8/4/2019 Paper 8 nos Stefanou

1/6

1

Accountingpracticesfortheevaluationofoccupationalhealthservicesandsystems

ConstantinosJ.StefanouDepartmentofAccounting,AlexanderTEIofThessaloniki,Greece

AbstractCompaniesimplementOccupationalHealthServicesandSystems(OHSS)inordertoenhance

workplacesafety,reduceabsencefromwork,improveworkingconditionsandmaximize

employeeswellbeing,performanceandproductivity.However,despitetheimportanceof

suchsystems,therearemajorconcernsabouttheireconomicjustificationandthelackofany

relatedandreliablemeasurementsystems.

Traditionalmacroeconomicmeasurements,suchastheestimatedtotalcostincurredof

sicknessabsenceintheeconomy,arenolongerusefulinprovidingcompanieswithspecific

informationaboutcostsandbenefitswhichcouldbeusedeithertoeconomicallyjustifythe

provisionandtheenhancementofexistingorforseekingfundsinordertoestablishnew

OHSS.ThelaterisespeciallytrueforSMEswhichhavenotyetestablishedbuttheyare

requiredortheywishtoimplementOHSS.

ThispaperprovidesaclassificationofbothcostsandbenefitsofOHSSandaninsightofthe

economicandnoneconomicapproachesforevaluatingthem.Itisarguedthatbecauseof

theinabilityofcurrentaccountingsystemsandthecomplexityoftheprocessofmeasuring

bothcostsandbenefitsofanOHSS,amulticriteriaapproachshouldbeadoptedtowardsthe

justificationandevaluationofanOHS.Tothatend,modernenterprisewideinformation

systemscanbeusedtofacilitateevaluationandcontrolcosts.

Keywords:economicevaluation,occupationalhealth,accountingsystem,costbenefitanalysis,enterprisesystems

1. IntroductionEconomicjustificationofanybusinessactivityisrequiredinordertojustifyinvestment,

secureadditionalfundsforrunningprojectsandcapturetopmanagementsupport.Thisis

certainlythecasefortheimplementationofOccupationalHealthServicesandSystems

(OHSS)incompaniesespeciallynowadaysthattheprovisionofsuchasystemis

1Workingpaper,pleasedonotquote

8/4/2019 Paper 8 nos Stefanou

2/6

2

requiredinalmostallcompaniesbutatthesametimeglobalizationandseverecompetitive

pressuresforcemanagerstoreducecostsandminimizeexpendituresthatseemnotto

contributemuchtoprofits.Healthandsafetyisafunctionofanenterprisethatfocuseson

securingandpromotingsafetyandhealth,includingbothphysicalandmentalhealth,ofthe

companysemployees(Holt2002).However,estimatingcostsandbenefitsofanOHSSisnot

aneasytask;thispaperaimsatprovidinganexplanationforthisandadditionallytopresent

theaccountingpracticesusedfortheevaluationofasOHSS.Finally,itarguesthatmodern

technologyinformoflargeenterprisesystemsoffersavehiclefortheefficienteconomic

evaluationofsuchsystems.

2. TheeconomicevaluationofOHSSExtantliteraturehasnotconsideredindepththeeconomicevaluationandthe

justificationoftheintegralOHSSimplementedinenterprises.Miller,Whynesand

Reidj(2000)arguethatthereareseveralstudiesthathaveconsideredtheeconomic

implicationsofacertaindimensionofanOHS,suchas,forexample,thereductionof

acertaindiseaseinanorganizationalenvironment.However,thereisalackofin

depthstudiesthathaveconsideredthecostsandbenefitsofOSHSletalonestudies

thatanalyzeandevaluateavailableOSSsystems.Theauthorsreckonthatthismay

betheresultoftheconceptualdifficultyindefiningandmeasuringtheoutcomesof

anOHSandtheunavailabilityofrelateddata.

Thelaterexplanationmaycausenosurprisetoaccountantsandmanagement/cost

accountants;theyknownwellthatcurrentaccountingsystemsarenotcapableto

recorddataresultingfromcertainhumanactivities,suchaserrors,letalone

processingqualitativedatathatareassociatedwiththewellbeingandthe

productivityofemployees,suchasthestressandotherpsychologicalfactors.In

manysituations(seeforexampleMiller,WhynesandReidj,2000)times,iseasierfor

theevaluatortogathercostdataratherthandataregardingbenefits,becauseitis

moredifficultfortheaccountingsystemtorecordbenefitsinmonetaryterms. In

thestudytheydescribeintheirpaper,estimatedbenefitswerecalculatedbythe

8/4/2019 Paper 8 nos Stefanou

3/6

3

processofbrainstormingamongstaffandresearchers,asnoharddataexisted.Expertsjudgmentwasalsousedinotherstudiesinordertoovercometheproblemofinsufficientcostinformationcausedbycurrentaccountingsystem(Liu,Hwang,Liu2008).

Thisinabilityoftheaccountingsystemtoincorporateandprocessqualitativedata

canleadtoerroneousjudgmentandfinallymisleadmanagersintheirprocessof

decisionmaking(Johnsonand Kaplan,1987).Especially,dataregardingergonomicsor

othersafetycharacteristicsarenotevenmentionedinaccountingsystems(Dahlenand

Wernersson,1995;RielandImbeau,1996;).

However,therearemodernaccountingsystemswhichareapartofalargerenterprise

systemoperatedinahighlyintegrativemanneracrossthecompanysboundaries.These

systemsarecapableofcapturinginformationinavarietyofconditionsandinvariouspoints

inacompanyprovidedthattherehasbeenacarefuldesignandamappingofallcostsand

benefitsofanOHSSinmonetarytermsthatcanbeprocessedbythesystem.Thisrequiresa

seriousstudyonfirstwhatcostsandbenefitsareandsecondlyontheirmeasurement.Large

enterpriseresourceplanning(ERP)systemsprovidethecapabilitytoenterprisestodevelop

andimplementacertaincostaccountingmethod,theActivityBasedCosting(ABC)method

whichcanbealsoused tomeasurecostsinhealthandsafetyenvironments(Rieland

Imbeau,1995,1996).DahlenandWernersson(1995)usingtheABCmethodincorporated

suchcostsascostsincurredfromabsenteeismandlaborturnoverintothecostaccounting

system(Liuetal,2008)

3. Costsandbenefits

ManytechniqueshavebeendevelopedtoassessineconomictermsOHSS.Alexander

(1994)proposedthefollowingstrategiesrelatedtosafetyandhealthprojects;

economicanalysistechniques,surrogateeconomicanalysis,rankingsystemsforrisk,

requiredexpenditures,allocationoffunds,othertechniques,andinvestment.He

alsoproposedthefollowingtechniques;benefit/costanalysis,returnoninvestment,

presentvalue,comparisonoflossestogrosssales,cost/effectiveness,priority

8/4/2019 Paper 8 nos Stefanou

4/6

4

systems,riskscore,managementbyobjective,payforlosses,regulatorycompliance,

budgetsallocatedtostafffunctions,budgetsallocatedtolineorganizations,

unconstrainedbudgets,detailedbenefits/costanalysis,humanresourceaccounting,

portfolioanalysis,andsafetycosts.

However,alloftheabovetechniquesrequireidentificationandmeasurementof

bothcostsandbenefits.Thisisnotaneasytask,consideringthecomplexityandthe

rangeofthesefactors. Costs,forexample,canarisefromtheestablishmentand

operationofasafetyandhealthdepartment,theinconsistenthumanbahaviourand

unexpectederrorsleadingtodefectivegoodsandservices,theunstablequalityand

malfunction

of

hardware

and

machinery

which

lead

to

injuries

and

absence

and

productivitylosses.Undesirableemployeestatesandbehaviors,suchaslowerlevels

ofwellbeingandperformance,andhigherlevelsofabsenceandturnoverare

causedbydiversefactorswhichrangefromaccidentstoorganizationalstress(Briner

andReynolds,1999).Rikhardsson(2004)summarizedcostsofoccupationalaccidentsin

fourcategories;Time,materialsandcomponents,externalservicesandothercosts.

BenefitsofawellimplementedOHSSare,amongothers,maximizationofhealthand

moraleofemployees,ofperformanceandanincreaseinproductivity,inminimizing

medicalcostsandlegalcosts,inreducingemployeesanxietyandorganizational

stress,inenhancingworkplacesafety,andreducingsicknessabsence.

Traditionally,costswereclassifiedindirect(directlabourandrawmaterials),

indirect,variableandconstant.Costscanalsobepredictedbasedonpastrecords

butconceptualizationandidentificationofbenefitsismuchharderand

questionable.AtaxonomywasprovidedbyBeevis(2003),who,injustifying

ergonomicapplications,proposedabusinesscasemodelconsistedofthreefinancial

benefitcategories,thatis,costssaved,costsavoided,andnewopportunities.

4. ConclusionsEvaluatingcostandbenefitsofoccupationalhealthservicesandsystemsisa

complexissueasawiderangeofqualitativeelementsshouldbeidentifiedand

measured.TheassessmentofOHSScosteffectivenessisrequiredinorderto

8/4/2019 Paper 8 nos Stefanou

5/6

5

persuademanagerstoinvestinsuchsystemsespeciallyintodayshardeconomic

environment.However,accountingdataarenotreadilyavailableinorderfor

evaluatorstoproceedtocost/benefitanalysis.Itisarguedthatmoderndatabase

enterprisesystemsthatarecompanywideimplementedandsupportmodern

accountingandcostingtechniques,suchasActivityBasedCosting,canbeutilizedto

supporteffectiveOHSS.

ReferencesAlexander,D.C.,1994.Theeconomicsofergonomics.In:ProceedingsoftheHuman

Beevis,D.,2003.Ergonomicscostsandbenefitsrevisited.AppliedErgonomics34,491496.

Briner,R.andShirleyReynolds(1999)Thecosts,benfits,andlimitationsoforganizational

levelstressinterventions,JournalofOrganizationalBehavior 20,647664.

Dahlen,P.G.,Wernersson,S.,1995.Humanfactorsintheeconomiccontrolof

Engineering2(1),4554.FactorandErgonomicsSociety,38thAnnualMeetings,Santa

Monica,CA,USA

HoltAJ(2002)PrinciplesofHealthandSafetyatWork,Wigston,IOSHServices

Hopkins,A.,(1999)Forwhomdoessafetypay?Thecaseofmajoraccidents,Safety

industry.InternationalJournalofIndustrialEconomics15,215221.

Johnson,H.T.,Kaplan,R.S.(1987)RelevanceLost:TheRiseandFallofManagement

Accounting.HarvardUniversityPress,Boston,MA.

LiuHunszu,SheueLingHwang,ThuHuaLiu(2008)Economicassessmentofhumanerrorsin

manufacturingenvironment,SafetyScience47(2009)170182

8/4/2019 Paper 8 nos Stefanou

6/6

6

MillerP.,D.WhynesandA.Reidj(2000)Aneconomicevaluationofoccupationalhealth,

Occupational

Medical,

Vol.

50,

No.

3,

pp.

159

163

Riel,P.F.,Imbeau,D.,1995.Economicjustificationofinvestmentforhealthandsafety

interventionspartI:acosttypology.InternationalJournalofIndustrial

Science32,143153.

Riel,P.F.,Imbeau,D.,1996.Justifyinginvestmentsinindustrialergonomics.

vol.1.InternationalJournalofIndustrialErgonomics18,349361.

Rikhardsson,P.(2004)Accountingforthecostsofoccupationalaccidents,CorporateSocial

ResponsibilityEnvironmentalManagement11,6370(2004)