Why it Pays to Invest in Health and Safety Systems
Investment decisions used to be simple -- spend X on a new building or machine and profits would increase by Y. The digital age changed everything, as the focus shifted to intangible investments in software and business process improvements that proved harder to quantify. This has resulted in falling investment levels, which in turn appears to be a factor in declining productivity growth across developed economies.
This is certainly the case for health and safety, which is often seen as a "poor relation" and overlooked as an area for investment. There are a number of reasons for this. It can often be hard for business leaders to picture potentially devastating risks facing their business, so insufficient attention is paid to them. And while some benefits of health and safety investments are clear, others are more difficult to quantify. In addition to this, some of the most significant potential benefits are easy to miss because they are widely dispersed across the company.
So, what should we as leaders do? The answer is to improve our understanding of the business case for intangible investments, both in general and for health and safety in particular, by looking at the financial, legal, reputational and cultural impact, and by understanding better how investment in technology can drive improvements in productivity.
Counting the financial and legal costs
Across Europe, the financial implications of poor health and safety management systems are staggering, with the annual cost of work-related ill health and injury in Great Britain alone reaching £15 billion, according to the Health and Safety Executive (HSE). Direct costs can include equipment damage, insurance claims and rising premiums. Indirect costs can also be very significant: for example, safety incidents can have a strong impact on staff morale, leading to higher absenteeism and staff turnover, which in turn results in additional employment and recruitment costs.
Nor should the legal consequences be underestimated. In Germany, company directors can receive sentences of up to five years in jail if convicted of death by negligence, and in one case an Italian court imposed lengthy prison sentences on several directors.
The U.K.’s health and safety landscape shifted in 2017 through revised sentencing guidelines, with company directors now subject to custodial sentences and businesses liable for fines up to £10 million which cannot be covered by insurance. The Institution of Occupational Safety & Health (IOSH) reports a significant rise in the number of fines of over £1 million in health and safety cases in the U.K.
Civil litigation on a "no-win, no-fee" basis in health and safety cases are also on the rise.
Protecting reputations and building a positive safety culture
Aside from the financial and legal aspects of health and safety management, there are also implications for a company’s brand and reputation. Bad publicity following an accident or legal ruling can severely damage a business’s standing by undermining trust from customers and suppliers and making it harder to recruit staff. Equally, a company with a strong health and safety reputation is likely to enjoy positive knock-on effects on performance.
Businesses with a well-implemented health and safety management process also find that it can become a positive internal driver of growth, supporting better engagement, communication, morale and continuous process improvement, all of which can become a more integral part of company culture, bringing far-reaching benefits to the organization.
Harnessing technology to improve productivity
Investment in better health and safety management can affect productivity in several ways. The most obvious effects include shutdowns following an incident, and lost working days due to work-related illness and workplace injury, including emotional stress on those involved in or witnessing the incident. In addition to this, the drain on the organization from mounting workplace investigations and managing claims or legal action diverts resources away from day-to-day operations.
One of the most significant -- and often least recognized -- productivity issues is the high administrative burden resulting from a poor safety management system. Time is swallowed up by tasks such as re-entering data, reworking incorrect records, searching for information and updating documents. Those activities not only waste the time of health and safety professionals, but also affect employees, supervisors, senior managers and ultimately directors, who are personally liable for health and safety and so must ensure they have a clear and accurate understanding of issues and resolve any concerns over reliability of information.
Toward a solution
An effective health and safety management system not only helps to reduce costs and reduce risk and exposure to liability, but also helps to create a more positive working environment. However, the challenge in presenting the case for investment is that some benefits seem difficult to quantify and projected time savings are widely dispersed across the business. While they may be "obvious" to the health and safety professional, the CEO or finance director is likely to want clear evidence. With the right ROI and business case analysis tools, businesses can demonstrate that a proposed solution can pay for itself, often within just a few months of implementation.