Transcript No Slide Title

BOTTOM-LINE
RI$ K
MANAGEMENT
Transforming your safety program
into a successful profit center
For Training Purposes Only
© OSTN Bottom Line Risk Management
2
For Training Purposes Only
Welcome
Most managers make workplace decisions to enhance profitability through greater productivity,
efficiency, and quality. In many instances they are slow to commit resources to suggestions for
corrective action unless they include quantifiable data, useful information that they understand:
Information that quantifies the benefits and proves cost effectiveness
Mark Hansen said it well, “The CEO’s and comptroller’s eyes glass over when talk turns to incident
rates and experience modification rates for the same reason that a safety manger’s eyes glass over
when talk turns to return on investment and equivalent uniform annual cost. The terms are not part
of the same language. Therefore, to be understood the safety manager must speak a language that
upper management understands - dollars and cents.”
This workshop will help you speak the language of top management by introducing various
engineering economy principles such as present worth, depreciation, rate of return, replacement,
retirement and cost-benefit analysis.
Goals
Through your participation in guided discussion in Part One you’ll gain a
better understanding of:
• The direct, indirect and unknown costs associated with workplace accidents
• The benefits of paying for safety proactively
• The tools and techniques to measure those costs and benefits
In Part two, by participating in a case study exercise you’ll learn how to:
• Estimate direct and indirect costs of an accident
• Determine the potential risk: probability and severity of an accident
• Complete a cost/benefit analysis including return on investment, business volume
and units required to cover costs, payback period, and costing-back.
©
2000-2006 OSTN. All rights reserved.
This material, or any other material used to inform employers of compliance requirements of OSHA standards through simplification of the
regulations should not be considered a substitute for any provisions of the Occupational Safety and Health Act of 1970 or for any standards
issued by OSHA. The information in this publication is intended for training purposes only.
© OSTN Bottom Line Risk Management
3
For Training Purposes Only
Form Groups
Introductions
Elect a group leader
__________________________
Select a spokesperson
__________________________
Members
__________________________
Why does your employer “do” safety?
Knowing what motivates lets you target and appeal to needs.
Most effective
strategy
The Social Imperative
• Save lives
• Do whatever it takes
What’s the message?
The Fiscal Imperative
• Saves the company money
What management needs
do you appeal to.
• Do what we have to to save money
What’s the message?
What management needs
do you appeal to.
The Legal Imperative
• Stay out of trouble
• Do only what we have to
What’s the message?
Least effective
strategy
What management needs
do you appeal to.
People do not care how much you know until they know how much you care.
© OSTN Bottom Line Risk Management
4
For Training Purposes Only
Workers Compensation Basics
How are rates determined?
Manual Rating - Also called the “Pure Premium Rate,” this rate is applied to all industries of the
same type or standard industrial classification (SIC). Expressed as:
Dollars per $100 dollars of payroll
Example: $3.15 per $100 dollars of payroll.
Experience Rating - used to vary the company’s own rates, depending on its experience by
comparing actual losses with expected losses.
3.75
Manual Rate
3.00
2.75
Average
Accident
Rate
Above
Average
Accident
Rate
2.50
Below
Average
Accident
Rate
MOD Rate
3.50
1.30
1.20
1.10
1.00
.90
.80
.75
.60
2.00
1.75
1.50
XYZ Contractors MOD Rate = 1.02
Classification Description
Code
Base Rate
Concrete - Floor/Driveway
Carpentry - Multiple Family Dwel.
5221
5651
.1261
.3970
Payroll
$450,000
$1,996,000
$2,446,000
Adjusted Rate
.1512
.4764
Premium
$68,040
$950,090
$1,018,130
XYZ Contractors MOD Rate = .8
Classification Description
Code
Base Rate
Concrete - Floor/Driveway
Carpentry - Multiple Family Dwel.
5221
5651
.1261
.3970
Savings =
© OSTN Bottom Line Risk Management
Payroll
$450,000
$1,996,000
$2,446,000
Adjusted Rate
Premium
.10088
.31760
$45,405
$633,929
$679,334
$338,796 = 33%
5
For Training Purposes Only
Safety Costs at XYZ INC.
In this case study exercise each group will analyze a scenario and use
several financial tools and techniques to determine hazard(s) and their
associated costs to the company, and develop, prioritize and justify
corrective actions based on cost/benefit factors.
Instructions
1. Become familiar with XYZ, Inc. background
information and your group’s assigned scenario.
2. Complete each assignment and stop for class
discussion before starting the next assignment.
Company background
• XYZ Manufacturing has been in business for about 15 years building components for and
assembling high-end quality constant temperature humidifiers for sale to research and medical
laboratories. It produces and ships approximately 20 humidifiers daily which represents an
average of $120,000 in sales. Annual business volume is $24 million
• The company employs 173 personnel with the following breakdown by position and hourly
wages.
- 15 management ($35)
- 6 warehouse workers ($17)
- 20 fabricators ($21)
- 3 maintenance workers ($25)
- 122 production workers ($18)
- 7 administrative/accounting employees ($15)
• Annual Costs. Payroll $4.7 million; Benefits $2.3 million; Capital investment and facilities $2.2
million; materials/supplies $3.7 million; other $2.7 million.
• Net annual profit $1.2 million (5%)
• The Experience Modification Rate (MOD) is 1.05 and its SIC code is 3539.
• Premium rates are $3.15 per $100 payroll.
• Annual workers compensation premium: XYZ’s standard plan premium would be
approximately $155,000/year. However they have elected to participate in the Retrospective
Rating Plan with the hope of saving substantial costs. Under this plan they pay only $43,000
(28%) at the beginning of the year. They will also pay all claim costs (medical, lost time, partial
permanent disability) plus 20% for actual losses accrued during the year.
© OSTN Bottom Line Risk Management
6
For Training Purposes Only
Scenario #1: Worried in the warehouse
Bob Smith, a forklift driver in the shipping department
reported to you that early this morning he was loading 24
temperature control units on to a pallet in the upper storage
area of the warehouse when he leaned up against the guardrail
and almost fell to the floor 12 feet below. The guardrail was
of homemade 2x4 construction and been in a weakened
condition for about three months. Due to a lack of space in
the warehouse, the platform is the only area currently
available for storing control units. Bob, along with three
other warehouse workers must work in the upper storage area
loading/unloading parts approximately once a week.
Scenario #2: Anxiety in Accounting
Jill Jones, one of XYZ’s managers and only accountant,
reported that she was carrying a box containing monthly
checks and financial reports down the stairs from her office to
the admin department when she just about tripped over a
stack of books that had been placed on one of the uppermost
steps. Luckily, she was able to grab a hold of the banister to
stop the fall. Several co-workers have expressed concern
about people placing items on the stairs in the past to their
safety committee representative, but nothing has been done
yet about the problem.
Scenario #3: Help in the Hole
Woody Badger, a new maintenance man informed you, the
safety committee representative, that his last employer had an
underground confined space similar to one at XYZ uses to
store mixed waste chemicals. He reported that he had been
directed to clean out the tank once the waste chemicals had
been emptied by a disposal contractor. He wanted to know
where the confined space permit was, and who was going to
be the attendant. The maintenance supervisor informs you
that he did not realize special procedures or test equipment
was required, and since they’ve never had them before...why
now, all of a sudden?
© OSTN Bottom Line Risk Management
7
For Training Purposes Only
Scenario #4: Faint in fabrication
Fox Scully, a custodian in the manufacturing facility reported
feeling dizzy while working with Chemical-X, a highly toxic
chemical when in concentrate. Fox dilutes the chemical
concentrate, which is stored in five-gallon containers, daily
with water in a 55-gallon drum near the location where it is
used in the fabrication area. He is unfamiliar with this new
chemical and as he was mixing it he suddenly became quite
dizzy and nearly fell over and spilled the container of
concentrate. The 23-person fabrication department is
responsible for forming and assembling covers and doors for
all humidifiers.
Scenario #5: Pain in Production
Billy Goetz, one of three production workers who work in
production wiring and assembling circuit boards, is concerned
about pain she is experiencing in both wrists. She has noticed
more frequent and severe pain in her wrists. Within 20
minutes after beginning her normal task, the pain becomes
noticeable. By the end of the morning she has to take
frequent breaks due to the severity of the pain. She notified
her supervisor on two separate occasions (three months and
one month ago), but has not yet received any guidance. Your
employer has assigned the safety committee to come up with
recommendations with justification.
Scenario #6: Feeling “Funny” in Framing
Phyllis O’Delphia, a worker in the framing section of the
fabrication department just found out she is 3 weeks pregnant
and is worried about the chemicals she uses to clean and coat
the metal humidifier frames. She has, on occasion felt lightheaded and had to leave work, and once she got a nasty rash
on her right arm (unreported). She states that she’s not really
worried about it, but doesn’t really know anything about the
chemicals, and just wants to make sure. Through questioning
her supervisor you learn she is using Chemical-X, a solvent
which is toxic to the liver, and Chemical-Y, a lacquer coating
which can cause eye damage.
© OSTN Bottom Line Risk Management
8
For Training Purposes Only
Assignment One: Determine the nature of the Hazard
Hazardous Conditions
Damage to
___ equipment
___ machinery
___ tools
____ materials
Moving parts:
___ rotating
___ pinching
___ cutting
___ punching
___ reciprocating ___ transverse
___ shearing
___ bending
Chemicals
___ toxic
___ flammable
___ explosive
Atmospheres
___ toxic
___ flammable
___ explosive
___ oxygen deficient
Electrical
___ cords
___ grounding
___ exposed circuits
___ other _____________
Temperature
___ cold
___ hot
___ variation
___ other _____________
Lighting
___ too little
___ too much
___ glare
___ other _____________
Noise
___ nuisance
___ excessive
___ continuous
___ intermittent
Location
___ at elevation ___ confined space
Design
___ workstation ___ equipment
___ vehicle
___ machinery
___ water
___ materials
___ guards
Other: _______________________________________________________________________________________
Exposure/Work Practices
Number of employees exposed (may contact) hazards ____________
Frequency of exposure _____ continual ____/min ____/hr ____/shift _____/week _____/month _____/year
Duration of exposure _____ continual _____ mins ______ hrs _____ days _____ weeks
Work under stress _____ mental _____ physical Describe _____________________________________________
Nature of work: ___ piecework ___ prolonged standing/sitting ___ posture extremes ___ at elevation
___ confined space ___ other: Describe______________________________________________
Root Causes - Missing or Inadequate processes
Accountability
___ Non-existent
___ Inconsistent
___ Consistent
Training
___ Little - None
___ General
___ Comprehensive
Supervision
___ Little- none
___ Occasional
___ Continual
Related Policies ___ Not addressed
___ Informal
___ Formal
Rules
___ Informal
___ Formal
___ None
Other: _________________________________________________________________________________________
Most probable outcome
Accident type
_________________________________________________________________________
Nature of Injury/Illness
_________________________________________________________________________
© OSTN Bottom Line Risk Management
9
For Training Purposes Only
Assignment Two: Determine the costs
1. Estimate (believable - best guess) direct and indirect costs for the resulting injury/illness if
corrective actions are not taken.
2. Briefly list what factors you considered in arriving at your estimate in each area.
Determine Direct Costs - Budgeted Losses
• Additional workers compensation premium.
(medical $ _________ + time loss $___________ + permanent partial disability $__________) x 1.2
What are the total estimated direct costs?
Total Estimated Direct Accident Costs
$ _______________
Determine Indirect Costs - Unbudgeted Losses
• Damage to equipment, machinery, materials, facility etc.
• Production downtime.
(Due to emergency actions, damage, etc)
Total $ _________
Downtime ____ hrs. x Cost/hr $ ________ Total $ _________
• Losses or costs from other sources
(Fire, explosion, chemical, emergency response, disposal, weather, etc.)
Total $ ________
• Loss of product/services
Total $ _________
• Demurrage.
(Spoilage, defects, damage etc.)
(Delays in shipment, filling orders).
• Additional overtime
Total $ _________
# Empl’s ____ x Avg. OT wages $ ________ x # Hrs. ______ = Total $ _________
• Supervisor lost time resulting from accident (inspections, accident investigation, meetings, admin, reports, etc.)
Salary $ ________ x # Hrs. $ _______ = Total $ _________
• Other managers’ lost time resulting from accident. (Inspections, meetings, admin, reports, etc.)
# Mgrs.
© OSTN Bottom Line Risk Management
____ x
Avg Salary $ ________
x # hrs. ______ = Total $ _________
10
For Training Purposes Only
•Employees assisting with accident. (first aid, accident inv., clean-up, repairs)
# Empls ____ x Avg. Wage $ ______ x # hrs. _____ =
•Hiring and training replacement workers
Total $ _________
Total $ _________
•Wages of replacement workers # Empls. ______ x Avg. Wage $ ________ x # Hrs. ______ = Total $ _________
•Other non-productive time incurred by victim(s)
(Medical follow-up appointments etc.)
# Hrs. _____ x Avg. Wage $ ________ = Total $ _________
•Potential OR-OSHA penalties
(Reference penalty schedule in appendix)
•Attorney fees
Total $ _________
# Hrs ____ x $200.00/hr
• Other ____________________________________________________________
Total $ _________
Total $ ________
What are the total estimated indirect costs?
Total Estimated Indirect Accident Costs: $ ________________
What is the ratio between direct and indirect costs in your scenario?
Indirect Costs
Direct Costs
=
____________ to 1
What are the total direct and indirect accident costs?
Direct Costs$ ________ + Indirect Costs $ __________ = $_________
© OSTN Bottom Line Risk Management
11
For Training Purposes Only
Assignment Three: Prioritize Hazards
Risk = Exposure x Probability X Consequences
Exposure
How frequently is an employee placed in the physical or environmental danger zone.
(Multiply your rating by the number of employees exposed)
The hazard-event occurs:
Rating
Continuously (or many times daily)
100
Frequently (approximately once daily)
50
Occasionally (from once per week to once per month)
10
Usually (from once per month to once per year)
5
Rarely (it has been known to occur)
2
Very rarely (not known of have occurred, but remotely possible)
1
Number of employees exposed ______ x rating ______ = score _________
Probability
The likelihood of injury or illness.
Rating
Is the most likely and expected result if employee enters danger zone.
100
Is quite possible, would not be unusual, has an even 50/50 chance.
10
Would be unusual sequence or coincidence
5
Would be remotely possible coincidence.
It has been known to have happened
3
Extremely remote but conceivably possible.
Has never happened after many years of exposure.
2
Practically impossible sequence or coincidence.
A “one in a million” possibility.
never happened in spite of exposure over many years.
Has
1
Number of employees exposed ______ x rating ______ = score _________
© OSTN Bottom Line Risk Management
12
For Training Purposes Only
Consequences
The most likely result - degree of Severity of Consequences
Rating
Major Catastrophe: Numerous fatalities; extensive damage
(over $1M); major disruption
1000
Several fatalities; damage $500K to $1M
600
Fatality; damage $100K to $500K
200
Extremely serious injury; (amputation, permanent disability);
damage $1,000 to $100,000
40
Disabling injuries; damage up to $1,000
20
Minor cuts, bruises, bumps; minor damage
1
Using the information from the three charts above and the risk score
equation, determine the risk associated with your scenario.
Risk Score = E _______ x P _______ x C _______ = ________
Risk Scores for scenarios
Scenario #1
Scenario #2
Scenario #3
Scenario #4
Scenario #5
Scenario #6
© OSTN Bottom Line Risk Management
= __________________
= __________________
= __________________
= __________________
= __________________
= __________________
13
For Training Purposes Only
Assignment Four: Develop corrective actions
Engineering controls - redesign, replace, enclose...
Immediate corrective actions. Accomplished by designing or replacing materials, chemicals, machinery,
equipment, tools, or workstation. Describe corrective actions below:
Option 1: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________
Materials _________
Labor __________
Option 2: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________
Materials _________
Labor __________
Long-term corrective actions. Address root causes that have contributed to hazardous conditions.
Accomplished by developing or improving procedures and policies for design, replacement, and purchasing.
Option 1: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________
Materials _________
Labor __________
Option 2: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________
© OSTN Bottom Line Risk Management
Materials _________
Labor __________
14
For Training Purposes Only
Management controls - revise procedures, schedules...
Immediate corrective actions. Accomplished by developing safe individual work practices, procedures, and
schedules. Includes the use of personal protective equipment (PPE).
Option 1: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________
Materials _________
Labor __________
Option 2: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________
Materials _________
Labor __________
Long-term corrective actions. Address root causes. Accomplished by addressing related operating related
programs, plans, directives, policies and rules that allow unsafe work practices.
Option 1: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________
Materials _________
Labor __________
Option 2: ______________________________________________________________
________________________________________________________________________
Estimated Costs: Down Time _________ Materials _________
Labor __________
What is the total investment?
Total Investment
© OSTN Bottom Line Risk Management
$__________________________
15
For Training Purposes Only
Assignment Five: Determine the costs and benefits
What’s XYZ’s return on our investment going to be?
Return on Investment
Percent ROI =
ROI
=
Total Estimated Direct/Indirect Accident Costs
Total Investment
$ ___________
X 100 = __________ %
$ ___________
How much product or service will XYZ have to sell to pay for the accident
costs?
Business volume required to cover cost
Volume = Total Estimated Direct/Indirect Accident Costs
Profit Margin
Business Volume
= $ ___________
= $ __________
.05*
*XYZ’s profit margin is 5% or .05
© OSTN Bottom Line Risk Management
16
For Training Purposes Only
How many humidifiers will XYZ have to manufacture to pay for the
accident costs?
Units required to cover costs
Units Required =
Business Volume
Unit Selling Price
Units Required =
$ ____________
= _____________
$____________
How long will it take to get our money back from the investment?
Payback Period
Payback Period =
Total Investment
Total Estimated Accident Costs
Payback Period =
$ __________
= _______ Years
$ __________
= _______ Months
(x 12)
© OSTN Bottom Line Risk Management
= _______ Weeks
(x 52)
= _______ Days
(x 365)
17
For Training Purposes Only
Assignment Six: Determine adjusted profit margin
What will be the impact on XYZ’s profit margin if management does not
take action on these hazards?
Total estimated accident costs for all scenarios
Scenario #1
Scenario #2
Scenario #3
Scenario #4
Scenario #5
Scenario #6
=
=
=
=
=
=
$ __________________
$ __________________
$ __________________
$ __________________
$ __________________
$ __________________
Total
$ __________________
Annual net profit
$ 1,200,000
Total accident costs
Adjusted net profit
-
$ __________________
=
$ __________________
Adjusted net profit margin
Adjusted Net Profit (ANP)
Annual Business Volume (ABV)
$ ___________________
= .0____
$24,000,000
© OSTN Bottom Line Risk Management
= ________ %
18