In the world of work health and safety, the business case is often confused with the related question of making an economic justification for the public good. Certainly the Work Health and Safety Act 2011 makes it clear that organisations are responsible for the safety of people they do not employ such as visitors and pedestrians, for example, but the public good argument does not provide a business case for private investment in WHS. The business case seeks to establish whether investment in better WHS can provide a net economic benefit to business, irrespective of whether it might also generate net benefits for individual workers or the general public. The approach to constructing a business case of any kind seeks to include both quantitative and qualitative factors.
The Economic Case
Looking at WHS via a cost-benefit analysis enables the same framework to be applied as it is to other investment decisions such as those in new equipment. Investing in WHS can result in improved profitability in a number of ways including:
- Lowering compliance costs (e.g. reduced Work Cover premiums).
- Reducing sickness on-the-job (presenteeism).
- Reducing the costs associated with workplace accidents and fatalities.
- Reducing the costs associated with return-to-work processes.
- Reducing labour costs associated with absenteeism and turnover.
- Higher levels of employee productivity as a result of improved morale, motivation, commitment and/or engagement.
- More efficient work processes.
- Better risk management.
- Protecting intangible firm assets (e.g. brand image and customer loyalty).
- Improving business reputation.
Some Cold Hard Facts
During 2011-12, Australian organisations submitted 128,050 serious workers’ compensation claims. This equates to 12.2 claims per 1,000 employees. Employees who are seriously injured are absent from work for a period of 12 weeks on average. One-quarter of serious claims require more than 12 weeks off work. During this same period, 228 workers died due to a workplace injury equating to 1.99 deaths per 100,000 workers (Safe Work Australia 2014).
The Cost of Failure
The costs associated with doing nothing about WHS, and the exposure to risk that this represents, is an important consideration in the business case for investing in better WHS systems and practices. Costs associated with WHS failure include:
- Production delays.
- Lost time.
- Legal expenses.
- Sick pay.
- Labour replacement costs.
More Cold Hard Facts
The Health and Productivity Institute of Australia estimates that the costs associated with workers’ compensation claims alone amount to more than $(AUS)1.1 billion annually. A number of studies here in Australia, as well as internationally, have also found that these costs are likely to be significantly higher than such estimates because businesses don’t like reporting WHS incidents or uncompensated illnesses or injuries.
The Strategic Case
Some experts argue that the reliance on financial measures of value only is, by its very nature, backward looking because it measures the outcomes of past actions and tends to sacrifice long term value for short term gain. Much of the value derived from a safe and healthy workforce is likely to affect financial measures indirectly. Research has identified links between WHS and:
- Job satisfaction, employee commitment and engagement.
- Motivation and job performance.
- Brand equity.
- Consumer sentiment and reputation.
This ‘positive spill over’ is important in constructing a business case for better WHS systems and practices.
By considering all of the above, a compelling business case can be built to show the return on investment of implementing a WHS system to manage risk. This business case will help to gain the vital support of the senior management team and create the traction required to embed work health and safety practices into your organisation. It won’t be easy to write, but it will be well worth the effort.