Economic loss caused by business disruption

Status:

completed 07/2005

Aims:

Research for the assessment of costs arising from disruption in companies, in particular of the costs of accidents, has made no progress for many years. The various OH&S institutions (national and regional authorities, employers' and employees' institutions, the Federal Institute for Occupational Safety and Health, and the BGs) use figures in some cases which would not survive closer scrutiny. At the same time, facts and figures are required as a basis for reliable political decisions. Besides public policy makers, companies in particular require information on the costs of disruptions. Without such information, decision-making bodies within companies cannot take calculated decisions on prevention measures, in particular measures extending beyond the statutory requirements. The research study of the economic loss caused by disruption in companies has as its objective that of supplying reliable facts and figures to all parties involved in occupational safety. An integral approach to disruptions must be taken here: in addition to occupational accidents and diseases, disruption to the workflow and staff management (information, motivation, etc.) must be considered. In order for this study to be suitable for practical application, it should adopt and develop both a business-level and wider economical perspective.

Activities/Methods:

The research project was divided into three stages:

- survey and evaluation of the relevant literature on disruptions and cost accounting in the area of occupational health and safety

- conducting of structured discussions with experts both within the company and beyond regarding the handling of disruptions to company operations

- drafting of a new method for assessing disruptions to company operations.

Results:

The literature study provides a comprehensive overview of the use of profitability accounting methods in occupational health and safety (accident cost accounting, cost-benefit analyses). These procedures have seldom been adopted in practice. Presenting the effects of occupational health and safety with the aid of an existing business controlling system would appear a more promising solution. Starting points can be found in performance measurement, the balanced scorecard, loss control management, Six Sigma and the EFQM model.

Surveys of six internal company experts and two external experts revealed that responses to personnel-related disruption incidents are organized on a case-by-case basis (for example by means of overtime). It is now rare for companies to possess planned personnel reserves. With the exception of company sickness and accident statistics, the businesses possessed no reliable or conclusive data on disruption incidents of technical or organizational origin and the resulting costs. In the companies surveyed, disruptions were frequently not recorded systematically. Therefore developing an evaluation system for plant disruptions requires accounting procedures based upon the readily available data of cost and financial accounting.

Results of the project are therefore on the one hand, checklists for recording of the non-financial consequences of disruption, and on the other, the development of a calculator for the costs of staff drop-outs. These tools and the associated IGA Report are available for download at www.iga-info.de.

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