HOW MUCH?
The Business Case for Health and Safety

By Malcolm Rimmer, PostGrad Dip Health & Safety, BA(Hons), Dip Acoustics, AMIOA

Q. How much does an accident cost?
A. I don't know, probably a lot.

Perhaps more than a lot. Perhaps the business itself. UK and European statistics show that 70% of businesses fail within three years of a major fire, despite insurance. However, the cost of prevention was very often less than £1,000 (2005 prices). Nor were these preventative measures generally dominated by high technology. They comprise such simple things as fire and smoke detectors, fire extinguishers or a metal box to store highly flammable liquids.

The previous figures relate only to total business failures following a major fire. They do not reveal the extent of the damage done to businesses after a major fire - damage from which the businesses may never fully recover. Nor do they reveal the number of businesses broken by a significant rather than major fire.

Workplace fires, although serious enough, are not the only health and safety issue. Workplace injuries and illnesses cost money. Recent Health and Safety Executive (HSE) figures show that the cost of such incidents is equivalent to around 4% to 8% of all UK businesses gross trading profits. The same data, put in other terms, means that accidents and ill health cost employers over £200 per employee per year.

The figures quoted, which are hard and stark enough in themselves, almost certainly underestimate the full cost of the problem. The reason for this underestimation is due to the nature of the costs. Some costs are not easy to measure. Other costs are not apparent, making them even less likely to be measured. Some examples of types of costs are given below.

1. Fines.

Enforcement authorities have the power to prosecute, whilst courts have the power to fine. Currently fines for health and safety offences in a Crown Court are unlimited. In a Magistrates court fines can be up to £20,000 per offence for certain offences.

2. Compensation.

The reality of the times, whether right or wrong, is that claiming compensation is a growth industry. Such payments can be massive, far in excess of fines imposed by criminal courts.

Court proceedings, whether civil or criminal, incur other costs. For example, legal fees (sometimes the biggest single cost) and time lost in preparation and court appearances.

3. Enforcement Notices.

These are legally binding documents enforcing work stoppages and/or improvements upon employers. They can be expensive and are compulsory.

4. After The Incident.

Thorough investigations can take weeks, or even months to complete. There is the cost of investigating the immediate and longer term causes of the incident,the analysis of the data, the report writing, the dissemination of the results and fulfillment of the actions required. There is also damage to products and equipment to consider.

Replacing injured people is expensive; jobs have to be advertised, applicants selected and interviewed and the successful trained.

Loss of production can cause late or missed delivery of orders, and penalty clauses may be invoked. The damage to a company's reputation for reliability may lose future business and this loss can be greater than the immediate costs stemming from the incident. The loss of future business is a cost which is not always apparent and consequently not always considered. Out of sight may be out of mind but profits are still reduced.

5. Loss Of Public Reputation.

Companies that hurt people are less liked by the public. Public opinion does affect business. Consider the amount of money companies spend gaining public goodwill.

6. Employee Morale.

Morale is an important factor affecting productivity. Accidents and illnesses hurt the victims and undermine the morale of the witnesses to the incident. Morale can be difficult to quantify although its absence is obvious and profound.

7. Insurance Premiums.

The reader should ask themselves a question. After an insurance claim is made do future premiums rise or fall?

What Do Others Think?

The European Agency for Safety and Health at Work have published a working paper called, "Quality of the working environment and productivity". This paper contains many examples of companies who have measured the savings made by investing in health and safety. A few representative examples follow:

1. The regional government of Galicia promoted research undertaken by J. Portillo. 33 companies showed a clear and direct relationship between good practice in health and safety and increased performance levels.
2. South West Water and HSE jointly developed an accident prevention business plan. They examined musculo-skeletal injuries in broad terms. The accident rate fell from 136 to 53 per 1000 employees between 1991 and 1996. South West Water calculated it had saved GBP 2,546,000 between April 1992 and March 1998.

The types of cost discussed in this article is not exhaustive. It is intended to show how even startling statistics, like those quoted at the beginning, underestimate the total financial costs of accidents and ill health to employers. This makes investment in health and safety improvements even more worthwhile. This article has focused on the financial costs of accidents and ill health to employers and is not intended to diminish the pain and suffering of the victims.

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