Indirect accident costs

There is a great deal of literature on the subject of indirect accident costs and their relationship to direct costs. Bird and Davies say in Safety The Bottom Line, a 1996 publication, that a literature search indicated that well over 90 published articles or books have been written discussing accident costs since Heinrich went to press in 1931 (Bird and Davies, p. 272). 

Once the plan of action has been finalized, the fleet safety director must sell it to management to get its commitment to change. These changes should be presented in a professional manner. Costs and benefits of the change should be identified. The fleet safety director should emphasize the impact the changes will have on direct and indirect accident costs, insurance costs, and employee production. ... 

Potential direct and indirect accident costs to the company 28,000 in five years. 

Management may want to know how quickly the investment will be paid back— what the payback period will be. Just divide 28,000 (potential direct and indirect accident costs) by 60 months (five years) and you come up with 467 per month in potential accident costs. Since the investment is 1,000, it will be paid back in a little over two months. After that, the corrective action is actually saving the company substantial money. Now that s talking bottom line ... 

Social costs reflect in this example all costs occurring from the provision and the use of transport infrastructure, such as wear and tear costs of infrastructure, capital costs, congestion costs, accident costs and environmental damage costs. Some of these costs are already indirectly included in the private costs through taxes and charges, while others are not. In the context of environmental economics, private and social aspects are of importance. Mainly since it is often the case that environmental degradation is a social cost caused by private activities. Hence, the distinction between private and social is as presented above another impact of costs not being properly internalized in prices. 

Direct and indirect costs are addressed in that report. Its Table 3 is titled Analysis of Accident Costs. Excerpts follow. Note that the ratio of indirect to direct costs diminishes as the cost of the benefits paid increases. Also, keep in mind that money numbers are in 1982 dollars. 

Statisticians may say they would like a larger sample from which to draw conclusions. Nevertheless, the data are significant. An excerpt from the report follows. Its substance is pertinent to the improbability of arriving at a universally applicable indirect-to-direct accident cost ratio. 

The cost of workplace injuries is enormous. In 1992 the U.S. economy lost 115.9 billion from work-related accidents 62.5 billion from wage and productivity losses, 22.0 billion from medical costs, 14.5 billion from administration expenses, 3.4 billion from motor vehicle damages, 10.2 billion from indirect employer costs, and 3.3 billion from fire losses (National Safety Council 1993). In addition to monetary losses, work injuries cause pain and suffering and frequently result in permanent disabilities that impede the normal enjoyment of life. The National Safety Council (1993) estimated that for every dollar of monetary loss accidents lower the quality of life on average by two dollars. With a two-to-one quality-of-life loss ratio the total cost of workplace accidents in 1992 was 347.7 billion, about 5.8 percent of 1992 U.S. GDP. 

Fred A. Manuele, Accident Costs Rethinking Ratios of Indirect to Direct Costs, Professional Safety, 56(1) 39 7 (2011). 

Many safety and health experts estimate that the indirect (uninsured) costs of accidents, and the costs associated with them, are equal to five to ten times the direct cost of the accidents. These indirect costs are caused by many of the following ... 

Injury prevention is concerned directiy with the protection of the manpower asset within an organisation. To a lesser extent, it is indirectly concerned with the protection of the money asset, as a reduction in the number of injuries should result in a reduction in both the insured and the uninsured accident costs. In certain injury prevention programmes, the protection of the manpower asset is extended outside the factory, via the inclusion of off-the-job safety, road safety and home safety. 

The uninsured (or indirect, hidden) costs of accidents should also be established. Bamber developed a list of uninsured costs which is considered to be objective, and which will readily be accepted by operational management as being costs associated with accidents ... 

Indirect-to-Direct Accident Cost Ratios Uniformly accepted computation methods to determine indirect and direct accident cost ratios are not available. Differences in the systems utilized are substantial. More importantly, no published ratios are valid because the increase in direct costs from about 1995 through 2011 (indemnity payments and medical costs) has substantially exceeded the increase in indirect costs. This chapter presents a review of selected data pertaining to indirect and direct accident costs, shows computations made to update ratios resulting from the only plausible research located to give an approximation of what the current ratio of indirect to direct costs might be, comments on the inappropriateness of using additional sales needed to cover indirect and direct costs, and pleads for research to provide substantiated cost ratios. 

For decades, safety practitioners have used the ratio of indirect-to-direct costs of accidents to inform managements on total accident costs and to achieve improvements in safety management systems. The most commonly used ratio is 4 to 1, but the literature contains a wide range of ratios and an even broader range of methods for determining the ratios. Uniformly accepted computation methods to determine indirect and direct costs have not evolved. Differences in the systems utilized are substantial. 

Shares the author s thoughts on a review made of selected data pertaining to indirect and direct accident costs. 

Enter indirect and direct costs of accidents into an Internet search engine and a large variety of documents will be found. Some will pertain to the occupational accident costs that an employer would bear. Others have a broader range and relate to the societal burden of such costs. A selected number of examples are shown here relating to employer costs, the subject to which this chapter is devoted. 

U.S. Department of Labor, OSHA (2007), in an undated bulletin titled Safety and Health Management Systems eTool—Costs of Accidents says Studies show that the ratio of indirect costs to direct costs varies widely, from a high of 20 1 to a low of 1 1. Geige Safety Group provides OSHA Academy Course 702— Accident Investigation Recommendations (April 2010). They say If the indirect (uninsured) accident cost totals 160,000 and the direct (insured) cost is 40,000, the ratio of indirect to direct costs will be 4 to 1. ... 

For this chapter, the author focused on accident costs assumed by employers, the direct costs of which are the legally required indemnity payments and the medical costs paid, with all other related costs being the indirect costs. As will be seen, other studies are made to develop the costs of injuries and illnesses to society. Because of the differences in cost allocation methods, those studies are of little value in determining employer costs. 

The total of hidden costs for all claims was divided by the total cost for benefits paid, resulting in a 1.6-to-l ratio of indirect-to-direct costs. But the report cautions that the 1.6 ratio may be low because certain indirect cost data was omitted, such as OSHA fines and hearings and third party liability and legal actions, and the effect of accident costs on future workers compensation premiums. ... 

Table 11.6 is a selection from some of the yearly accident cost levels shown in the FMCSA publication, but it still presents the idea adequately. To determine the additional sales necessary, the accident costs are divided by the profit margin percentage selected, transformed into a decimal. In the FMCSA report, accident costs are a combination of the indirect and direct costs. 

Such computations will not withstand a logic test since all of the indirect and direct injury costs would be contained in the operating costs as the 10 million sales goal is attained. Thus, no additional sales, in addition to the organization s total income, are not necessary to cover accident costs. 

Computations in this chapter updating the Stanford study indicate that the ratio of indirect-to-direct accident costs is currently about 0.8 to 1. That ratio is given as an approximation. Safety professionals who use a 1-to-l ratio can be reasonably comfortable. This author recommends against using ratios for which there is no supporting data (4 to 1, 6 to 1, or 10 to 1, or higher). 

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