INCIDENT COST PREVENTION

What is an incident ?
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An incident is an unplanned, undesired event that adversely affects completion of a task

What is accident?
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Accidents is an undesired event that result in personal injury or property damage.

Principles Of Incident Prevention

1.
2.
3.
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5.
6.

Top management must lead

Incident prevention is good management
Management and workers must fully cooperate
There must be SHE policy
Must have organization and resources to implement policy
Best available information (and technologies) must be applied

Type Of Incident
a) Long term injuries
Hearing loss
Expose to chemical
b) Short term injuries
A forklift dropping a load
Someone falling off a ladder

There Causes Of Incident

1. Basic cause
Management safety policy & decision

Management ( systems & procedures)

Lack of system & procedures
Availability lack of supervision

Personal factor
Common to all accidents

Environment factors
Physical ( lighting and temperature)
Chemical ( vapor and smoke)
Biogical ( bacteria and reptiles)

Cost Of Incident Prevention

1. Design cost ( installing machine guard to protect worker)
2. Operational cost running a safety department ( training costs, PPE, etc.)
3. Planning limiting cost safeguarding the future, cost for environment sampling, safety
audit

The hidden costs

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Insured costs (covering injury, ill health, damage)

Hidden uninsured ( 8-36 times as much as injured costs)
1. Product and material damage
2. Plant and building damage
3. Tool and equipment damage
4. Expenditure on emergency
5. Fines
6. Legal costs
7. Investigation time
8. Supervisors time diverted
9. Clerical effort
10. Overtime working
11. Temporary labour
12. Loss of experience supplies
13. Clearing site
14. Production delays

Accidents are more expensive than most people realize because of the hidden costs. Some
costs are obvious

for example, Workers' Compensation claims which cover medical

costs and indemnity payments for an injured or ill worker. These are the direct costs of
accidents.
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But what about the costs to train and compensate a replacement worker, repair damaged
property, investigate the accident and implement corrective action, and to maintain
insurance coverage? Even less apparent are the costs related to schedule delays, added
administrative time, lower morale, increased absenteeism, and poorer customer relations.
These are the indirect costs - costs that aren't so obvious until we take a closer look.

Studies show that the ratio of indirect costs to direct costs varies widely, from a high of
20:1 to a low of 1:1. OSHA's approach is shown here and says that the lower the direct
costs of an accident, the higher the ratio of indirect to direct costs.

OSHA's Ratio of Indirect to Direct Costs

Source: Business Roundtable, Improving Construction Safety Performance: A Construction

Industry Cost Effectiveness Project Report, Report A-3, January, 1982.
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The more accidents that occur in a workplace, the higher the costs both in increased
insurance premiums and greater indirect costs.

To help assess the impact of occupational injuries and illnesses on your profitability, try
out OSHA's "$afety Pays" Program. It uses a company's profit margin, the average cost
of an injury or illness, and the indirect cost multiplier to project the number of sales you
would need to cover those costs. Also, use a worksheet to help determine the costs of
injuries and illnesses and their impact on your business operations.

WORK-RELATED ACCIDENT COSTS

Diego Andreoni
Workers who are the victims of work-related accidents suffer from material
consequences, which include expenses and loss of earnings, and from intangible
consequences, including pain and suffering, both of which may be of short or long
duration. These consequences include:
doctors fees, cost of ambulance or other transport, hospital charges or fees for
home nursing, payments made to persons who gave assistance, cost of artificial limbs
and so on
the immediate loss of earnings during absence from work (unless insured or
compensated)
loss of future earnings if the injury is permanently disabling, long term or
precludes the victims normal advancement in his or her career or occupation
permanent afflictions resulting from the accident, such as mutilation, lameness,
loss of vision, ugly scars or disfigurement, mental changes and so on, which may
reduce life expectancy and give rise to physical or psychological suffering, or to
further expenses arising from the victims need to find a new occupation or interests
subsequent economic difficulties with the family budget if other members of the
family have to either go to work to replace lost income or give up their employment in
order to look after the victim. There may also be additional loss of income if the
victim was engaged in private work outside normal working hours and is no longer
able to perform it.
anxiety for the rest of the family and detriment to their future, especially in the
case of children.
Workers who become victims of accidents frequently receive compensation or
allowances both in cash and in kind. Although these do not affect the intangible
consequences of the accident (except in exceptional circumstances), they constitute a
more or less important part of the material consequences, inasmuch as they affect the
income which will take the place of the salary. There is no doubt that part of the
overall costs of an accident must, except in very favourable circumstances, be borne
directly by the victims.

Considering the national economy as a whole, it must be admitted that the

interdependence of all its members is such that the consequences of an accident
affecting one individual will have an adverse effect on the general standard of living,
and may include the following:
an increase in the price of manufactured products, since the direct and indirect
expenses and losses resulting from an accident may result in an increase in the cost of
making the product
a decrease in the gross national product as a result of the adverse effects of
accidents on people, equipment, facilities and materials; these effects will vary
according to the availability in each country of workers, capital and material resources
additional expenses incurred to cover the cost of compensating accident victims
and pay increased insurance premiums, and the amount necessary to provide safety
measures required to prevent similar occurrences.
One of the functions of society is that it must protect the health and income of its
members. It meets these obligations through the creation of social security
institutions, health programmes (some governments provide free or low-cost medical
care to their constituents), injury compensation insurance and safety systems
(including legislation, inspection, assistance, research and so on), the administrative
costs of which are a charge on society.
The level of compensation benefits and the amount of resources devoted to accident
prevention by governments are limited for two reasons: because they depend (1) on
the value placed on human life and suffering, which varies from one country to
another and from one era to another; and (2) on the funds available and the priorities
allocated for other services provided for the protection of the public.
As a result of all this, a considerable amount of capital is no longer available for
productive investment. Nevertheless, the money devoted to preventive action does
provide considerable economic benefits, to the extent that there is a reduction in the
total number of accidents and their cost. Much of the effort devoted to the prevention
of accidents, such as the incorporation of higher safety standards into machinery and
equipment and the general education of the population before working age, are
equally useful both inside and outside the workplace. This is of increasing importance
because the number and cost of accidents occurring at home, on the road and in other
non-work-related activities of modern life continues to grow. The total cost of
accidents may be said to be the sum of the cost of prevention and the cost of the
resultant changes. It would not seem unreasonable to recognize that the cost to society
of the changes which could result from the implementation of a preventive measure

may exceed the actual cost of the measure many times over. The necessary financial
resources are drawn from the economically active section of the population, such as
workers, employers and other taxpayers through systems which work either on the
basis of contributions to the institutions that provide the benefits, or through taxes
collected by the state and other public authorities, or by both systems. At the level of
the undertaking the cost of accidents includes expenses and losses, which are made up
of the following:
expenses incurred while setting up the system of work and the related equipment
and machinery with a view to ensuring safety in the production process. Estimation of
these expenses is difficult because it is not possible to draw a line between the safety
of the process itself and that of the workers. Major sums are involved which are
entirely expended before production commences and are included in general or
special costs to be amortized over a period of years.
expenses incurred during production, which in turn include: (1) fixed charges
related to accident prevention, notably for medical, safety and educational services
and for arrangements for the workers participation in the safety programme; (2) fixed
charges for accident insurance, plus variable charges in schemes where premiums are
based on the number of accidents; (3) varying charges for activities related to accident
prevention (these depend largely on accident frequency and severity, and include the
cost of training and information activities, safety campaigns, safety programmes and
research, and workers participation in these activities); (4) costs arising from personal
injuries (These include the cost of medical care, transport, grants to accident victims
and their families, administrative and legal consequences of accidents, salaries paid to
injured persons during their absence from work and to other workers during
interruptions to work after an accident and during subsequent inquiries and
investigations, and so on.); (5) costs arising from material damage and loss which
need not be accompanied by personal injury. In fact, the most typical and expensive
material damage in certain branches of industry arises in circumstances other than
those which result in personal injury; attention should be concentrated upon the few
points in common between the techniques of material damage control and those
required for the prevention of personal injury.
losses arising out of a fall in production or from the costs of introducing special
counter-measures, both of which may be very expensive.
In addition to affecting the place where the accident occurred, successive losses may
occur at other points in the plant or in associated plants; apart from economic losses
which result from work stoppages due to accidents or injuries, account must be taken
of the losses resulting when the workers stop work or come out on strike during
industrial disputes concerning serious, collective or repeated accidents.

The total value of these costs and losses are by no means the same for every
undertaking. The most obvious differences depend on the particular hazards
associated with each branch of industry or type of occupation and on the extent to
which appropriate safety precautions are applied. Rather than trying to place a value
on the initial costs incurred while incorporating accident prevention measures into the
system at the earliest stages, many authors have tried to work out the consequential
costs. Among these may be cited: Heinrich, who proposed that costs be divided into
direct costs (particularly insurance) and indirect costs (expenses incurred by the
manufacturer); Simonds, who proposed dividing the costs into insured costs and noninsured costs; Wallach, who proposed a division under the different headings used for
analysing production costs, viz. labour, machinery, maintenance and time expenses;
and Compes, who defined the costs as either general costs or individual costs. In all of
these examples (with the exception of Wallach), two groups of costs are described
which, although differently defined, have many points in common.
In view of the difficulty of estimating overall costs, attempts have been made to arrive
at a suitable value for this figure by expressing the indirect cost (uninsured or
individual costs) as a multiple of the direct cost (insured or general costs). Heinrich
was the first to attempt to obtain a value for this figure and proposed that the indirect
costs amounted to four times the direct coststhat is, that the total cost amounts to
five times the direct cost. This estimation is valid for the group of undertakings
studied by Heinrich, but is not valid for other groups and is even less valid when
applied to individual factories. In a number of industries in various industrialized
countries this value has been found to be of the order of 1 to 7 (4 75%) but
individual studies have shown that this figure can be considerably higher (up to 20
times) and may even vary over a period of time for the same undertaking.
There is no doubt that money spent incorporating accident prevention measures into
the system during the initial stages of a manufacturing project will be offset by the
reduction of losses and expenses that would otherwise have been incurred. This saving
is not, however, subject to any particular law or fixed proportion, and will vary from
case to case. It may be found that a small expenditure results in very substantial
savings, whereas in another case a much greater expenditure results in very little
apparent gain. In making calculations of this kind, allowance should always be made
for the time factor, which works in two ways: current expenses may be reduced by
amortizing the initial cost over several years, and the probability of an accident
occurring, however rare it may be, will increase with the passage of time.
In any given industry, where permitted by societal factors, there may be no financial
incentive to reduce accidents in view of the fact that their cost is added to the
production cost and is thus passed on to the consumer. This is a different matter,
however, when considered from the point of view of an individual undertaking. There

may be a great incentive for an undertaking to take steps to avoid the serious
economic effects of accidents involving key personnel or essential equipment. This is
particularly so in the case of small plants which do not have a reserve of qualified
staff, or those engaged in certain specialized activities, as well as in large, complex
facilities, such as in the process industry, where the costs of replacement could surpass
the capacity to raise capital. There may also be cases where a larger undertaking can
be more competitive and thus increase its profits by taking steps to reduce accidents.
Furthermore, no undertaking can afford to overlook the financial advantages that stem
from maintaining good relations with workers and their trade unions.
As a final point, when passing from the abstract concept of an undertaking to the
concrete reality of those who occupy senior positions in the business (i.e., the
employer or the senior management), there is a personal incentive which is not only
financial and which stems from the desire or the need to further their own career and
to avoid the penalties, legal and otherwise, which may befall them in the case of
certain types of accident. The cost of occupational accidents, therefore, has
repercussions on both the national economy and that of each individual member of the
population: there is thus an overall and an individual incentive for everybody to play a
part in reducing this cost.
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