Double your money, invest in OHS 6


The corporate wellness advocates have been able to estimate the return-on-investment (ROI) for their programs but there has been little research on the return-on-prevention, until recently. In 2012 the International Social Security Association (ISSA) determined that, in microeconomic terms,

“…there are benefits resulting from investment in occupational safety and health… with the results offering a Return on Prevention [ROP] ratio of 2.2.”

This means that for every one dollar spent per employee per year the potential return is 2.2 dollars.

The report also found that OHS provides, amongst other benefits:

  • Better corporate image
  • Increased employee motivation and satisfaction, and
  • Prevention of disruptions.

But why bother costing harm prevention when there is already a legislative requirement to provide safe and healthy workplaces? Such a question usually comes from those whose understanding of OHS is principally compliance and who believe compliance equals safety.

The calculation of ROP, in the ISSA report at least, counters the belief that safety is always a cost with no economic benefit to the company. A positive ROP provides an opportunity to actively participate in the economic debate over productivity and, in some countries, austerity.

Kevin Jones

6 comments

  1. I am a great believer in prevention over recovery. I believe I’m also fairly competent at demonstrating cost/benefits of prevent vs recovery. But I’m also pragmatic and believe we live/work in a world that is dominated by the ‘economic reality’ of the capitalist approach to managing an organisation. Hence we need to have a realistic view of how investment in WHS actually works. (Leave aside the morals for the time being).

    I recall from my studies, in a Bachelor of Commerce (Employment Relations) degree, a graph of cost/effort for Workers Compensation and Injury Management Vs WHS Prevention. I believe it was in an economics subject. And the followiing discussion comes from a primarily economic perspective.

    The graph was used to illustrate that both sets of activity incur a cost. Ie: if no dollars are spent and no activity (effort) is expended on prevention, then effort and cost of recovery will be high. But as dollars and effort are applied to prevention then the cost and effort of recovery begin to decrease.

    It was further used to demonstrate that, as one side increases, the other decreases and there comes a point when investment in prevention and the cost of injury management cross. (If my memory serves me I believe it was referred to as the ‘point of equilibrium’). From that point onwards the benefit or gain from investment in prevention becomes more expensive than the ongoing cost of recovery.

    I describe this graph to make a point that any ‘potential ROI in prevention’ is unlikely to be linear and remain at 2.2:1 without limitations.

    It may well be that intially the ROI will be greater than 2.2:1 and there may well be a point somewhere in the process when the return might be 2.2:1. But there may also come a point when the potential ROI will decrease and eventually be negative due to the decreasing incremental improvement beyond the point of equilibrium.

    To make the point more succinctly – spend a dollar on prevention when there’s nothing to prevent and there is no ROI.

    Another significant factor to consider is that no matter how I try, I cannot prove that a dollar spent on prevention actually prevented anything – it may not have happened anyway.

    (In a similar way, no doctor can prove that the immunisations I received as a child actually prevented me from contracting the diseases I was immunised against – I may never have contracted them anyway.
    All we can say, from the statistical evidence, is that the incidence of disease has been reduced – but we can’t prove that immunisation was the only contributor. Immuno defence systems of the Human body, and the movement of humans as individuals or in group configurations may well have contributed to the reduced incidence with or without immunisation).

    This leads me to wonder how either of the groups mentioned in the article were able to estimate ROI for their actvities. Again, I am pragmatic enough to ask what benefit there was for either or both groups to find such positive results. (Remember Thalidomide?)

  2. Hi Kevin, Can you clear me if $2.2 is the opportunity cost of an employee or the basic ROI for a company. If it is the opportunity cost, then it is very less. Per capita income, training cost of new employee, etc. would also constitute to the opportunity cost. And, if it is ROI, then also it is very less. If a company loses an employee, it has to replace the post with other candidate; his training is definitely a cost that must be included as a saving. Money saved is the money earned, Isn’t it?

  3. The methodology utilized should be evaluated with an eye towards its validity, reliability, and the limitations fully understood. They interviewed safety and health professionals, and asked them this question – “Based on your experiences, how do you rate (estimate!) the relationship between occupational safety and health benefits and its costs within your company?” What do you think safety professionals would say??

    The results are highly opinionated. There is no data. In the authors defense they do bring out many of these limitations, but in my opinion not nearly enough. We need to make decisions based on data. If a safety professional quoted this headline to their finance and senior level executives, and then those officials read the methodology, what would they say? Interested professionals should read the methods section and then the interview protocol on pages 31-32.

    I hate to be so pessimistic, but our profession needs actual data and rigorous research methodologies, or at the very least well done case studies. There have been a few studies done in the past 2 decades where we asked people their opinion on ROI – we need to move on to more credible research. This is so very difficult but is worth the effort. The business case for our work is out there, but we need to be careful and read the fine print (the methodologies). I encourage valid and reliable cost-benefit studies to build the business case. I’ve seen too often where these types of headlines come back to bite us when a finance person reads the methods.

    Les makes some great points above too.

  4. Mike, I don’t read pessimism in your comment, I read critical analysis.

    This blog, by its nature, is opinionated but I try at all opportunities to link back to original information and data so that readers can analysis and critique just as you have done. The short article was included to encourage the discussion required and it is great to see it starting, even in a small way.

    I am not sure that the business case for safety is out there. The dreadfully flawed analysis by Pricewaterhousecooper for the Victorian Government is a great example of what is considered by some as authoritative.

    There are bits and pieces of information from other economic sources, or wellness programs, or from countries with radically different social security and demographic structures but nothing that I know of analyses workplace safety to the extent required.

  5. Hi Guys,
    A major factor in the push for “wellness programs” comes from the US model where private health insurance – not workers compensation – becomes the major area for savings by employers because employers pay those health insurance costs for their employees. They don’t have ‘Medicare’ as we do in Australia.
    The studies usually refer to cost savings associated with reduced general medical/health costs as opposed to work related injury and illness.

  6. I agree very much, Les. Any wellness ROI stats from the US need to be considered very closely as, in my opinion, they don’t “travel” well to the Australian circumstance.

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