Thursday, September 24, 2009

Amount that Safety Effort Pays Off

Typically, companies view their SH&E and economic performance as separate lines of attack operations. In a cover story of Professional Safety: the Journal of the American Society of Safety Engineers, (Sept 2009) some interesting points were made.

Most often SH&E specialists have not incorporated economic analysis to show how investments in safety practices contribute to economic performance. Financial modeling tools need to be developed to consider the economic benefit of SH&E efforts that will help management make decisions.

A compliance-only focus should not be expected to yield fully positive financial returns. Alternatively, what economic analysis attempts is go beyond compliance to provide pertinent quantitative and qualitative economic information about how a company’s organizational activities (e.g., products, technologies, processes, services) and strategic SH& E investments will address issues that might offer real financial opportunities.

SH&E costing systems tend to suffer from imprecise cost collection, analysis and interpretation procedures and distorted cost reporting, have little transparency regarding what comprises their costs. They fail to consider the financial returns that can be expected later from the investment and thus, lose their decision relevance.

So, the real dilemma facing decision makers is how to make investment decisions to address SH&E issues in the absence of sound quantitative economic information. They propose economic analysis techniques described in the article including life cycle costs, net present value analysis, as well as determining hurdle rate, impact assessments, and more. This is a great area for quantitative data to improve upon.

Measure & decide in favor of safety and health…Save the company in turn!

adapted from
Anthony Veltri and Jim Ramsay (Sept 2009) Economic Analysis, Make the Business Case for SH&E, Professional Safety, pp 22-30 (

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