The REAL COST OF AN ACCIDENT

An area of major concern to employers in construction is the cost of accidents. Many people do not realize how much accidents really cost. In fact, many expenses are not always obvious. Attention to accident prevention can and will improve a company's overall success.
Where does the money come from to pay for the results of accidents? Some people believe that organizations have money set aside to pay for accident costs. However, employers know that the money must come from profits.

A series of costly accidents can reduce profits radically. Accidents have obvious, direct costs such as medical, hospital and rehabilitation expenses, workers compensation payments, and higher insurance premiums or even loss of insurability. But, accidents have less obvious, indirect costs that are usually uninsured. These include the various disruptions to normal work procedures, such as when employees stop to help the injured employee or even a drop in production that cause inconsistencies with delivery. If profits are not sufficient to cover costs, the company may be forced to defer the procurement of new equipment and facilities.

People often try to minimize the costs of accidents by saying that they are covered by insurance. Insurance, however, covers only a portion of the total accident cost. Moreover, as accident losses increase, so will a company's insurance premiums. It is clear that directly and indirectly, accidents reduce profitability.

Total accident costs can be compared to an iceberg (Figure 1).

The part of the iceberg that can be seen above the surface is like the smaller, direct portion of the total accident costs. An examination of a serious accident can give you a better understanding of what makes up total accident costs. For example, an employee falls from a scaffold that does not have adequate hand rails and is seriously injured. Most workers on site will stop working. Some rush to give first aid to the injured person, while others call for help. When help arrives for the injured employee, do employees immediately return to work? Not always. They may continue to help or remain merely to watch. In this situation, all idle work time is included as part of the total accident costs.
As soon as the injured person receives proper medical treatment, your next job is to investigate the accident. All time spent on accident investigation and reporting as well as wages paid to witnesses is included in the total accident costs. If the injured person misses work for only a short time, you may be able to make up for the production loss by having the rest of the shift work overtime. Overtime wages paid are included as total accident costs. If the injured employee is gone for months, you may have to hire and train a replacement worker, and they may not be as efficient as the previous one. If equipment is damaged in the accident and the job must be performed with less effective equipment, your output will drop further. All this reduced efficiency represents another indirect cost.

The indirect costs of accidents are usually greater than the direct costs. A conservative estimate is that for every R1 of direct accident costs, there is R3 of indirect costs. Some studies indicate the hidden costs can be 4 to 10 times the insured costs. Studies have shown that in construction it is 6 times the insured cost.

Indirect costs to consider include:

• Time lost from work by injured employee(s).
• Loss in earning power.
• Economic loss to injured worker’s family.
• Lost time by fellow employees.
• Loss of efficiency due to break-up of team.
• Lost time by supervision.
• Cost of training a new worker.
• Damage to tools and equipment.
• Replacement of time damaged equipment.
• Spoiled work.
• Loss of production.
• Spoilage - fire, water, chemical, explosives, etc.
• Failure to fill orders.
• Overhead cost (while work was disrupted).

Like an iceberg, the hidden costs of accidents are not visible on the surface, but are still present nonetheless. Examples of such hidden costs:

• Production loss/worker distraction
• Training costs/replacement worker
• Loss of skill/efficiency - slowed production
• Paperwork
• Administrative time
• Loss of morale
• Legal issues
• Medical expenses
• Wages
• Equipment
• Workers compensation

Just as there are many hidden costs due to accidents, there are hidden savings in accident prevention. For this reason, the phrase "loss control" is often used in safety management. Every accident you prevent saves direct and indirect accident costs - money that remains in your profits. Other benefits of accident prevention efforts include:

• Employees will not be injured or killed.
• Property and materials will not be destroyed.
• Production will flow more smoothly.
• You will have more time for the other management duties of your job.
• Increased employee security at work.

ACCIDENT PYRAMID / RATIO

In order to understand the history of incident presentation, you need a good understanding of what it takes to reduce injuries. The accident pyramid model used many years ago as we will discuss will provide some useful information.
In 1969, a study of industrial accidents was undertaken by Frank E. Bird, Jr., who was then the Director of Engineering Services for the Insurance Company of North America. He was interested in the accident ratio of 1 major injury to 29 minor injuries to 300 no-injury accidents first discussed in the 1931 book, Industrial Accident Prevention by. H. W. Heinrich. Refer to Figure 1

Since Mr. Heinrich estimated this relationship and stated further that the ratio related to the occurrence of a unit group of 330 accidents of the same kind and involving the same person, Mr. Bird wanted to determine what the actual reporting relationship of accidents was by the entire average population of workers. H.W. Heinrich’s classic safety pyramid is now considered the foremost illustration of types of employee injuries.

There Bird analyzed 1,753,498 accidents reported by 297 cooperating companies. These companies represented 21 different industrial groups, employing 1,750,000 employees who worked over 3 billion hours during the exposure period analyzed. The study revealed the following ratios in the accidents reported:

For every reported major injury (resulting in fatality, disability, lost time or medical treatment), there were 9.8 reported minor injuries (requiring only first aid). For the 95 companies that further analyzed major injuries in their reporting, the ratio was one lost time injury per 15 medical treatment injuries.

Forty-even percent of the companies indicated that they investigated all property damage accidents and eighty-four percent stated that they investigated major property damage accidents. The final analysis indicated that 30.2 property damage accidents were reported for each major injury.

Part of the study involved 4,000 hours of confidential interviews by trained supervisors on the occurrence of incidents that under slightly different circumstances could have resulted in injury or property damage. Analysis of these interviews indicated a ratio of approximately 600 incidents for every reported major injury.

In referring to the 1-10-30-600 ratio detailed in a pyramid it should be remembered that this represents accidents reported and incidents discussed with the interviewers and not the total number of accidents or incidents that actually occurred.

Bird continues, as we consider the ratio, we observe that 30 property damage accidents were reported for each serious or disabling injury. Property damage incidents cost billions of dollars annually and yet they are frequently misnamed and referred to as "near-accidents”. Ironically, this line of thinking recognizes the fact that each property damage situation could probably have resulted in personal injury. This term is a holdover from earlier training and misconceptions that led supervisors to relate the term "accident" only to injury.

The 1-10-30-600 relationships in the ratio indicate clearly how foolish it is to direct our major effort only at the relatively few events resulting in serious or disabling injury when there are so many significant opportunities that provide a much larger basis for more effective control of total accident losses.

It is worth emphasizing at this point that the ratio study was of a certain large group of organizations at a given point in time. It does not necessarily follow that the ratio will be identical for any particular occupational group or organization. That is not its intent. The significant point is that major injuries are rare events and that many opportunities are afforded by the more frequent, less serious events to take actions to prevent the major losses from occurring. Safety leaders have also emphasized that these actions are most effective when directed at incidents and minor accidents with a high loss potential.

There is always a large variation between the most serious and no claim incident, as shown in both pyramids.

In 2003, ConocoPhillips Marine conducted a similar study demonstrating a large difference in the ratio of serious accidents and near misses. The study found that for every single fatality there are at least 300,000 at-risk behaviors, defined as activities that are not consistent with safety programs, training and components on machinery. These behaviors may include bypassing safety components on machinery or eliminating a safety step in the production process that slows down the operator. With effective machine safeguarding and training, at-risk behaviors and near misses can be diminished. This also reduces the chance of the fatality occurring, since there is a lower frequency of at-risk behaviors. The variation can be explained by distance or time – for example, the injury was missed by one second or by one inch. Machine safety can make a material difference in widening the variation, favorably impacting frequency and severity of claims and, therefore, workers’ compensation premiums.

CONTRACTOR / MANAGEMENT RESPONsIBILITY

Financial Responsibility:

Contractors have a financial responsibility towards their shareholders, they need to ensure that a profit is made and to see that budgets are met and money is not wasted.
Many construction companies find that improving their site safety standards provides a financial benefit to the company. Investments are repaid by, for example:

• improved productivity and efficiency;
• less staff absence;
• less staff turnover; and
• Improved quality of work.

Tackling the causes of accidental losses is not an unnecessary overhead but an investment in your business. Cost-effective investment in health and safety is as valuable as any other investment in your company. A combination of reducing accident costs and prevention costs, can lead to dramatic savings in your company's bottom line. This DVD series will show the contactor how to implement a cost effective OHS programmes that will reduce accidents and save costs.

Legal Responsibility:

Health and Safety compliance in Construction has never been more important. The need for contractors to comply with the increasing volume of legislation is explained in this DVD Series  Contractors will be guided on how to implement an effective OHS programme which at the same time ensures full compliance with all related legislation.

Moral Responsibility:

This obligation is towards the worker who, apart from legal prescripts, must be allowed to return home from a days work on site, safe and sound! By following the guidelines in this DVD series contractors will provide a healthy and safe work environment and ensure that their employees do not have to die for a job!