Calculating the International Return on Prevention for Companies

Costs and Benefits of Investments in Occupational Safety and Health

In-company OSH prevention activity involves expenditure for companies. Companies conduct this activity in order to meet statutory requirements and to satisfy their social responsibility towards their employees. At the same time, however, the activity constitutes an investment in their own business interest. A lower incidence of occupational accidents and diseases may for example reduce the interruptions to company operations and increase productivity. The question therefore arises whether expenditure for in-company OSH prevention activity is worthwhile from the perspective of an individual business. Also of interest is the scale of the "return on prevention" which can be observed by prevention accounting.

Between 2006 and 2008, Prof. Dr. Dietmar Bräunig of the Justus Liebig University in Giessen headed a research project on the subject of the prevention balance sheet from a theoretical and empirical perspective. A return on prevention (prevention benefit / prevention cost ratio) of 1.6 was measured for in-company OSH prevention activity in Germany. In conjunction with the International Social Security Association (ISSA) and the Institute of Work and Health of the German Social Accident Insurance (IAG), the study is to be extended to the international level. The objective is the creation of a prevention balance sheet and calculation of the return on prevention for the participating countries.

The prevention success of individual businesses is to be determined. For this purpose, the costs to the company of prevention activity and the benefits from in-company OSH prevention activity are compared in monetary form on a prevention balance sheet. The success of prevention is calculated as a balance. Based upon this, the return on prevention can be presented as a prevention benefit / prevention cost ratio.

For decision-makers within companies, the result is of major significance for the management of OSH activities in the future. Prevention success and return on prevention demonstrate in an abstract manner whether and on what scale expenditure on in-company OSH prevention activity constitutes an investment and harbors potential for success for the companies themselves. The opportunity exists for occupational safety and health to be accorded a new status in the context of company targets. For social reasons, this aspect is even more relevant in countries in which occupational safety and health has not been accorded sufficient significance up to now. In addition, the project results could well influence the future planning of prevention measures and for example have a significant role to play in prevention consultancy. In this respect, persons employed within the prevention activity of the statutory accident insurance system fall explicitly within the immediate target group.

Activities/Methods:

a) Procedure
The research project, which is international in nature, has the objective of creating prevention balance sheets (in monetary form) for companies in several countries. This is to include calculation of the return on prevention for the country concerned.

Conventional accounting is oriented externally to capital and/or internally to decision-making. By contrast, prevention balance sheets record the costs and the benefit of in-company OSH prevention activity. Prevention costs lead in the short term to expenditure; conversely, the benefit of in-company OSH prevention activity often becomes apparent only in the long term. Prevention accounting can therefore best be understood as an extended cost-benefit analysis. The benefit of in-company OSH prevention activity is directly associated with the avoidance of occupational accidents, occupational diseases and work-related health hazards, and indirectly with secondary effects which are of economic benefit to companies.

The prevention balance sheet is not an inventory calculation, but an economic analysis of the success of prevention. It places the costs and the benefits of in-company OSH prevention activity in relation to each other. The success of prevention activity is expressed as the balance.

It is found effective to differentiate between the following forms of prevention cost: costs for personal protective equipment, guidance on safety technology and company medical support, specific prevention training measures, preventive medical check-ups, organizational costs, investment costs, start-up costs. The forms of prevention benefit encompass: cost savings through prevention of disruptions, prevention of wastage and reduction of time spent for catching up after disruptions, increased employee motivation and satisfaction, sustained focus on quality and better quality of products, product innovations, better corporate image.

The empirical research approach is based upon interviews in which those questioned provide their subjective estimation of their experience with in-company OSH prevention activity. "Hard" metrics (such as changes in productivity) would be preferable for quantification of the success of prevention; such data are however not available, nor can they be obtained externally. Surveys of experts thus constitute a practicable, methodically sound and acceptable alternative. The companies involved in the study should therefore be experienced in OSH issues.

Prevention accounting is not an exact science, and there are limits to the application of enforceable criteria to it. Instead, prevention accounting is based upon an economic model which still enables the impact of in-company OSH prevention activity within individual companies to be estimated, subject to restrictive assumptions. (The monetary value of) prevention success and return on prevention are theoretical variables which describe the direction and strength of the relationship between prevention benefit and prevention costs and express the potential for economic success.

An overview of the countries that took part at the study, is included in the final report.

b) Joint research
The research project is conducted jointly with the Secretariat-General of the International Social Security Association, the Special Commission of Prevention, the International Sections for Prevention, the Institute for Work and Health of the German Social Accident Insurance (IAG), and an external research supervisor (Prof. Dr. Dietmar Bräunig). The German Social Accident Insurance Institution for the energy textile electrical and media products sector (BG ETEM), executes the projects operatively.

c) Quality assurance
An advisory council is created for steering of the research project. The members of the advisory council are staff from the parties to the project and from the prevention services of the statutory accident insurance institutions.
The handling of the research project is subject to the usual rules for the assurance of good scientific practice.

Results:

The most important results can be summarized as follows:

  • The strongest impact of occupational safety and health is assessed on the areas of production, transport and warehousing.
  • The strongest effects of occupational safety and health are defined as follows: reduced hazards, increased employee hazard awareness, reduced breaches and reduced workplace accidents as well as improved corporate image, improved workplace culture, reduced downtime and reduced disruptions.
  • According to75% of the companies interviewed, additional investment in occupational safety and health will lead to company costs remaining the same or decreasing over the long term.
  • The three most significant cost and benefit types of occupational safety and health are called: [costs] organizational costs, guidance on safety technology and company medical support, investment costs and [benefits] added value generated by increased employee motivation and satisfaction, added value generated by better corporate image, cost savings through prevention of disruptions.
  • Expenditure on occupational safety and health is an investment that "pays off" for companies according to the interviewed companies. The Return on Prevention (ROP) is assessed 2.2.
  • The data collected from the survey identifies significant correlations which point to different prevention cultures.

Due to methodological and statistical reasons, the results should not be over interpreted. They are, after all, estimations. However, they also should not be underestimated because the people interviewed are professionals in occupational safety and health and the interview itself is an ambitious method of data collection. As such, the project sees itself as a first step in the right direction: nothing more and nothing less. Further national and international research is required in the field of prevention accounting.

The legitimization of occupational safety and health is founded on three pillars. First and foremost it protects employees against workplace accidents and illnesses on the basis of ethical and humanitarian grounds. Then there are social reasons because only effective occupational safety and health can ensure the sustainability of the statutory accident insurance and social protection of employees. The importance of both of these first pillars justifies the need for legal provisions for occupational safety and health.

ln addition, the results of this project show that expenditure on occupational safety and health is an investment that pays off in micro-economic terms and can benefit the company itself. From this, a third "Prevention Pillar" can be defined. ln the interest of employees, society and companies, this pillar should play an important role in future national and international occupational safety and health (OSH) policy.

Contact

Dr. Thomas Kohstall
Institute for Work and Health of the German Social Accident Insurance (IAG)
Head of Department Qualification
Tel.: 0351 457-1100