OSH COMPLIANCE – COST BENEFITS
Compliance with regulations are generally considered legal obligations. When it comes to compliance with OSH regulations, employers consider them to be a legal burden of investment in resources which apparently are not contributing in business revenues. However, these obligations appear to be appropriate in application when organizations, as a result of non-compliance, face huge losses from preventable serious incidents. The term preventable applies to incidents which can be controlled at an early stage without leading to heavy loses, business disruption, workers’ absenteeism etc. Lessons learned from incidents therefore suggest cost of incident is always less than the cost incurred in resources and system for OSH management.
In Abu Dhabi Emirate, OSHAD System Framework (OSHAD-SF) provides a comprehensive framework for workplace OSH Management. Back in 2009 when OSHAD-SF v1.2 was launched, OSHAD received feedback from employers and entities that investing in OSH is costing organizations and not paying off. In addition, decision makers at the highest level in the emirate became alarmed from these misconceptions where entities were highlighting only the cost aspect of regulatory compliance and incorrectly linking it with investment in procuring consultancy services for OSH system development, hiring qualified staff for implementation, installing systems / controls as required for OSH risk management and verifying compliance through 3rd party auditing (another cost factor).
However, with time upon witnessing improvements in OSH performance, reduction in workplace incidents and analysis on incidents cost, it became evident that implementation of a robust OSH Management System contributes significantly in entities’ financial and business benefits.
Statistics maintained by OSH regulators (HSE UK, OSHA, etc.) and relevant organizations across the world indicates a huge cost of incidents. According to ILO estimates, there are more than 2.3 million work-related deaths per year, out of which 350,000 are caused by fatal incidents, and close to 2 million by work-related diseases. In addition, 313 million non-fatal incidents occur on the job annually; many of these resulting in injuries and extended absences from work. These estimates imply that every 15 seconds, a worker dies from a work-related incident or disease and 153 workers have a work-related incident. Furthermore, four per cent of the global GDP (roughly 1.25 trillion US dollars) is drained off annually by costs such as lost working time, workers’ compensation, interruption of production, and medical expenses. (Reference: ILO Report on 2015 World Day for Safety & Health at Work)
OSHA U.S estimates that businesses spend $170 billion a year on costs associated with occupational injuries and illnesses; expenditures that come straight out of company profits. But workplaces that establish safety and health management systems can reduce their injury and illness costs by 20 to 40 percent. (Reference: OSHA Publication – Safety & Health Adds Value to Your Business)
All such analysis and statistics clearly suggest, a huge cost saving can be achieved through incident control and thereby improving business revenues. Therefore, the approach shall be; improve business revenue by investing in workplace safety and health management. The saying ‘safety pays’ truly becomes apparent when an entity encounters a serious incident.
OSHAD-SF – INCIDENT COST
OSHAD being the OSH competent authority of the Emirate recognized industries’ concerns, and therefore felt it important to clarify such misconceptions that investing in safety incurs nothing but a regulatory burden. Awareness sessions have been organized across sectors highlighting the benefits of OSHMS implementation not only in terms of legal compliance but also resulting in huge cost savings through incident control, workers’ good health, plants availability, etc. Compliance with the OSH regulations is therefore acknowledged as revenue generation with an uninterruptable business (incident free operation).
While analyzing mechanism of incidents, cost factors normally revolve around two components: direct cost and indirect expenditures. Direct or measureable cost normally deals with items like losses due to business interruptions, hospital expenses, shutdowns & startups expenses, cost for replacing equipment, repair, maintenance, violations, penalties, insurance, employees’ absenteeism, training refreshers, etc. Whereas, the indirect cost includes factors like investigation cost, impact on organizations’ image, cost for replacing injured worker, overtime, customers’ relationship, marketing, workers’ demotivation, psychic affects, property loss like unfinished or inadequate quality products, etc. Moreover, the mental health of a worker can be seriously affected after an Incident mostly resulting in the loss of confidence permanently affecting the ability to work efficiently.
While releasing OSHAD-SF v2.1 in 2013, OSHAD introduced the cost component in incident reporting (OSHAD-SF Form G1), asking entities to provide the cost related to below listed areas while reporting serious incidents. The objective is to collect the data and undertake analysis to justify that the incident cost is much more than the cost of implementing a legally compliant OSHMS
Injury Cost (Treatment, Hospital, Transport, Insurance, etc.)
Legal Cost (Compensation claims, judicial prosecutions, etc. – Federal Law No. 8)
Productivity Cost (Business disruptions, Delays, Production loss / day, Material, Salaries, etc.)
Asset Cost (Property, Machinery, Equipment, Structure, Vehicle, etc. – Repair & Maintenance)
Asset Cost (Property, Machinery, Equipment, Structure, Material, Vehicle, etc. – Replacement)
Enforcement Action (Penalty Issued by Authority)
Incident Scene / Area Restoration Cost (arrangements to making safe, cleanup, etc.)
Other Cost relevant to / associated with the Incident
OSHAD 2014 Serious Incidents Cost Analysis indicated a cost of around AED 6,000 per incident based on the data provided in 120 reported serious incidents. This extremely high cost incurred clearly shows the importance of investing in implementation of an OSHMS.
OSHAD launched the Electronic Database System (Al-ADAA) in 2016 facilitating entities in OSHMS compliance in vital areas including performance reporting, incident notification and reporting. Now, reporting through Electronic Database System (AL-ADAA) includes incident cost analysis module helping entities and decision makers to evaluate the positive impact supported by continual improvement in OSH Performance. Incident analysis in Al-ADAA provides significant insights identifying specific areas, where investment can lead to achieving excellence.
OSH RISK MANAGEMENT – COST OPTIMIZATION
ALARP (as low as reasonably practicable) Principle in Risk Management also helps entities in achieving reasonable cost benefits while implementing workplace risk management program. Spending on OSH controls, if carefully reviewed and optimized through risk management principles would not lead to cost burdens rather help entities in implementing cost effective solutions. OSHAD-SF Element 02 on Risk Management requires that entities’ risk management program shall include formulating control measures to reduce the risks to an acceptable and ALARP level. ALARP helps in ensuring that the principal benefits of risk reduction are likely to be secured by targeting resources on a problematic situation and reducing risk from that situation to as low as reasonably practicable, hence no further reductions would be required or beneficial. Cost-benefit techniques are normally employed to determine most effective risk reduction measures. ALARP level is reached when the time, efforts and cost of further reduction measures become unreasonably disproportionate to the additional risk reduction obtained.
OSHAD is successful in gradually changing the misconception about considering OSH as dead investment to the approach that investing in OSH is an integral part of the business development and sustainability. Continual improvement in Abu Dhabi Emirate OSH Performance supports the fact that safety pays to business through an effective incident control, healthy workers and safe workplace.
Workplace OSH Management is therefore important to productivity as awareness on OSH matters and compliance with regulations improves, the risk of incidents and ill-health decreases, and the resulting workers’ physical and mental capacities make them more productive.
OSHAD-SF compliance should therefore not be seen as a regulatory burden; it offers significant opportunities. In summary, the benefits for entities investing on OSH include but are not limited to the following:
Workplace OSH Management is an effective business investment as it can enhance and extend existing OSH programs by contributing to keep workers fit and healthy; maintaining their ability to work and allowing them to remain active and productive, while at the same time contributing to the well-being both of employees and their entities with more efficient and profitable working practices. OSH Management is vital, not only because it helps to control incidents, but also because it significantly contributes to productivity and revenues.
OSHAD is continually striving to pursue the Abu Dhabi Govt. vision in providing a safe and healthy workplace for all and reducing work-related incidents, injuries and diseases, monitoring implementation and supporting action at all levels. OSHAD strongly believes that workplace OSH Management always adds value to business helping employers in saving money, improving productivity, and boosting employee morale.