KKeeping employees safe is both the right thing to do and good business. But how do you quantify financial payback and know whether a particular security initiative deserves more or less resources?
At its recent annual conference in Boulder, Colorado, the Construction Safety Research Alliance sized up the issue of financial recovery in a presentation by CSRA Executive Director Matthew Hallowell, a professor of civil engineering at the University of Colorado at Boulder, and Nathalie Moyen, a professor of finance at the university’s Leeds School of Business.
The basic answer is that there is no single, statistically reliable method for measuring the impact of safety on profitability, at least not yet.
“I wish I could tell you there’s just this simple, elegant way to do it. There isn’t.” Hallowell said.
Still, the possibility of knowing the profitability, or simply knowing where to get the most money, is attractive. This type of information or statistical evidence could also help when implementing a new safety framework, such as replacing the sole reliance on total recordable incident rate (TRIR) with energy-based safety (EBS).
Hallowell sees it this way: “Would it be worth spending $20,000 or $200,000 here to get a lot more in terms of my high-energy control?”
Unfortunately, Hallowell acknowledged, good security, good business and ROI are not exactly the same thing.
Matthew Hallowell, executive director of the Construction Safety Research Alliance, says a single definitive measure of the financial impact of safety on employers remains elusive. Photo: Courtesy of CSRA
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Seeking a more comprehensive, evidence-based perspective on safety recovery, CRSA researchers integrated leading indicators, serious injury and fatality rates, and financial performance metrics drawn from 34 CRSA owner/customer organizations and 8 other contractors. These combined sources represent 4.7 billion man-hours over an 11-year period.
One result that emerged: Deaths are linked to falling incomes.
More specifically, a single fatality in a given quarter was followed three quarters later by a statistically significant 2% decline in the income-to-assets ratio. For the average contractor in the sample (approximately $1 billion in annual revenue), this translated into a reduction in revenue of approximately $20 million, after controlling for seasonality, market conditions, company-specific effects, and other sources of volatility.
No reliable relationship was found between fatalities and overall value measured in equity plus debt. The researchers speculate that strong post-incident improvements after a loss of life ultimately offset the effects of long-term assessment.
And while a definitive ROI for “safety” remains elusive, the CSRA study suggests a strong chain of events through which targeted safety investments lead to improved leading indicators. For example, an accident or safety incident causes the employer to use higher energy control rates, which in turn leads to fewer serious injuries and fatalities and better financial results.
Among the 34 owner/customer organizations that provided data for the period 2013-2023, the number of fatalities was too low to produce statistically significant results of financial impact or fundamental link between minor injuries and business performance, Hallowell said. For companies listed on the stock exchange, tFinancial penalties for workplace accidents appear to be market reactions of investors and automated investment algorithms, not the effectiveness of an employer’s safety program.
Moyen said the researchers tried to assess intangibles such as reputation. If a company has fatalities, he said, and the accidents make the newspaper, there may be an impact on the reputation of the employer that will be reflected in the financial performance of the company.
