Conducting an Accident Investigation
Course 102
Safety Certified Supervisor Series

MODULE 6: DEVELOPING RECOMMENDATIONS

A simple cost-benefit analysis

Example: If, during a safety inspection, you notice that an elevated platform area in a warehouse does not have a proper guardrail. You note that several workers work on the platform each day, and a well-used walkway passes directly under the platform. To construct a cost-benefit analysis for this situation you would answer the above questions as follows in the next few pages.

Average direct dollar costs for different types of accidents

To be effective, recommendations should be supported by a bottom-line cost/benefit analysis that contrasts the relative high costs of accidents against the much lower costs associated with corrective actions. Doing a cost benefit analysis is even more important when recommending corrective actions before an accident occurs.

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

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:

• 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.
• Capital intensive operations, where large sums have been invested in facilities, realize higher and 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.
• Labor intensive operations, where more investment is made in labor than capital assets, you will 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 2x to 10x.

You can use these figures to demonstrate the benefits of taking corrective action.