses of current production

Indirect Costs.

May not be covered by insurance

cleaning up; hire costs of temporary equipment; waste disposal; temporary labor costs of advising and consulting experts; lost time, sick pay, overtime working and temporary labor; and; loss of business reputation

Calculating simple ROI (cash on cash) for cash flow and investment analysis

Safety softwares

Cost/Benefit Analysis calculator Cost/Benefit Analysis calculator

Small business safety calculators

Case study -Ritrama There is a direct, positive correlation between investment in safety,

health, and the environment and its subsequent return on investment

As part of their business strategy, to decrease injuries and illness, increase profits and help create jobs

As illnesses, injuries and fatalities decline so to do health care and workers compensation costs

Companies that invest consistently in safety realize positive bottom line results, reduced absenteeism, lower turnover rates, higher productivity, increased employee morale and a positive brand image

For every $1 invested in an effective workplace safety program, $4 to $6 may be saved as illnesses, injuries and fatalities decline

Ritrama, a multi-national company with 110 employees at the Minneapolis plant, manufactures pressure-sensitive films and labels for the automotive, beverage, health, beauty and pharmaceutical industries

MNOSHA citations Develop a leadership/management program, Involve employees in a

safety and health program Appoint a safety director, form a safety committee and develop an implementation plan for it and develop a recordkeeping program for injuries and illnesses and plan for implementing it.

selected a four-phase plan that included: Determining the root causes of the citations; Bringing the plant into compliance; Establishing a new safety and health program; and Ensuring that the above three phases were implemented. In addition, they hired an off-site, safety and health consultant firm Consultant found that Most injuries were a direct result of the employees' failure to

follow established safety and health practices. Accidents, injuries and near misses were not properly investigated. The treatment for injured employees was not being followed up

Recordable 1995-2005

Text Version:

Title: Recordable 1995-2005Type: Vertical Bar GraphChart Elements: 11 - One bar for each year showing the number of recordable

Values: 1995 = 14 1996 = 13 1997 = 14 1998 = 13 1999 = 10 2000 = 15 2001 = 19 2002 = 4 2003 = 5 2004 = 7 2005 = 5

Lost Time Cases (1995-2005)

Text Version:

Title: Lost Time Cases 1995-2005Type: Vertical Bar GraphChart Elements: 11 - One bar for each year showing the number of lost time cases

Values: 1995 = 10 1996 = 13 1997 = 10 1998 = 9 1999 = 6 2000 = 8 2001 = 4 2002 = 1 2003 = 0 2004 = 0 2005 = 1

Lost Workdays 1995-2005

Title: Lost Workdays 1995-2005Type: Vertical Bar GraphChart Elements: 11 - One bar for each year showing the number of lost workdays

Values: 1995 = 107 1996 = 82 1997 = 20 1998 = 19 1999 = 19 2000 = 196 2001 = 20 2002 = 180 2003 = 40 2004 = 50 2005 = 31

Restricted Days 1995-2005

Title: Restricted Days 1995-2005Type: Vertical Bar GraphChart Elements: 11 - One bar for each year showing the number of restricted days

Values: 1995 = 269 1996 = 189 1997 = 214 1998 = 105 1999 = 161 2000 = 69 2001 = 266 2002 = 0 2003 = 11 2004 = 0 2005 = 0

Average Lost/Restricted Days Per Case 1995-2005

Title: Average Lost/Restricted Days Per Case 1995-2005Type: Vertical Bar GraphChart Elements: 11 - One bar for each year showing the number of restricted days

Values: 1995 = 38 1996 = 21 1997 = 23 1998 = 14 1999 = 30 2000 = 33 2001 = 72 2002 = 180 2003 = 6 2004 = 0 2005 = 0

The Impact

The $44,000 reduction of workers' compensation premiums from 2000 to 2003

The overall benefits to Ritrama include increased productivity and quality of the products;

The percent of credits and returns to sales went from a high of 2.22 percent in 2001 to 1.24 percent in 2006, which when translated into sales figures means that from a production standpoint, average sales rose 7.5 percent.

The number of manufacturing defects and amount of waste went from $2.7 M in 2001 to $435 K in 2005

The costs of hiring the Safety Consultant and installing new safety equipment have also been recovered

ANGLO AMERICAN MINING COMPANY ANGLOW AMERICAN Is the worlds most diversified mining

company commodity mix Like platinum group metals, diamonds,

copper, nickel, iron ore, metallurgical and thermal coal are mined

They operate on six continents with 150000 permanent and contract employees.

Between the years 2002 to 2007 ANGLO AMERICAN SUFFERED CLOSE TO 200 FATALITIES

In the year 2007 Cynthia Carroll became the CEO of the ANGLO AMERICAN COMPANY

She was dissatisfied with the safety knowledge of the supervisors and the managers

Visited mines and did a research A decision was made and the company was shut down and

was planed that after a perfunctory safety check would resume production as soon as possible

RESULT - Below are some of the data’s got from HARVARD BUSINESS REVIEW)

0

5000

10000

15000

20000

25000

30000

35000

40000

OPERATING INCOME IN $ US MILLIONSREVENUE IN $ US MIL-LIONS

Cost of accidents

Direct benefits costs savings saving of time, expenditure on medical care reduction in the costs of accidents reducing insurance premiums; reducing litigation costs; reducing sick costs; improving production productivity rates lowering accident rates reducing material damageIndirect benefits include reducing absenteeism; improving corporate images, improved job satisfaction, reducing sick pay, lost time, overtime working and clean

The Hidden Cost of Unsafe Behavior – Running the Numbers According to information provided in a report

by a nationwide insurance company, approximately 60% of company executives figure that their companies save $3 for every dollar spent on safety programs. A $10,000,000.00 company that spends 1% of their budget on safety can figure to save approximately $300,000.00. OSHA puts the figure to be more