By Jon Cordoba, CHST, CIT
Introduction
In the world of occupational health and safety, quantifying the financial impact of safety incidents and preventive measures is of paramount importance. With management always wanting to quantify safety by a dollar amount, the Safety Cost per Employee (SCE) model emerges as a novel approach to do just that. This blog post aims to shed light on the SCE model, its various elements, the formula driving it, and its advantages over existing models.
What is the SCE Model?
The SCE model is designed to give businesses a clear understanding of their safety-related expenditures on a per-employee basis. By integrating both the costs associated with safety incidents and the investments made in safety measures, the SCE model provides a holistic view of the financial landscape of an organization's safety culture.
Elements of the SCE Model
Direct Costs: These are the immediate costs arising from safety incidents. They include medical expenses, legal fees, compensation, and any other direct financial burdens associated with the incident.
Indirect Costs: These are less tangible and might include productivity loss, reputational damage, increased insurance premiums, and administrative time spent handling the aftermath of the incident.
Preventive Costs: This category encompasses the investments made by the company to prevent safety incidents. It includes:
Safety Training Costs: Expenses related to training employees on safety protocols.
Safety Equipment Costs: Investments in safety gear, tools, and equipment.
Safety Audits Costs: The costs associated with regular safety inspections and audits.
The SCE Formula
The Safety Cost per Employee can be calculated using the following formula:
SCE = Direct Costs +Indirect Costs + Preventive Costs, Divided by Number of Employees.
By utilizing this formula, organizations can ascertain the average safety cost for each employee, giving them a precise metric to track over time and compare with industry standards.
The costs entered into the SCE (Safety Cost per Employee) formula can be either up-to-date (for a specific period of time, e.g., year-to-date or quarterly) or annual, depending on the time frame you are analyzing or the reporting needs of your organization.
Up-to-Date Costs: If you're using up-to-date costs, you would be looking at expenses incurred from the start of the year (or another chosen starting point) until the current date. This gives a snapshot of how the company is performing in terms of safety costs for the current year or period.
Annual Costs: When using annual costs, you're considering the expenses for the entire previous year. This allows for year-over-year comparisons and may be useful for annual reporting or setting budgets for the upcoming year.
The decision on which time frame to use is largely dependent on the context. If you're doing periodic reviews or looking to make more immediate safety investments or changes, then up-to-date costs might be more relevant. If you're setting annual budgets, comparing year-over-year performance, or doing annual reporting, then annual costs would be more appropriate.
Regardless of the chosen time frame, it's essential to be consistent in your approach. If you're comparing SCE values over multiple periods or against benchmarks, ensure that the costs and time frames are comparable to get meaningful insights.
Let's craft a hypothetical scenario for a contracting company.:
Company: ElectroSafe Electrical Contractors
Total Employees (E): 100
Time Frame: 2nd Quarter of 2023
Recordable Injuries: 3
Assumptions for the example:
Direct Costs (D):
Medical expenses for the three injuries: $5,000, $3,000, and $4,500 = $12,500
Repair costs for damaged equipment related to the incidents: $2,000
There are no legal fees or compensation claims in this period.
Total Direct Costs (D): $14,500
Indirect Costs (I):
Lost productivity costs due to downtime from the three injuries (assuming $30/hour average wage and 40 hours lost per injury): 3 injuries * 40 hours * $30/hour = $3,600
Incident investigation costs (for each injury): 3 * $500 = $1,500
No training replacement costs or significant changes in insurance premiums for this period.
Total Indirect Costs (I): $5,100
Preventive Costs (P):
Safety training costs (quarterly refreshers for all employees at $50 each): 100 * $50 = $5,000
Safety equipment costs (PPE replacements and tools): $3,000
Safety audits costs (quarterly external audit): $2,000
Total Preventive Costs (P): $10,000
Given the above assumptions, let's calculate the Safety Cost per Employee (SCE) for the 2nd Quarter of 2023 using the formula: SCE=ED+I+P/E
Plugging in the numbers:
SCE = \frac{$14,500 (D) + $5,100 (I) + $10,000 (P)}{100 (E)}
SCE = \frac{$29,600}{100}
SCE = $296
Outcome: For the 2nd Quarter of 2023, ElectroSafe Electrical Contractors had a Safety Cost per Employee of $296. This means, on average, the company spent or lost $296 per employee due to safety-related matters, both preventive and as a result of incidents.
This outcome provides ElectroSafe a monetary perspective on their safety performance for the quarter and can guide future budgeting, policy-making, and training initiatives.
Benefits of the SCE Model Over Others
Holistic Overview: Unlike many other models that focus solely on incident costs, the SCE model takes into account preventive costs, ensuring that investments in safety are also considered.
Standardized Metric: The SCE provides a consistent metric that companies of various sizes can use, making it a great benchmarking tool.
Informed Decision Making: By understanding their SCE, organizations can make more informed decisions regarding where to allocate resources for maximum safety impact.
Encourages Proactiveness: When companies see the tangible benefits of preventive costs reflected in their SCE, it promotes a proactive rather than reactive approach to safety.
Enhanced Stakeholder Communication: The SCE metric is easy to understand, allowing companies to communicate their safety performance and investments to stakeholders more effectively.
Conclusion
The Safety Cost per Employee (SCE) model offers a fresh perspective on assessing and communicating the financial aspects of safety in an organization. By combining incident-related costs with preventive investments and standardizing this into a per-employee metric, the SCE model equips businesses with a powerful tool for safety management and continuous improvement.
In a landscape where safety is not just a regulatory mandate but a cornerstone of corporate responsibility and reputation, the SCE model stands out as a beacon for informed, effective, and transparent safety management.