Return on investment (ROI) is a fairly common buzzword these days. But it’s not a term that’s typically associated with the concept of workplace safety. At a presentation held during The TFM Forum in San Diego this past March, participants analyzed the feasibility of ROI realized directly as a result of their safety programs. And the connection seemed quite logical by the end of the discussion.
A recent study by Liberty Mutual found that for every dollar spent on safety, facility managers (fms) can expect a $3 to $4 return on the $1 investment. That’s powerful in any economy.
Can This Really Work?
Any manager skeptical about the ROI of safety should consider the following example. One fm was able to reduce his company’s annual workers’ compensation and liability insurance costs from $1 million to just above $375,000 in a three year period based on safety program improvements. That was not just a one time savings of $625,000; it was an annual savings of $625,000 each year, based on smart safety goals.
This kind of savings not only improves the organization, but when implemented accurately, it can elevate the position of the fm who can orchestrate and execute a successful safety program. In a strategic sense, this could translate into newfound respect for the facilities department and lead to upgrades in terms of budgets and clout.
Fms will not be successful in establishing or improving their safety programs unless they have the active support of upper management. This is an often overlooked, but vital step in any successful safety program that provides ROI.
It’s critical to understand that some level of funding will be required to “prime the pump.” First, fms may want to attend safety training classes. They may also decide to institute a safe employee recognition program (also known as a safety incentive program).
There may even be a need to invest in books, software tools, or the expertise of a safety consultant. These things cost money, and management will be reluctant to spend the required funds unless fms can prove a likely ROI.
So how do fms show ROI on safety investments? The process starts with basic benchmarking of the organization’s safety history. It’s impossible to make positive changes unless current safety performance levels are established.
The first safety benchmark is something known as the Experience Modification Rate (EMR), which is assigned to a company by its workers’ compensation insurance provider. It is based on industry and risk over a period of time. New companies are typically assigned an EMR of 1.0.
This represents an average rating in the risk pool. As a company ages, the insurance provider compares its risk to other similar organizations.
If there is a history of employee injuries and illnesses, the EMR will increase above 1.0. The converse is also true; companies with a better than average safety record will lower their EMR below the 1.0 level.
In effect, this EMR becomes a multiplier that the insurance provider uses to determine the cost of insuring a company’s employees.
With this understanding, fms need to determine their organizations’ EMRs. This can be determined by placing a simple call to a company’s workers’ compensation insurance provider.
If an organization has an EMR above 1.0, there is an excellent opportunity to generate savings on insurance costs. And even if the EMR is lower than 1.0, the opportunity for savings is there.
Fms unfamiliar with the concept of EMR can consider the example of a business with an EMR at 1.4. Under these circumstances, the fm should contact the insurance provider and ask, “How much money would we save on our insurance premiums if we reduced our EMR from 1.4 to 1.0?” Not only will the provider be able to offer a dollar amount or estimate, it should also be able to help the fm determine the most common (or most costly) employee injuries, which should then be the focus for improvement.
So what happens if the provider indicates the most common forms of injury are ergonomic in nature (such as back strain or carpal tunnel syndrome)? The fm can then come up with a strategy to attack the root cause of these injuries and incorporate the following plans for improvement:
- Provide safety training classes on proper lifting techniques;
- Issue back belts (with training on proper use and limitations of the belts);
- Revise job descriptions to limit the allowable weight an employee can lift without assistance; and
- Rotate jobs or require breaks for repetitive motion activities.
Answering Basic Questions
Another scenario may help fms determine the ROI of safety programs. Is an employer with 10 recordable injuries doing a good job or a poor job? The answer depends on three factors:
- How many employees work for the company?
- How many hours were worked by those employees?
- What industry was the employer in?
If a company employed five people who worked 40 hours per week, then 10 injuries would be a very bad record. However, if the company employed 1,000 people who worked an average of 60 hours per week, 10 injuries would not be so bad.
Furthermore, the 10 injuries may be considered high in a low hazard industry such as a call center. Those same 10 injuries may be considered very low in a high hazard industry such as construction.
It is rare to use number of injuries as a basis for evaluation. In fact, if OSHA were to perform a site inspection, the representative would not ask the question, “How many injuries did you have last year?” Instead, the inspector would inquire about injury and illness incident rate or DART rate.
The incidence rate is an annual number based how many injuries and illnesses occurred over a 200,000 hour period. Here is the formula:
Why does OSHA use the 200,000 hour benchmark? Quite simply, 200,000 hours represents the hours worked by 100 employees, averaging 40 hours per week over a 50 week span (minus two weeks for holidays). This number is used to establish a trending benchmark.
The other benchmark OSHA uses is the DART rate, which stands for Days Away, Restrictions, and Transfers. This number is also based on trending over 200,000 hours, but it’s not based on total injuries. Instead, it is based only on those injuries and illnesses severe enough to warrant DART. For instance, an employee may be forced to visit the emergency room for stitches, but they are able to return to work the next day. Therefore, that event would not count towards the DART calculation.
As a general rule of thumb, it is more important to have a lower DART rate than Incidence rate. Once the rate is figured, the fm has an easy way to benchmark efforts from year to year, even as employee counts or the hours they work change over time.
And the more dangerous an industry is, the higher these rates are likely to be. Many fms struggle to benchmark their organizations’ rates to others within the same (or similar) industry.
The Bureau of Labor Statistics (BLS) performs statistical analysis for the government, including OSHA. The BLS will conduct a random sampling of various organizations within all industries to determine the average injury and illness incidence rate along with the DART rate. These findings are documented, revised each year, and available from the BLS Web site.
Industries can be found in the left hand column. The list is organized by North American Industry Classification System (NAICS) number, searchable as a database.
Once the incidence rate and DART by industry are determined, it is easier to compare rates by industry to the national average. OSHA looks at these numbers as well and targets organizations with elevated rates for random inspections.
Even if rates are below average, fms may still have concerns. It is important to look at data in a three to five year window. Is there a trend upward in injuries and illnesses? Findings may be encouraging (especially if initiatives have been successful) or discouraging (indicating the need for another course of action).
Improved EMR, incident, and DART rates will make a company a more attractive candidate for cost savings through workers’ compensation and liability insurance programs. It will also translate into increased worker productivity and morale, while cutting downtime and the need to hire temporary employees to fill in for the injured employees.
These avenues can present substantial benefits when a safety program is created and tracked. It’s just one more way fms can promote their value and increase the effectiveness of the organization.
Casavant, CFM, is the executive director of the Workplace Safety Awareness Council, a 501(c)(3) not-for-profit organization dedicated to protecting America’s workforce. For more safety compliance techniques, including how to achieve an ROI on your program, visit this link.