Worker Safety: Find the Business Value

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Current approaches to valuing worker safety are outdated. Better analysis can help firms understand the benefits and costs of protecting workers.

It’s natural to look for the “win-win,” where an action is good for society and good for the bottom line. But sometimes, the story is more complicated. That’s true with worker safety, where researcher Anthony Veltri and colleagues provide new answers on whether and how protecting workers provides financial value to companies.

For years, people have argued about whether there is a “business case” for a safe workplace. Some have said that that safety efforts improve financial performance, perhaps by increasing worker commitment. Others have said that meeting government requirements for worker safety is burdensome for employers and provides little financial return.

Most evidence on the financial impact of worker safety efforts has come mostly in the form of limited case studies. Veltri and his colleagues did a much more extensive analysis, trying to understand the overall pattern. And then, they went deeper, with practical recommendations for steps companies can take.

Broad analysis shows no overall business case for worker safety

In 2020, Veltri and his colleagues published an analysis of 25 years of quarterly data on 386,179 organizations in the state of Oregon (United States). Veltri (Oregon State University) worked with Mark Pagell, Mary Parkinson, Michalis Louis and Brian Fynes (University College Dublin), John Gray (Ohio State University) and Frank Weingarten (ESADE).

The researchers looked at the relationship between worker injury claims and organizational survival, for each organization from 1989 to 2014. Companies pay worker injury claims when someone is injured on the job.

They found that that organizations with worker injury claims[1] survived[2] up to 56% longer than safe organizations. On average, only when worker injuries were at a very high level were there negative consequences for organizational survival.

In other words, overall, protecting workers actually reduced firm survival.

Better worker safety requires stronger regulation and better valuation

Fundamentally, these results mean that the current approach to worker safety isn’t working, the researchers say. They advocate two changes:

  1. Stronger regulation, with higher penalties for safety violations. Tougher regulations would strengthen incentives for businesses to protect workers.

  2. A new way of looking at financial value of safety. “Most companies’ approach to measuring and costing safety efforts is years behind the times,” Veltri told NBS. When firms treat safety like an investment, they can make better decisions – and even find value in protecting workers.

Current approaches to valuing safety are outdated

Today, said Veltri, worker safety efforts at most companies exist in a silo. Safety activities aren’t usually connected to firm financial or strategic planning. They’re also viewed narrowly: generally equated with compliance with government regulations.

Worker safety could be an opportunity for innovation, but instead it’s sidelined.  Safety costing is imprecise and firms generally don’t consider the financial returns that could be expected from a safety investment.

Veltri provided this example of what thinking about worker safety costs more fully might look like:

I was working with a refinery that needed to get safety permits. When they considered how much the permits would cost, they looked at the annual price ($10,000). We asked them to additionally consider: Who within the company reviews the permit, and what’s their hourly rate? Who does the manifesting and record-keeping? Are capital improvements needed? Ultimately, these related actions — these indirect costs related to safety issues — may be 50 times the actual permit cost.

When companies track their safety costs better, they can find opportunities for improvement, perhaps make a case for investment, and also build the cost of health and safety into products.

Join the journey to a better business case for worker safety

With colleagues and practitioners in the world of safety, Veltri has developed a more holistic approach to safety costing. It’s described in this white paper and supported by a software program. He looks at safety through the life cycle and across products, processes, technologies, and services. Using the software, companies can track worker safety through 5 lifecycle phases and 19 cost factors. “By the end,” Veltri explained, “they can say what the safety costs are for every product produced.”

There may be no simple business case for worker safety. But we can always make better decisions, say Veltri and his colleagues.

Some safety investments will have a positive net financial value. In other cases, making a business case for safety will mean telling investment allocation specialists about the costs that lie ahead to achieve a particular safety benefit.

The question becomes: “What cost is required to achieve a safety benefit? At what cost do safety investments succeed?”

“Sometimes, the goal of research is to move us to better questions,” said Mark Pagell, lead researcher on the Oregon study. “Our broad analysis showed that, on average, worker safety doesn’t pay off for companies. Now, we’re drilling into the information we need to better understand the value of safety.”

Get involved: Download Veltri’s white paper and contact him to discuss your ideas about how companies can better value worker safety.

Resources

The Oregon study

Pagell, M., Parkinson, M., Veltri, A., Gray, J., Wiengarten, F., Michalis, L., & Fynes, B. 2020. The tension between worker safety and organization survival. Management Science, 66(10), 4863-4878.

(Press release) Ohio State University. May 14, 2020. Worker safety negatively relates to organizational survival, study finds.

A new approach to safety costs

(White paper) Veltri, A. 2020. The business case for safety: Assessing the financial value of safety investments.

[1] Specifically, the researchers studied “disabling claims,” where a worker suffers a temporary disability that forces them to take at least three days off work, or where there is the expectation of a permanent disability. 

[2] The researchers defined company survival as ongoing operations, even with an ownership change.

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