The Economics of Safety

Creative alternatives to common problems exist if you know where to look.

• By Scott Newman
• Jun 23, 2022

Right now, businesses are struggling with record inflation, supply chain bottlenecks, and a persistent labor shortage, all of which have contributed to skyrocketing expenses and forced management teams to evaluate where they can cut costs and boost efficiency.

While no business can do much about these macroeconomic headwinds, decisionmakers do have the discretion to choose what and how they will adjust when it comes to those factors that are in their control such as operating costs and pricing. Unfortunately, we typically see layoffs or steep price hikes to compensate for rising expenses, and perhaps this is necessary. However, I would counter that many businesses simply don’t know where to look when it comes to more effective alternatives.

Enter Workplace Safety

The latest data show that work injuries cost companies nearly $164 billion annually. This is especially frightening when stacked against the estimated $1 billion per week in workers’ compensation costs—most of which is covered by workers’ compensation insurance. However, some quick math highlights a startling gap of around $112 billion in costs not covered by insurance. To drive home how this impacts everyday employers; experts estimate that businesses spend an average of $120,000 per workplace injury. So, for a company operating at 10 percent gross profit margins, it takes $1.2 million in additional sales to cover the cost of an injury. And that is under “normal” economic circumstances.

The bottom line here is that most companies bleed money when it comes to workplace safety. And sadly, many accept these numbers as the reality of doing business, content to try and offset these costs in other ways instead (e.g., manufacturing more goods or expanding service offerings). A bit of logic will tell you this isn’t the best solution. Sales may increase, but so will safety incidents.

The Problem with Mandates

The traditional corporate approach to safety usually involves impersonal interactions with an HR department or a dry, way-too-big employee handbook that most don’t read (or if they do, its contents are soon forgotten). The problem with this approach is its singular focus on the company’s mandates— “Don’t do this list of things. Only do this other list of things.” There is no personal buy-in. And once they’ve been on the job for a while, employees usually begin to find ways to perform tasks more easily or in less time. Unfortunately, “easier and faster” often mean less safe.

Another issue with this approach is the “so what?” problem. A window into an employee’s thought process could look a lot like this: “So what if I don’t follow these rules to a T? I can look after myself, and I will be fine. I’d rather get my work done and get out of here than go through a checklist of safety protocols every time I perform a task I’ve been doing safely for years. Sure, we all know Joe hurt himself a few months ago, but we could all see that coming. I’m different, and it won’t happen to me.”

The problem with this mentality is that it just takes one mistake to cause sometimes irreparable harm to a company or individual. Love them or hate them, safety procedures are in place for a reason. But if current methods for implementing or reinforcing good safety practices aren’t working, the natural question becomes, “What will?”

If At First You Don’t Succeed, Innovate

Imagine you are a manager, and you’re seeing average to subpar safety numbers reported year after year. You’ve tried your best to add new protocols or change old ones, but the list just keeps getting bigger and harder for employees to keep up with. Your first thought is to cede that battle and shift your focus to doubling down on output to offset costs. After all, every manager in a similar position must deal with the same safety issues, right? It’s just baked into the cake.

Think again. A good rule of thumb for managers struggling to pull their company or employees out of a rut is to flip whatever issue might be puzzling them on its head. Safety issues happen to fit this mold quite nicely.

With this in mind, let’s get back to your life as a manager with a less-than-impressive safety record.

To date, you have trained employees in safety protocols to the best of your ability, updated those protocols periodically (usually in response to accidents), and tried your best to preach safe practices to workers at regular intervals—a very top-down, company-oriented approach. So, what about bottom-up?

The company wants to save money and protect its workforce to avoid unnecessary expenses and any hiccups in production or other core functions. But what do workers want? Typically, employees wish to stay safe, but for different reasons. Most are driven by their paycheck and doing whatever they can to provide for their families so they can enjoy life outside of work.

Ah, there is the key. Outside of work.

Instead of telling employees to learn new rules every year or penalizing safety violations, what if following workplace safety procedures meant simultaneously improving workers’ lives outside of their 9 to 5? Above and beyond the paycheck they already expect? Or in a different form?

For example, let’s say employees could earn points for following safety procedures and even more for achieving certain milestones with a good record. They could also be recognized by their colleagues or regularly showcase sound knowledge of current protocols to boost their point totals yet again. And at their discretion, points could be redeemed for items from their favorite brands or other contemporary lifestyle rewards. Additionally, an employee’s family is incorporated, leading to additional reinforcement of workplace safety and encouragement at home. Do you think safety numbers would improve?

Engagement, Engagement, Engagement

And I’ll say it again: Engagement. That’s what it all boils down to. That’s what success depends on. If your employees are fully bought in to safe practices and holding their colleagues accountable, decades of data show that safety improves dramatically and costs plummet.

The brilliance of the bottom-up approach is that it is self-reinforcing; it requires much less oversight. You see, to get rewarded, employees must actively engage with and know the rules. And they must constantly be in communication with colleagues and on the lookout to make sure safe practices are happening around them. They don’t need to be told anything. Safety—specifically workplace safety—is directly correlated with making life better outside of work. Imagine going a year with a stellar safety record and bringing home the new deck furniture you and your wife have been wanting for years!

A world where this happens exists. And companies who incorporate these strategies outperform when it comes to safety.

The Cost of Cutting Costs Doesn’t Have to Be So High

Across the country, businesses and families find themselves in increasingly precarious positions due in large part to factors out of their control. But as businesses evaluate how to temporarily cut costs in order to weather the current economic storm, it is important to evaluate the opportunity cost of decisions made as well as viable alternative solutions.

If you lay off workers, will productivity shrink? If you try to maintain previous output levels or even increase them, will safety suffer? Will overtime expenses go up? Will you be forced to reduce your service offerings, delay new innovations, or raise prices on consumers? And what happens when things settle down? Will you fill positions that were vacated? If so, how much will it cost to recruit and train new employees?

June is National Safety Month across the country, and it is essential that businesses take this time to evaluate current safety practices, calculate the costs of all things “safety,” and compare them against the money they need to save or generate in order to weather this storm. Would a relatively small, creative investment in safety now help your business survive and be even better prepared for the long term? Would this help you avoid the usual, ultimately more expensive cost-cutting tactics? My guess is yes.

The point of this piece is not that safety is everything, but that creative alternatives to common problems do exist if you know where to look. Safety is a great place to start.