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MARCOEM WEBINAR SERIES
RETURN ON INVESTMENT FOR HEALTH AND SAFETY PROGRAMS
MAY 16, 2019
David Eherts PhD CIH
Vice President Global EHSPh: +1 862 261 7495 [email protected] 1
COURSE LEARNING OBJECTIVES
> Understand basic financial management concepts and tools.
> Understand the Macro and Micro Business Case for Safety.
> Learn how (and when) to present the benefits and costs of health and safety investments.
> Evaluate existing models for analyzing safety and health investment strategies.
> Understand how make a business case to justify health and safety investments.
> Introduce students to the Return on Health, Safety and Environmental Management (ROHSEI) software.
2
Peter Drucker:“Economic performance is the first responsibility of business. (Without economic performance) a business cannot discharge any other responsibilities, cannot be a good employer, a good citizen, a good neighbor.”
Finance is the language of business
3
From Michael Muckian
“The Complete Idiot’s Guide to Finance & Accounting”
It doesn’t matter what your professional responsibilities are, your management responsibilities contribute directly to
your company’s profitability.
4
Areas where leaders felt that the health and safety professionals performance fell below expectations:
Business And Strategy
– We don’t always plan and react strategically
– We don’t transform data/insights into practical solutions
– We don’t develop methods that integrate safety performance into business productivity
– We don’t align EHS project plans with overall business strategy
– We don’t understand financial related terms and information
– We don’t know how to evaluate proposed investments against their projected payoff
5
KEY INSIGHTS ASSE VALUE OF THE PROFESSION STUDY
SAFETY AND HEALTH DRIVERS
1970’s – OSHA Compliance
1980’s – Injury Prevention
1990’s – Cost Reduction
2000’s – Business Value
2010’s – The New View
6
RETURN ON INVESTMENT (ROI)
Definition:
The amount of benefit received for a given amount of resource invested.
7
THE QUALITATIVE VALUE OF SAFETY
This document contains no technical data subject to EAR or ITAR.
Ability to teach New View Concepts to HR, Quality and OpEx
9
SYSTEM 1 INFLUENCES SYSTEM 2 AND BENEFITS:
1. CRITICAL SAFETY TASKS AND 2. GOOD OBSERVATIONS
90%
10%
Credit Dr. Susan L. Koen
SUMMARY: WHY GOOD OBSERVATIONS ARE SO EFFECTIVE
When we appeal to System 1
> When we encourage the submission of Good Observations
> And respond to them consistently
> This changes the way employees feel about their management and the company
> They feel understood
> They feel emotionally supported
> Because of this “Unconditional Positive Regard”, they are more easily triggered into their logical frontal lobe
> They see safety as a collaborative process and start to put their fellow employees’ and the company’s interests foremost
> Their decisions and the way they work dramatically improve
> We’re all safer
System 2 thinking changes
THE FINANCIAL VALUE OF SAFETY
This document contains no technical data subject to EAR or ITAR.
Strategic (Macro)
Sales
Stock Price
Market Cap
Right-to-Operate
Tactical (Micro)
Cost-Benefit Analysis
ROI, NPV or DPP…
The best business cases involve both
Allergan
We continue to maintain our place amongst the most environmentally sustainable and socially responsible
companies in the world
While continuing to be amongst the safest companies in the world
13
7 years in a row
Improved from #24 in the
world in 2017 to #20 in 2018
2018 EHS PERFORMANCE HIGHLIGHTS
Investors obviously seek out
companies with superior
leadership who maximize
operating profitability. Our
analysis suggests that climate
change leadership is another
strong reflection of superior
management quality; thus, we
observe strong correlations
with our financial measures.
REAL VALUETHE MACRO BUSINESS CASE
Sikorsky
Revenues ($ billions)
Paul SimpsonChief Executive Officer, CDP
TEACHING LEADERSHIP“The two most important things in this company are that
our products are safe and that our employees are safe.”
Brent Saunders at Elizabeth Site
August 2014
“The two most important things in this company are that our products are safe and that our employees are safe.”
Brent Saunders at Elizabeth Site
August 2014
TEACHING LEADERSHIP
ROHSEI
Making the Tactical Business Case
Return on Health, Safety and Environmental Investment
17
Bridging Financial and EHS Measures
Safety/Industrial Hygiene
nLost Work Day injury rates
nProperty loss
nWorker’s compensation
nFines and citations
nNo. of people trained
nExposure Assessments
nNear misses
nBehavioral Observations
nAudit findings
ROHSEIBridges
the Gap
Finance/Operations
nEarnings/EPS
nROI
nPayback
nPVRR
nInternal Rate of Return
nProduction rates
nEarnings/employee
nNet Present Value
nCost Benefit
18
19
EXAMPLES OF ROHSEI PROJECTS
1. Sprinkler Protection2. Onsite Primary Healthcare3. Disability (STD/LTD) Mgmt4. Disposable Coverall Recycling5. Soil Remediation6. HSE Websites7. Behavior Based Safety Programs8. Primary Healthcare in Europe9. Epidemiology Studies and Software10. PPE vs Engineering Controls11. Ergonomics Programs (Lower back)12. Ergonomics Programs (Work Station)13. Fleet Safety Programs14. Electronic MSDS Systems15. PSM16. Integrated Health and Wellness17. IH for the FDA18. Spin-off or Lay-off19. EGPWS20. SMS21-40. Ergonomics
20
EXAMPLES OF ROHSEI PROJECTS
1. Sprinkler Protection2. Onsite Primary Healthcare3. Disability (STD/LTD) Mgmt4. Disposable Coverall Recycling5. Soil Remediation6. HSE Websites7. Behavior Based Safety Programs8. Primary Healthcare in Europe9. Epidemiology Studies and Software10. PPE vs Engineering Controls11. Ergonomics Programs (Lower back)12. Ergonomics Programs (Work Station)13. Fleet Safety Programs14. Electronic MSDS Systems15. PSM16. Integrated Health and Wellness17. IH for the FDA18. Spin-off or Lay-off19. EGPWS20. SMS21-40. Ergonomics
What the hell do you know about finance?Return on Investment (ROI): This is calculated by dividing the net present value by the present
value of the project costs. The net present value is calculated by subtracting the present value of
project costs from the present value of project benefits. The model calculates ROI based on
costs, benefits, and the discount rate that are entered by the user.
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IT DRAWS UNSUSPECTING MANAGEMENT ENTHUSIASTICALLY INTO AN EHS DISCUSSION:
The Behavior-Based Safety Initiative
Project Metrics REPORTS
(click b elow for definitions) BBS Corporate Consultant Self
NPV $311,294 $482,326 $412,279 $474,374
IRR 83% 4,370% 2,001% 382% n/a Note 2
ROI 72% 135% 122% 170% n/a Note 3
Payback Period 2.2 years. 0.1 years. 0.1 years. 0.4 years. No Data Yet.
Production Equivent Units 1556.5 2411.6 2061.4 2371.9
Impact on Unit Cost ($0.17) ($0.27) ($0.23) ($0.26)
% Impact on Unit Cost -0.20% -0.32% -0.27% -0.31%
Print the calculations.You may print the data you entered for each scenario by clicking on the following buttons.
Net Present Value (NPV)
Interna l Rate of Return (IRR)
Return on Investment (ROI)
Discounted Payback Period
Production Equiva lent Units
Impact on Unit Cost
% Impact on Unit Cost
Go to Reports Return to Navigation Screen
Comparative Metrics
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
BBS Corporate Consultant Self 0
NP
V
0%
500%
1,000%
1,500%
2,000%
2,500%
3,000%
3,500%
4,000%
4,500%
5,000%
IRR
, RO
I
NPV
IRR
ROI
To modify the labels "Scenario 1", "Scenario 2", etc. on the above graph, move your cursor to row 3 and type over these
labels with a one or two word description of each scenario.
IT CAN GET YOU THE NECESSARY RESOURCES:
INTEGRATED HEALTH AND WELLNESS
SURVIVING A DOWNSIZING
WHAT HAPPENED?
> Kept all our headcount
> Increased our budget
• Integrated Health
• Process Safety
• Fleet Safety
> Gained more respect
> Improved quality of life
SummaryBeing able to complete credible financial analysis changes the EHS paradigm:
– helps you decide which initiatives to bring forward– helps you finesse management into an EHS discussion– gives you business credibility
Financial analysis resolves the manager’s paradox– they can do the right thing– and defend it to the shareholders
Bottom lineyou get the investment and soonerand there’s no buyer’s remorse
Being able to complete credible financial analysis changes the EHS paradigm:
IT ENSURES FULL EMPLOYMENT FOR EHS
Summary