You might think calculating the costs of accidents and incidents in your workplace is pretty straightforward. But that’s not always the case. Whether you’re re-examining your hierarchy of safety controls or looking at what the ISO 45001 cost is, you still may be missing part of the story when it comes to the true costs of workplace accidents to your business.
It’s an all-too-common error to focus on measuring the direct costs of these incidents, like medical expenses as a result of a workplace injury. But these represent only a mere fraction of the true cost. Only when you assess the indirect costs, like a loss of productivity while workers recover from injury, do you get the full picture.
Let’s start differentiating between direct and indirect costs and work out what such incidents are really costing your organisation. We can explain using the iceberg principle.
The iceberg principle illustrates that there is more than meets the eye. What you can see is only a fraction of what’s hidden below the surface. In the case of workplace safety, the direct costs of an incident in your workplace is the part of an iceberg that’s visible above water. They’re more obvious, easier to measure, and only represent a small percentage of the true cost of an incident.
The indirect costs are the unseen parts of the iceberg below the water. These are the parts that are hidden beneath the surface, less tangible, and make up the majority of the cost of an incident. Importantly, it’s these costs that can add up quickly and have a significant impact on your company's bottom line.
When calculating the true cost of an incident, it's essential to consider both the direct and indirect costs. Focusing only on your direct costs is a common mistake. It provides an incomplete picture of an incidents impact on your organisation's finances and operations.
Since direct costs are any expenses that can be directly attributed to an incident, they typically are easier to measure. The direct costs of an incident are often covered by insurance policies and can be quickly calculated.
Examples of direct costs can include:
Indirect costs, on the other hand, are much more difficult to measure. They are the hidden costs associated with an accident or incident. These costs are often less visible and harder to quantify. They can have a ripple effect throughout a company and impact everything from employee morale to the company's reputation.
Indirect costs may include:
TRIR (Total Recordable Incident Rate) and LTI (Lost Time Injury) are two commonly used safety metrics in the workplace. TRIR measures the number of recordable incidents per 100 workers in any given period, while LTI measures the number of incidents that result in lost time from work.
While these metrics can be useful in tracking incident rates and identifying trends, they don't provide a complete picture of a company's safety performance. TRIR and LTI only measure the direct costs of an incident and don't take into account the indirect costs that can have a more significant impact on a company's finances and operations.
To truly drive change and improve safety performance, businesses need to look beyond traditional safety metrics and consider the full cost of an incident. By understanding the hidden costs of incidents, you can make more informed decisions about safety investments and identify areas for improvement.
Calculating indirect costs can be a challenge as they are often less tangible and more difficult to quantify. But we suggest it is always possible.
A top tip is to try calculating standard figures that you can apply to each common indirect cost. For instance, determining an hourly cost of employee time spent on dealing with incidents. Make sure to also include the impacts on sales in your calculation. Estimate a loss of profits as a result of any loss in productivity or reputational damage.
Conduct a thorough investigation of each incident and follow the three steps below.
Better understanding the true cost of accidents and incidents is made easier with a digital EHS solution. Access to EHS software can provide you with a more accurate picture of the impact that incidents have on your operations and finances.
The following benefits of an EHS solution can make indirect costs more visible while helping to minimise their impact:
Of course, all these points help to prevent accidents and incidents in the workplace to begin with, which is the best outcome for your organisation's finances, operations, and people.
In conclusion, looking beyond the direct costs will help you to identify the indirect costs that may be lurking beneath the surface. Having this comprehensive approach will help you to gain a better understanding of the true cost and the impact on your organisation. Getting access to the full picture will help you to make informed decisions about where to invest in safety and where to focus your efforts to help reduce incidents.