MODULE 1: MANAGEMENT COMMITMENT

Understanding Cost

According to the National Safety Council, which considers all industries nationally, the average 2000 direct and indirect cost of a lost time injury is over $28,000, and a fatality averages $980,000.

The direct costs to close a disabling injury claim is around $10,000 and it will cost an average of $300,000 to close a fatality claim.

Indirect costs, according to the NSC figures above average 1.6x direct costs. However, it's important to understand that indirect costs may amount to much more than this multiple with any single claim. Indirect costs can be as much as 2x to 50x direct costs...or more. Two things to remember in when estimating indirect costs:

o The lower the direct cost, the higher the ratio between the direct and indirect costs. For instance, if someone suffers only minor injury requiring a few hundred dollars to close the claim, the indirect/direct costs ratio may be much higher than the NSC average.

The following illustrate this variation:

o Capital intensive operations. Where large sums have been invested in facilities, employers may experience much higher average indirect/direct cost ratios. For example, if someone is seriously or fatally injured on a oil-drilling rig, resulting in operations shutting down for a day or so, many thousands of dollars in lost production will result. In high capital intensive work processes, the expected ratio between direct and indirect costs may be 5x to 50x or more.

o Labor intensive operations. Where more investment is put into labor than capital assets, employers may generally realize lower indirect/direct cost ratios. Someone may suffer a serious injury, but operations are not as likely to be significantly impacted. In labor intensive operations the expected ratio between direct and indirect costs may be 1x to 10x.