Risk
Safety Is Good Business, But How Do You Prove It?
Definitive answers about its return on investment are not available
The basic answer is that no statistically reliable method of measuring safety’s bearing on profitability exists, at least not yet.
Keeping employees safe is both the right thing to do and good business. But how do you quantify the financial payback and know if a specific safety initiative deserves more or fewer resources?
At its recent annual conference in Boulder, Colo., the Construction Safety Research Alliance sized up the problem of financial payback in a presentation by Executive Director Matthew Hallowell, a civil engineering professor at the University of Colorado-Boulder, and Nathalie Moyen, a finance professor in the university's Leeds School of Business.
The basic answer is that no single statistically reliable method exists to measure safety’s bearing on profitability, at least not yet. “I wish I could tell you there's just this one simple elegant way to do it. There isn't.” Hallowell said.
Still, the possibility of knowing the cost-effectiveness—or simply knowing where to get the biggest bang for the buck—is enticing. That kind of information or statistical evidence could also help when implementing a new safety framework—such as replacing exclusive reliance on Total Recordable Incident Rate (TRIR) data with Energy-Based Safety (EBS) information.
Hallowell sees it this way: "Would it be a worthwhile investment to spend $20,000 or $200,000 over here to get this much more in terms of my control of high energy?” Unfortunately, Hallowell conceded, good safety, good business and return on investment are not exactly the same thing.
Matthew Hallowell, executive director of the Construction Safety Research Alliance, says a single definitive measure of safety's financial impact on employers remains elusive. Photo: Courtesy of CSRA
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In seeking a more complete, evidence-based perspective about safety payback, alliance researchers integrated leading indicators, serious injury and fatality rates and financial performance metrics drawn from 34 owner/client organizations and eight other contractors. Those sources combined represent 4.7 billion worker-hours over an 11-year period.
One result that emerged: Fatalities are linked to falloffs in revenue.
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More specifically, a single fatality in a given financial quarter was followed three quarters later by a statistically significant 2% decline in the revenue-to-assets ratio. For the median contractor in the sample (with about $1 billion in annual revenue), this translated to roughly a $20-million reduction in revenue—after controlling for seasonality, market conditions, firm-specific effects and other sources of volatility.
No reliable relationship was found between fatalities and overall value as measured in equity plus debt. The researchers speculate that strong post-incident improvements following a loss of life ultimately offset longer-term valuation effects.
While a definitive return on investment for “safety” remains elusive, the alliance study suggests a strong chain of events through which targeted safety investments lead to improved leading indicators. An accident or safety incident prompts an employer to use higher energy-control rates, which in turn leads to fewer serious injuries and fatalities and better financial results.
Among the 34 owner/client organizations that provided data for 2013–2023, fatality counts were too low to produce meaningful statistical financial impact results or a fundamental link between minor injuries and business performance, Hallowell said. For companies that are publicly traded, the economic penalties for job injuries appear to be market reactions by investors and automated investment algorithms, not the effectiveness of an employer's safety program.
Moyen said researchers tried to assess intangible aspects such as reputation. If a firm has fatalities and the accidents make the newspaper, there may be an impact on the employer's reputation that will be reflected in the company's financial performance she said.
