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Planning and Budgeting for Safety in 2003: a Guide

For most mills, budget time hits in October. Before approving any major pulp and paper project, senior executives generally ask:

1. What do you want?

2. Why do you want it?

3. What’s it going to cost?

4. What’s it going to do for us?

The company’s Occupational Health & Safety (OHS) planning and budgeting focus should be on meeting its OHS needs and contributing to business profitability by finding ways to increase revenues, reduce costs and help avoid future costs.

STEP 1: PERFORMANCE REVIEW

After extensive consultation with key organization managers and employees, the senior manager responsible for the organization’s safety and the site safety specialist prepare a summary of the organization’s safety performance for the current year-to-date. This summary should include a review of:

LAGGING INDICATORS: These are measures of the OHS Management System (OHSMS) performance.

They are the conventional, result based, reactive indicators such as total recordable injury/illness rates, total lost workday injury/illness rates, severity rates, workmen’s compensation and medical costs, property damage costs, etc.

LEADING INDICATORS: These are measures of pro-active efforts designed to prevent accidents/illnesses before they occur.

They are activity-based indicators such as measures of compliance to accident prevention activity objectives (hazard identification training, job safety analyses, safe operating procedures, inspections, hygiene audits and employee attitude surveys, etc.) or even to some International standards or guidelines such as the OHSAS 18001:1999, or the ILO-OHS 2001, which are becoming more and more influential. Evaluations of the effectiveness of various safety program activities are also pro-active indicators. (See Safety Matters, p.54, July 2002 issue of P&PC “Management Responsibility”).

FINANCIAL INDICATORS: These are measures of the financial performance of the OHS Management System. The best and most comprehensive are:

(a) Total cost of OHS risk

It is composed of:

1. Net insurance premiums such as workmen’s compensation after adjusting for performance based rebates or surcharges. Another is the portion of property and liability insurance premiums attributable to employee accident related losses.

2. Retained accidental losses such as uninsured, direct, and indirect costs, fines, legal costs, etc., absorbed by the company.

3. Risk control costs such as the entire safety program implementation costs — including management, supervisor and employee time — dedicated to its implementation, as well as special risk control expenditures, and remedial action measures. (OHS Management System – see July P&PC, p. 54)

4. OHS administration costs such as the safety staff and safety office expenditures.

In a 500-employee mill, the total cost of OHS Risk could range from $1 to 20 million or more. The objective is to achieve continuous reduction in this total cost while still responding to OHS needs. Reductions of items 1 and 2 represent the potential benefits to be had while items 3 and 4 are the costs incurred to achieve these benefits. Any reduction in this total cost goes direct to the corporate bottom line!

A second important financial indicator is the:

(b) Internal Rate of Return

This is the time-adjusted rate of return generated by any risk control expenditure. It should exceed whatever acceptable rate is set by senior management via the corporate financial department (example: 15% or more).

STEP 2: FINAL PLAN AND BUDGET

A broadly representative organization committee, including employee participation, reviews the performance summary from Step 1. It then sets the revised organizational OHS policy, goals, objectives, action plan, budget and projected savings and submits it for senior management revision and final approval.

NOTE: Achievable objectives for a pulp/paper mill:

(1) A total recordable incident rate of 1% or less (1 per 100 employees).

(2) Total cost of OHS risk of $1/hour worked, or less.

John E. Little, B.Eng, CRM, (McGill) is a risk management consultant specializing in safety optimization technologies and software (Solabs Technologies). Contact him at jelittle@solabs.com