The Cost of Safety – Part 1 of 2
February 1, 2007 By Pulp & Paper Canada
The question of true cost for mill workplace safety in turn begs several more questions. How do we best measure overall safety performance? How do we define and achieve safety excellence based on this…
The question of true cost for mill workplace safety in turn begs several more questions. How do we best measure overall safety performance? How do we define and achieve safety excellence based on this measure and how do we demonstrate the contribution that well managed safety makes to the bottom line, if any? How do we achieve both safety management effectiveness (low accidental loss) and efficiency (at low cost)?
Ultimately, the ideal outcome of a perfect safety management system would not only be zero accidental loss, but at zero or negligible cost to the enterprise as well. Zero accidental loss is a noble goal, but not at any price. Most approaches to the cost of safety have only addressed the recorded direct costs of salary compensation and medical treatment and, to a lesser degree, the estimated indirect or uninsured costs of accidents (based on the iceberg concept). Very few, if any, definitive industry studies have surfaced to substantiate these indirect cost estimates. Corporate records of indirect costs are also very rare indeed. Sadly, the real cost of achieving safety excellence has been almost ignored. Many experts submit that the true cost of safety must include the costs of prevention and administrative overhead, a practice popular in the insurance industry under the Total Cost of Risk concept.
World Class Performance
Safety professionals would probably agree that the best, most realistic outcome of a top safety management system is the lowest possible accidental loss at the lowest possible cost. At the present time, many global safety experts would consider ‘world class’ safety performance as a total medical case incident rate (total OSHA-USA recordable incident rate or TRIR) of less than 1 (per 200, 000 hrs. worked). The author submits that the other side of this ‘world class’ performance coin is at a total cost of less than $1 CAD per hour worked (or of exposure). In other words, a medical case rate (TRIR) of less than 1 at a total cost of less than $1 CAD per hour worked. Achieving such ‘world class’ performance means keeping one eye on the effectiveness of safety interventions and the other on their impact on safety efficiency or the total cost of safety.
Total Cost of Safety Risk
This approach can save up to $4/hr. worked or more. The Total Cost of Safety Risk (TCSR) approach examines both the cost of financing the risk of accidental loss (WC insurance net premiums and retained/uninsured losses) and the cost of controlling these risks (risk controls or prevention, compliance and administrative overhead). The hypothetical example in Table 1 and graphically shown Figure 1 demonstrates that by optimizing the use of risk financing and risk control strategies the enterprise can achieve ‘world class’ safety performance (TRIR<1) at the lowest possible cost ($1.30 per hour worked in year four). The hypothetical savings of $4.20 /hr in TCSR from increased efficiencies generated from year one to year four go straight to the mill’s bottom line. In a 500-employee mill this adds up to about $4.0 million per year. Year five indicates that expanded risk controls may not yield improved performance. For an industry desperate to slash costs to survive, this has to be worth a closer look. In addition, there is strong empirical evidence that links safety performance with Overall Equipment Effectiveness (OEE; a combined paper machine availability, speed and product quality factor).
Benchmarking and your TCSR
Does your mill know its TCSR? Try inserting your own figures (real or best estimates) in Table 1 and send it to John Little (see below) for industry benchmark sharing purposes. In a forthcoming issue of Pulp & Paper Canada, mill data feedback will be addressed in Part 2 of this article, although PPC will respect total confidentiality of the participating mill(s). This is a golden opportunity for mills to compare their safety performance (TRIR) and cost of safety (TCSR) with industry benchmarks. Part 2 also looks at new paradigms in detail for optimizing safety management strategies and achieving ‘world class’ safety performance at lowest possible cost.
If you wish to perform a full, comprehensive Total Cost of Safety Risk (TCSR) audit free of charge at any participating mill (Part 1 response), please contact John Little. The time frame is estimated to be approximately 3 to 5 days and he would only charge necessary travel/lodging expenses.
Notwithstanding the above incentive, John Little is also available to help any participating mill by phone or by e-mail to put together their response to the survey, free of charge.
John E.Little, B.Eng-Mech , CRM, can be reached at T:(418) 826-0541 or E: email@example.com
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