Indirect-to-direct accident cost

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. 

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. 

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). 

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

Loss control A program designed to minimize accident-based financial losses. The concept of total loss control is based on detailed analysis of both indirect and direct accident costs. Property damage as well as injurious and potentially injurious accidents are included in the analysis. 

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. 

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

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. 

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. ... 

H. W. Heinrich is the author of Industrial Accident Prevention A Scientific Approach. His presentation on the indirect-to-direct cost ratio... 

In 1979, Stanford University s Department of Civil Engineering was engaged by The Business Roundtable to make a study of construction safety and costs. As a result, Technical Report No. 260 was issued in August 1981. Its title is Improving Construction Safety Performance The User s Role. This research report was the latest study located by this author. It was conducted to provide guidance on reducing accident frequency and severity in the construction industry and the attendant indirect and direct injury costs. 

Analysis of the compiled data showed that the indirect cost ratio is affected by many variables. However, the report said Still, if the accident data are separated into two general groups, large and small claims, it can be seen that smaller accidents have a larger [indirect-to-direct cost] multiplier. ... 

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. ... 

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. 

The total costs of accidents are often depicted as a pyramid, as shown in Figure 3.2.The pyramid depicts the direct costs to reveal obvious costs, as well as workers compensation claims, medical costs, and indemnity payments. Indirect costs, however, are less obvious if realized at all. Such costs include schedule delays, added administrative time, lower morale, increased absenteeism, and poorer customer relations. Studies have shown that the ratio of indirect to direct costs varies widely from as high as 20 1 to as... 

There are some types of harm that cannot be legally recovered. Businesses have difficulty in recovering harm such as lost profitability. The public sector may not be fully compensated for emergency response. To the extent that there are such costs that are not internalized by the railroad, a market failure will result. However, the magnitude of these costs will be very small relative to the accident costs borne, directly or indirectly, by the railroad. Hence, any resulting market failure will be small. 

Figure 3-1 Ratio of indirect to direct costs of on-the-job accidents...

Insomnia is associated with severe daytime dysfunction and low performance, related to traffic accidents and work absenteeism [7], with increasing medical burden, attributable to both direct medical and indirect costs [8]. 

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). 

One approach divides accident-related costs into direct and indirect costs. Chapter 1 introduced this approach. Some refer to indirect costs as hidden costs. Direct costs are expenses incurred from and directly linked to an accident. Direct costs typically include ... 

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