The Payback of Safety and Justifying Expenditures for Safety Improvements

"Virtually every article you read on safety has a statement to the effect: “It’s obvious that safety pays”. If it is so obvious, why is it so hard to answer these questions? • How does the Maintenance or Operations Manager convince the Plant Manager to spend money from the annual budget for safety improvements? • How does the Plant Manager influence Corporate to prioritize safety improvements? • How does an engineering firm persuade the owner to spend more on design and equipment up front to reduce risk? There are many cultural and structural reasons why it is so difficult to prove the obvious. In my opinion the main culprits are: the almost universally used ‘Low Bid’ process, variations in reporting incident statistics between industries and countries, and, the Generally Accepted Accounting procedures (GAAP) [or International Financial Reporting Standards (IFRS)]. Conventional wisdom is it’s smart not to spend more than you need to meet the minimum regulations and maximize production. But buying on price alone often harms people, degrades the environment, and reduces the company’s bottom line. How can this be? You met the minimum safety requirements and saved money by buying on price. Don’t those savings go right to the bottom line? When you buy on price you get minimum quality, minimum compliance and are often backed corner with no reasonable options to rectify the problems that arise from buying on price instead of buying on long term life cycle cost. Culturally few companies actually ‘walk the talk’. It is trendy to have giant billboards at plant entrances proclaiming world class compliance with quality and safety standards. Annual reports are embellished with safety slogans and sustainability statements. Behind the front gates and the glossy annual reports the message is clear: produce or be replaced. Only a few companies go beyond the window dressing and actually endorse, from the top down, continuously improving their safety culture. Those that do embrace safety, show significant performance advantages over their competition that are reflected in their safety, productivity and environmental records and, ultimately their financial statements and share price. Current accounting (and reward) systems make it unlikely financial managers will accept non-conventional approaches to justifying expenditures on safety because they are driven to report “hard” numbers that can be documented and are within the “GAAP or IFRS Rules.” But in reality, accountants quantify soft or intangible costs all the time in their financial statements. Justifying safety investments is greatly enhanced by quantifying what most financial managers would call intangible costs. Government agencies have no problem assigning intangible costs to justify regulations to improve safety. How many times have you heard that the regulation is justified because the cost to industry is X while the benefit to the society is 2 or 3X? How can they say that without including intangible costs? We find it hard to believe these government claims of benefits to society because we have been trained to think about saving hard direct costs to justify investments."