How do you quantify the value of workplace safety?

Calculating the costs of safety in industrial workspaces

Around three million workers are injured in the workplace per year in the United States alone.

While the human suffering that startling number implies is the most important thing about it, an economic issue is also at stake: on-the-job injuries create a significant financial liability for industrial employers.

How significant? Estimates vary. According to one source, “workplace injuries and accidents that caused employees to miss six or more days of work cost U.S. employers $59.9 billion in 2014,” based on U.S. Bureau of Labor Statistics and National Academy of Social Insurance data.

Other attempts to quantify what’s lost to injury generate different, if similarly striking, figures. According to the National Safety Council, work injury costs in the United States alone totaled $170.8 billion. Not all of those costs accrue to employers, but a lot do. The study, for instance, breaks out $52.4 billion in wage and productivity losses, which obviously have a direct effect on a company’s operations.

The study also cites $57.6 billion in administrative expenses related to such tasks as processing the paperwork necessary after an injury. It carves out another $12.8 billion in “uninsured costs” for which employers are on the hook. These include the opportunity costs that result from time spent investigating incidents and managing administrative niceties. And that’s not to mention $4.9 billion in damaged-vehicle costs and $8.2 billion in fire damage costs. Insurance would presumably cover these costs, but employers could still face a reckoning in the form of higher insurance premiums.

The costs to employers look even starker according to other calculations. The Safety Management Group, a workplace safety consultancy, estimates that the indirect costs associated with a workplace injury—including the production costs that affect employers—could outstrip direct costs by between four and ten times. The American Society of Safety Engineers goes farther than that, claiming that indirect costs can dwarf direct ones by a multiple of 20.

And so on, down the long line of attempts to calculate how injuries damage employers.

Much of the variance between estimates is due to the difficulty involved in calculating often intangible costs with imperfect methods. To quantify lost production costs, researchers commonly use the so-called human capital and friction cost approaches. Both methods involve multiplying work time lost to injury by wages (the friction cost method considers only the period of time until the worker in question is replaced). The downsides of these methods are obvious. First, they assume that a wage is a transparent measure of an hour’s inherent “productivity” rather than a relative measure. Second, they privilege higher wage earners. (The good news for those who aren’t concerned with methodology is that injury cost calculators are available online, like this one.)

Whatever the dollar figure, however, the basic truth remains: the economics of workplace injuries are daunting.

Nor do workplace injuries affect industrial employers—or injured workers and their families—alone. They’re an issue for society as a whole, driving up prices and burdening the economy with inefficiencies.

That means that industrial employers, tasked with the primary responsibility for preventing injuries — 4.6 million of which occur per year in the U.S. alone—are providing a broad societal service. And as they provide that service, they strengthen their own finances: The National Safety Council indicates that every dollar invested in employee safety realizes between two and six dollars in ROI.

So what can owners and managers of industrial workplaces do to reduce the risk of injury?

Traditional solutions remain relevant. Workforce education is crucial. Employees need to be drilled in comprehensive company safety and wellness plans that establish protocols not only for emergencies but for all daily activities, especially in workplaces where moving parts or other potential hazards are present. Medical clearance should be required for employees in physically demanding posts. Personal protective equipment should be mandated where appropriate (an issue that will have extra relevance in the era of the COVID-19 pandemic). Staffing levels need to be fine-tuned for safety, because overstaffing can be as hazardous as understaffing on a shop floor. Good safety behavior should be rewarded, to strengthen a culture of workplace safety.

Workplace infrastructure can also promote safety. Appropriate lighting is key—and LED lighting technology, the new standard in the industrial workplace, is much better at providing it than the orange-tinged, relatively weak high-pressure sodium lighting that’s been traditional in industrial applications. “Smart” lighting will also prove transformative in fostering workplace safety. A connected lighting system represents an ideal platform for deploying a dense network of monitoring sensors that can not only keep an eye on things, so to speak, but also generate data that helps in making good safety-related decisions.

If calculating the monetary value of workplace injuries remains an inexact science, it’s still clear that workplace injuries represent a financial drain of some magnitude. Employers have not only a moral obligation to take steps to prevent injuries, but a financial incentive, too. Workplace safety, fostered by a combination of common-sense planning, good organization, and up-to-to-the-minute technology, is an area where employers can, in fact, do quite well by doing good.

About the author

Ton van de Wiel is the global segment lead for industrial end-users within Signify and co-founder of Interact. With over twenty years of business experience, he now works to shape tomorrow’s world of smart manufacturing and warehousing as enabled via connected lighting.