Economic Evaluation Proceedings Paper
The Productivity Assessment Tool: Computer-based cost benefit analysis model for the economic assessment of occupational health and safety interventions in the workplace

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Abstract

Introduction and Method: This paper describes the concepts behind cost benefit analysis in occupational health and safety and introduces the Productivity Assessment Tool, a method by which an analysis may be performed relatively easily in a service or manufacturing workplace. The advantage of using such analyses is to show the important financial role that safe and efficient workplaces play in the workplace. Results: By using analytical tools, the effectiveness of an intervention (workplace change) may be estimated prior to its introduction. Impact on Industry: This places occupational health and safety on the same financial footing as other proposed workplace changes and thus places occupational health and safety in a strong position to attract scarce resources.

Introduction

If a worker is adversely affected by his or her work, there will be an adverse cost to the employer as well as to the individual worker.

The most visible form of “adverse cost” is time away from work (recorded as a lost time injury). However, productive time will also be lost where workers are not able to work with total efficiency (e.g., due to poorly designed equipment or work procedures causing sore or tired muscles). Poor working conditions (lighting, dust, fumes, bullying, stress, etc.) may contribute to people staying away from work or avoiding time in certain work areas. Poor quality job design and working conditions may also increase staff turnover.

Most managers know the direct wage costs of injury absence but are oftentimes not in a position to know the additional or “hidden” costs. Several attempts have been made to calculate these “hidden” costs. Andreoni showed that the estimated hidden costs varied between 0.5 and 20 times the wage or salary costs (Andreoni, 1986); this variation was both between and within countries. In an unpublished survey we conducted in Australia, employers estimated that hidden costs were between nil and 3.5 times the wages paid for unskilled or semi-skilled workers.

Thus it is difficult to defend a choice of any one ratio for estimating hidden costs. Rather it is better to derive hidden costs for each situation or, at least, each company or organization. The items that constitute the greatest proportion of “hidden” costs include:

  • overtime,

  • over-employment (extra staffing),

  • training,

  • supervision,

  • employee (labor) turnover,

  • waste and rework

  • lost production time, and

  • reduced productivity.

There are other cost items that may be significant in specific situations and that should be taken into account:

  • warranty costs,

  • maintenance,

  • product and plant damage, and

  • equipment downtime (due to injury incidents).

Lowered profit and reduced investment opportunities for the organization are the end results of unnecessary costs due to poor or unsafe working conditions.

Relevant costs need to be included in an analysis to enable a comparison between occupational health and safety funding requests and competing funding demands. To do this the costs due to occupational injury and disease, and consequent reduced productivity, must be calculated and the relative importance of the costs determined for each workplace. This is the rationale behind cost benefit analysis.

Much of the early work in the field of assessing the gross costs of injury to the organization was devised by Dr. Paula Liukkonen of Stockholms University; she was the first to codify occupational health costs in a generic form. Most of her work has been published in Swedish but she has summarized some of her ideas in English (Kupi, Liukkonen, & Mattila, 1993).

Section snippets

Approaches to costing

There are several ways to cost an occupational health and safety intervention that include, but are not limited to, an insurance model and a cost benefit analysis model.

The insurance model's costing of work-related injuries and injury absence uses the easily obtained workers compensation insurance information; this has the advantage of simplicity but it is also limited. It does not measure, for example, productivity losses and employee turnover and thus may seriously underestimate the total

Overview of the Productivity Assessment Tool

Cost benefit analysis is a time-based differential model based on the difference in specific aspects of the workstation before and after an intervention. Thus the pertinent summated data collected after an intervention is subtracted from the pertinent summated data before the intervention takes place. The calculations determine the differences (savings and pay-back period) between the initial case (before) and the test or intervention case (after).

There are four parts to the analysis in the

The intervention

The intervention is the change proposed to ensure better and safer working conditions. Once one has measured the conditions before the intervention it is then necessary to measure the same parameters after the intervention (the changes to the workplace).

Clearly, if the intervention has not yet taken place the data has to be estimated. This is no different from a manager or engineer planning to make changes to a service or manufacturing facility — the outcome has to be estimated. There is always

Maurice Oxenburgh graduated from the University of New South Wales with a doctorate in biochemistry but, for the past quarter of a century, has worked in occupational health and safety. While working in industry he realized that although managers wanted efficient workplaces they only saw safety as a cost; his experience showed otherwise. Dr Oxenburgh is presently Emeritus Research Scholar at the National Institute for Working Life (Sweden) continuing his work on developing methods for measuring

References (5)

  • D. Andreoni

    The cost of occupational accidents and diseases

    (1986)
  • E. Kupi et al.

    Staff use of time and company productivity

    Nordisk Ergonomi

    (1993)
There are more references available in the full text version of this article.

Cited by (68)

  • Investigating the effectiveness of safety costs on productivity and quality enhancement by means of a quantitative approach

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    In fact, it is to be known whether or not safety costs are beneficial and effective for companies. In this domain, Oxenburgh and Marlow (2005) introduced a productivity assessment tool to analyze costs and their impact on occupational health and safety in a manufacturing workplace. The data of the study were related to employees and workplace including the number of employees, their working times and wages, recruitment, insurance, and energy use.

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Maurice Oxenburgh graduated from the University of New South Wales with a doctorate in biochemistry but, for the past quarter of a century, has worked in occupational health and safety. While working in industry he realized that although managers wanted efficient workplaces they only saw safety as a cost; his experience showed otherwise. Dr Oxenburgh is presently Emeritus Research Scholar at the National Institute for Working Life (Sweden) continuing his work on developing methods for measuring worker safety and productivity. He is a Fellow of the Ergonomics Society of Australia.

Pepe Marlow is a graduate in Physiotherapy and post-graduate in Economics. She is a consultant specializing in short-term projects in the occupational health, safety and injury fields and her clients include both private and public organizations. Prior to her consultancy, she was a Manager at the National Occupational Health and Safety Commission (Australia) where she was responsible for oversight of contracts for the analysis of the cost-benefit of proposed new occupational health and safety standards.

Both authors have worked together for a number of years on various aspects of cost-benefit analysis in occupational health and safety.

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