This is actually a management concept. The following is from:
"Measurinhttp://www.scrapmetalinsurance.com/Safety_Vs.htmlg the cost of safety
Demonstrating the value of safety to management is often a challenge because the return on investment (ROI) can be cumbersome to measure. Your goal in measuring safety is to balance your investment vs. the return expected. Where do you begin?
According to the International Risk Management Institute’s (IRMI) “The Cost of Safety” article, there are many different approaches to measuring the cost of safety, depending on your goal. Defining your goal helps you to determinewhat costs to track and how complex your tracking will be.
For example, you may want to capture certain data simply to determine what costs to build into the price of a product or service. Or, perhaps you want to track your company’s total cost of safety to show increased profitability, which would include more specific data collection like safety wages and benefits, operational costs (such as safety training expenses), insurance costs, etc.
Since measuring can be time consuming, general cost formulas are available. A Stanford study conducted by Levitt and Samuelson places safety costs at 2.5 percent of direct labor costs, and a study published by The Economist Intelligence Unit (EIU) estimates general safety costs at about 8 percent of payroll.
If it’s important for your organization to measure safety as it relates to profitability, more accurate tracking should be done. For measuring data, safety costs can be divided into two categories:
1. Direct or ‘hard’ costs, which include:
§ safety wages,
§ operational costs,
§ insurance premiums and/or attorney’s fees,
§ accidents and incidents
§ fines and/or penalties,
2. Indirect or ‘soft’ costs, which go beyond those recorded on paper, such as:
•accident investigation;
•repairing damaged property;
•administrative expenses;
•worker stress in the aftermath of an accident resulting in lost productivity, low employee morale and increased absenteeism;
•training and compensating replacement workers;
• developing a poor reputation, which translates to difficulty in attracting skilled workers, losing business share, etc.
When calculating ‘soft’ costs, minor accidents are considered to be about 4 times greater than direct costs, and serious accidents about 10 – 15 times greater, especially if the accident generates OSHA fines and/or litigation costs.
According to IRMI’s Cost of Safety article, just the act of measuring costs will drive improvement. In theory, those providing the data become more aware of the costs and begin managing them. This supports the common business belief that what gets measured gets managed. And, as costs go down, what gets rewarded gets repeated."
So I ask, "would IROs exceed 2.5% of our total labor costs?"
Rhetorically I answer probably not. Maybe of total pilot costs, but certainly not of total labor costs.
"Would it be worth it if it prevented an accident??"
Not even worth considering the downside!
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