Evaluating the Machine Guarding ROI

Insurance studies indicate machine safeguarding provides an excellent opportunity for businesses to reduce bottom-line operating costs by eliminating both the direct and indirect costs of accidents.

Consider this: According to the 2018 Liberty Mutual Workplace Safety Index, serious, non-fatal workplace injuries amounted to nearly $60 billion in direct U.S. worker compensation costs. This translates into more than one billion dollars a week spent by businesses on injuries. Another study, this one conducted by Colorado State University, set the total direct and indirect cost of workplace injuries at $128 billion. For its part, the National Safety Council (NSC) set the total cost to society of occupational injuries and deaths at $151.1 billion.

So how does an organization evaluate the machine guarding return on investment (ROI)?

DIRECT COSTS
First off, what are the direct costs of an accident? These refer to out-of-pocket expenses like hospital and medical bills, but may also include the loss of a worker’s time because of the accident, the lost productivity by the machine involved in the accident being idled or requiring repairs, as well as the other machines further down the production line being shut down. Direct costs continue to cascade throughout the company with overtime required to make up the lost productivity or new workers who need to be hired and trained.

The NSC estimates that cost per medically consulted injury, counting wage losses, medical expenses, administrative expenses and other direct employer costs, to be $32,000. This varies greatly by cause and nature of the injury, and which part of the body is impacted. For example, the average cost per worker compensation claims involving an amputation runs $95,204, while a crushing accident is $57,519. These two sorts of injuries are mentioned here because they are both very common in machinery-related accidents. The NSC also reports that an employee death resulting from an accident costs the company on average $1.2 million. Total medical cost to society annually from occupational injuries and deaths is $33.8 billion.

INDIRECT COSTS
Analysis reveals that the actual total cost of an accident ranges from four to ten times the direct cost stated by an insurance company once indirect costs are factored in. Indirect costs can include such things as workplace disruptions, loss of productivity, and increased insurance premiums. And of course, there are litigation and lawyer fees. Here, the sky is the limit. Lawsuits resulting from employee injuries or death, especially those involving a lack of machine safeguarding, often result in multi-million dollar settlements or verdicts. Investments targeted for company growth may need to be diverted to cover the costs of these settlements, putting the future of the company in jeopardy.

While it is not calculated as an indirect cost, a poor safety record can make the difference between a company winning or losing bids, especially with government contracts. A plant with a singularly bad reputation for safety may also find itself unable to attract qualified workers or may have to pay wages well above market value to do so. Also, if the machine is locked out for investigation or until the safeguarding deficiency is abated, the company may need to outsource the work at a much higher cost. It’s also possible that the work is so specialized that it’s impossible to outsource and therefore the company loses the business.

MANAGEMENT OPINIONS ON SAFETY
A poll by Liberty Mutual Group insurance showed that the majority of executives surveyed (61%) reported that for every one dollar spent on safety, three dollars is saved. Nearly all (95%) said workplace safety had a positive effect on financial performance. OSHA estimates a 6:1 ratio for saved dollars for every one dollar invested in safety, twice Liberty Mutual’s 3:1 ratio.

Of course, if a company could be guaranteed a huge return on their safety investment, more than half the machines in the U.S. today would not be operating unprotected. Convincing upper management to commit tens of thousands of dollars on machine safeguarding when a return may not be seen for years can be a hard sell. In this situation, safety professionals can stress that although cost savings are a motivator, safety’s biggest ROI comes in the form of human capital. Money savings from fewer injuries, increased productivity, and higher morale are all additional benefits.