Page 19 - MetalForming January 2010

has been lost, their productivity now is compromised.
Rarely does the injured employee come back to work at 100-percent capacity. It takes time for him to become reacclimated to his job. This is further accentuated if the employee must be permanently assigned to a new job to accommodate some physical restric- tions. During this readjustment period, you have a less than 100-percent pro- ductive employee.
Additional expenses will be incurred as a result of the worker injury. While these may vary depending on the injury and your type of business, here are a few examples:
• The cost of accommodating the employee’s work environment and resources to match his physical restrictions;
• Legal expenses incurred. Depending on the nature of the injury, you may require legal assistance or guidance from an employment attorney, a labor- law attorney or your corporate attorney;
• The cost to train the replacement employee; and
• Extra cost to meet customer com- mitments. If the injured employee had been working to complete a rushed order, you may incur additional costs to ensure that customer commitments are honored.
It’s Difficult to Calculate These Indirect Costs
Unfortunately, uninsured costs rarely are accounted for by most business owners and financial managers, because they are not easily identifiable. It’s dif- ficult to accurately measure the financial impact and obtain reliable information to allow business owners and financial managers to appropriately deploy scarce resources and minimize costs. Howev- er, designing safety and health prac- tices around the credible quantifica- tion of your organization’s total cost of worker injuries is an effective way to reduce short- and long-term costs.
Past studies have been attempted to measure these uninsured costs, but all are quite old and general in nature. For example, Terrance Miller, in his article Track the True Cost of Acci-
dents (Safety & Health magazine, November 1991), wrote:
“Uninsured costs usually are calcu- lated from insured costs using a ratio. Fixed, arbitrary ratios such as 1-to-1, 4- to-1 or even 10-to-1 are sometimes used. However, uninsured costs vary so much from one operation to another, the only appropriate ration is one devel- oped for your plant or company.”
Also, the Occupational Safety & Health Administration (OSHA) refers to studies on its website, stating:
“Studies show that the ratio of indi- rect costs to direct costs varies widely, from 20:1 to a low of 1:1.”
OSHA has attempted to provide a financial model for companies via its free online software—Safety Pays. How- ever, the data used for this financial-esti- mation tool is based on rough esti- mates, driven primarily as a function of insured claims, and does not account for varying expenses incurred by different company operations.
Using the traditional ratios described by Miller and OSHA has these flaws:
• They do not apply to a company’s specific operation. Each company has its own set of work-related risks, so using general averages or ratios, particularly if they are based on insured claims, will provide an unrealistic estimate of unin- sured costs.
• They have little financial credibili- ty. Business owners and financial exec- utives demand financial information that has credibility and relevance to their specific environment. Otherwise, they will be making decisions based on poor financial information.
• The information lacks flexibility. Each worker-injury claim is different— one claim may involve very little time to administer, while another might involve lengthy litigation. Or, a major piece of equipment might be significantly dam- aged, or a worker injury might cause significant disruption to plant produc- tion. What is needed is a way to quick- ly capture relevant data on an individ- ual claim basis so that the financial information is accurate and reflects the realities of the operation.
• The ratios vary too widely, from 20:1
to a low of 1:1, which can cause a compa- ny to either deploy resources in the wrong direction, or to take no action at all.
Use the Internet to Quantify and Reduce Indirect Costs
From our perspective, manufactur- ers can follow one of two paths to reduce their uninsured costs with cred- ibility: performing an internal risk audit, or employing available software systems that accurately quantify the total economic impact of your worker injuries. Conducting an internal audit requires extensive data and research to determine each and every possible risk, a time-consuming process that can have a high rate of error, or miscalculations. Typically, indirect risks are difficult to identify, especially when the audit is done internally and could be subjective and unintentionally biased. In addi- tion, some potential risks may be over- looked—viewed as improbable or unlikely to occur.
A better solution is to apply soft- ware that quantifies the total econom- ic impact of worker injuries, neither with guesswork nor estimates based on vague industry averages, but by using claim data and specific economic infor- mation. This third-party Internet-based product (we use CompEraser) serves as a personal risk-assessment tool that allows a company to evaluate its poten- tial costs and risks. The program calcu- lates all of the possible areas of risk, and evaluates where the strongest threat of liability lies. Companies can then focus on their most imminent areas of risk, reducing overall cost of losses due to work-related injuries.
One of the powerful components of this software is that it allows a compa- ny to quickly and reliably calculate insured and uninsured components that make up the true cost of a worker injury. These calculations use specific and actual financial data so that the information is tailored to your financial performance and costs. Armed with this information, management can develop focused and effective strate- gies for reducing the total cost of risk of worker injuries. MF
www.metalformingmagazine.com
METALFORMING / JANUARY 2010 17