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Why Cost-Cutting Safety May Cost You More

• Apr 01, 2010

As 2010 really gets underway, it's painfully obvious that the construction industry and industry in general have a long way to go before we can start celebrating "recovery" from the economic crisis.

According to the APD National Employment Report for January 2010, construction employment fell by approximately 37,000 jobs, manufacturing by 25,000 jobs, and the goods-producing sector lost 60,000 jobs from December 2009 to January 2010. While these figures represent a decrease in the number of people losing their jobs each month, they are a long way from the positive employment figures all of us would like to see.

Greater competition for the few contracts and sales out there means the companies that get the work are likely to have a pretty meager profit margin. The temptation is to shave off every cent that isn't considered absolutely necessary to get the job done.

Often, the first things to bite the dust in a slow economy are safety incentives and maintenance programs. Business owners and managers just can't see spending money on that safety officer or safety training for the employees when cash is tight and they need to buy materials. So the superintendent or supervisor doubles as the safety oversight; employee safety training shrinks to a 10-minute talk when he or she has time, which is rarely; and the new brakes for the company truck will wait until next month.

The company saved money, right? Maybe not. Cutting back on safety expenses could amount to gambling with not only the health and well-being of workers, but also with the profits and perhaps the company itself.

'I have a small company with just a few employees, and we don't have many accidents.'

Small companies, even those with good accident histories, can be much more vulnerable to the costs of safety program deficiencies than large ones. They often don't have the extra resources needed to help them through the aftermath of an accident. Plus, you do not need to have an accident to incur lack-of-safety expenses.

Take the case of a family-run construction company here in Denver that recently came to us for help and advice. The company had just been visited by OSHA at one of its projects, a small project paying only around $10,000, much of which had been subcontracted out. The company had a mainly accident-free history and had never before received a citation.

But when asked about employee training, managers had no proof that any of the employees or owners had enough training to be a competent person for the scaffolding that was erected on the site. Now, nobody had been injured, and the scaffolding had been erected correctly, but OSHA rules state that a competent person must oversee the erection, alteration, and dismantling of a scaffold.

OSHA issued citations to the tune of almost $5,000.

Even though we negotiated a reduction in the fines, the company was still very much out of pocket on that minor project.

What's more, an OSHA fine cannot be counted as an expense on the company books. It's a penalty and not tax deductible. This company also had to immediately foot the cost of employee training, plus the cost of lost work hours while that training was completed.

In one way, this company was lucky. The incident caused managers to realize where their safety deficiencies lay before an accident occurred. Being responsible and thoughtful employers, they made every effort to correct the situation immediately.

'Accident costs? That's what I have workman's comp insurance for, isn't it?'

Worker's compensation insurance covers only a fraction of the total cost of an accident — the portion that contains the employee's medical expenses and partial wages. Your premiums probably will go up afterward, too.

To know how much you're really laying down on the poker table by cutting the safety budget, you need to look at the total cost of what could possibly happen. More is involved in that total cost than some might think.

Have you thought about the cost of having a key employee away from your project or facility for even a short period? With almost any accident, there will be lost production time and investigation costs. How about the wages of the less-experienced person who is going to cover that position and the cost of extra training he might need? You may have to pay for equipment damage and overtime.

Another cost that often is not immediately recognized: A serious or fatal accident can affect your business reputation and the confidence your customers have in your company. It might even close your business down. Actually, the indirect costs of an accident often are the majority of total costs incurred. OSHA's $afety Pays Program helps small businesses achieve some idea of how much the average accident can cost a company.

For instance, the site calculates the total cost of an average laceration injury to be more than $32,000, and that is among the lowerpriced injury types. An average back injury could cost as much as $180,000, according to the program. Total cost is calculated by adding approximate direct and indirect costs.

The direct costs of accidents are estimated from information provided by The National Council on Compensation Insurance, Inc. using figures reported in 2004. OSHA's program uses the Business Roundtable publication "Improving Construction Safety Performance" to calculate the indirect cost estimates, which are based on a study conducted by the Stanford University Department of Civil Engineering. While aimed at the construction industry, the results also should have meaning for manufacturing and other industries.

Of course, this program does not include penalties and legal costs if you happen to incur them, and we all know what has happened to insurance expenses in the past six years. So even this figure is likely to be a good deal lower than the actual amount a company might pay today.

'I've got the message but can't afford a safety person right now.'

There is a mountain of help out there, from fact sheets and free publications to magazines, blogs and online networks. Join an online safety forum where you can ask questions and get answers from other people in your industry and the safety industry. Check OSHA's Web site for free publications — believe me, there are lots of them.

Make sure you understand today's regulations and requirements rather than assumptions you may have gathered during your years in your industry. Thoroughly assess your workplace and actively encourage employees to report hazards. Make sure your program addresses the hazards that exist or are predictable in your business.

Most of all, be involved and ensure all of your supervisors and employees are involved and invested in keeping everyone safe. A supervisor who will turn a blind eye to an unsafe act is not doing you, the company, or the employee a favor. Your safety program can be only as good as the planning, education, and enforcement that go along with it.

The truth is, whether you're a small, family-run business or a large corporation, you simply can't afford to cut corners on your safety program any more than you can buy in substandard materials and expect it not to cost you more in the long run.

In the safety industry, there's a saying: If you think safety is expensive, try an accident.

This article originally appeared in the April 2010 issue of Occupational Health & Safety.