The Direct and Indirect Costs of Accidents

As you can see, incidents are more expensive than many managers realize. Why Because there are many hidden costs that are not truly understood. Some costs are obvious while other costs are transparent. Your workers compensation claims cover medical costs and indemnity payments for an injured employee. These are the direct costs of incidents. 

However, what about the costs to train and compensate a replacement employee, repair damaged property or equipment, downtime of equipment, investigating the incident, and implementing corrective actions Even less apparent are the costs related to product schedule delays, added administrative time, lower morale, increased absenteeism, pain and suffering of the employee, and impaired customer relations. These are the indirect costs and, as such, have been described by many professionals as an iceberg. You cannot see the bottom until it is too late. We will discuss these costs later in more detail [3]. 

According to OSHA, studies show that the ratio of indirect costs to direct costs can vary widely, from a high ratio of 20 1 to a low of 1 1. OSHA provides a conservative approach where they estimate that the lower the direct costs of an incident, the higher the ratio of indirect to direct costs. Table 1-3 demonstrates the effects of the hidden cost that is buried below the surface. In many cases, we don t understand how to capture these costs [3,4], 

The Business Roundtable s Report A-3, Improving Construction Safety Performance, concludes that in the construction industry, an effec- 

The Business Roundtable, Improving Construction Safety Performance Report A-3, New York, January 1982 and Oregon OSHA, The Cost of Accidents, Safety Training Module,http //www.cbs.state.or.us/osha/educate/training/ pages/materials.html, public domain. 

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Show management, in terms of dollars, of the direct and indirect costs of accidents and injuries and illnesses to the organization, along with the organizational costs, in terms of fear, lack of trust, feelings of being used, and so on, that can add to lost dollars in terms of lost productivity, poor performance, and lack of employee motivation. 

In Chapter 1, the moral, legal and financial arguments for health and safety management were discussed in detail. The important distinction between the direct and indirect costs of accidents is reiterated here. 

Despite the prevalence of sleep disorders, most cases go undiagnosed and untreated. The direct cost of insomnia alone adds an estimated 13.9 billion to the national health care bill each year. The direct and indirect costs of sleep disorders including medications, treatment, absenteeism, decreased productivity, accidents, hospitalizations, and increased morbidity and mortality is estimated to be between 92.5 and 107.5 billion annually. Improvements in recognition and treatment may decrease the economic burden and prevent progression to both medical and psychiatric disorders. ... 

The total cost (including hoth direct and indirect costs) of accidents to the organization, as well as the average cost of each over the 12-month period and... 

Safety can also have a substantial impact on your company s ability to remain competitive. In addition to the direct and indirect costs of a workplace accident or injury, many companies can actually begin to lose their competitive edge in at least two different ways ... 

The final phase of the accident sequence and the last link in the chain reaction are costs. All contacts and exchange of energy result in some form of loss. Losses could include both direct and indirect costs of the accident. In mining and industry, property damage costs could be up to 50 times greater than the direct costs of accidents. A third is the hidden costs, which are seldom identified or tallied. The hidden costs of the accident are also losses that are hard to determine, but which exist nevertheless. 

There are direct and indirect costs of an accident occurrence. Some examples of the direct costs are liability claims, compensation, and medical costs. 

The number of damage accidents should be recorded and tabulated monthly and on a 12-month progressive basis. The damage costing statistic has two aspects and these, like the injury accident, are the direct and indirect costs. 

The indirect costs of accidents are not so obvious, e.g. replacement staff, investigation costs, poor publicity. In addition, many of the direct and indirect costs are not recoverable as insured losses. 

Accident costs are the direct and indirect costs associated with an accident or mishap. These costs can be in terms of deaths, injuries, dollars, equipment loss, and environmental damage. Direct costs include costs such as medical costs, absenteeism costs, equipment costs, and legal costs. Indirect costs include costs such as product devaluation and loss of reputation. 

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. 

The benefit may be direct or indirect. The direct benefits include reduction of accidents, reduction of travelling time/costs and reduction (or no increase) of vehicle maintenance cost. The indirect benefit is the social benefit arising from comfortable and safe transportation of the users for social and commercial activities. 

As with vehicle accidents, quantifying the cost of an injury or illness can be difficult because it usually involves much more than just a medical bill. There are both direct and indirect costs, but generally the indirect costs will outweigh the direct costs. 

Slips and falls may appear to be simple trivial accidents, but they result in thousands of deaths and cost billions of dollars in direct and indirect cost [59]. According to statistics compiled by the National Safety Council, falls are the second leading cause of accidental deaths. Over 40% of the dollars spent on workers compensation in the U.S. food service industry are due to the results of slips and falls. Annual expense from slips and falls is about 12,000 per restaurant for an average of 3-4 accidents per year. In 1988, for example, more than 12,000 people died from accidental falls. In public areas such as hotels, motels, and restaurants, slips and falls occur more frequently than any other accidents. Slips and falls can result in serious injuries, especially to the head and back. The floor surface is the single most important factor contributing to slips and falls. The slip-fall relationship between the floor snrface and the floor coating is also an important consideration, as it relates to liability and worker s compensation, especially in the fast food industry, where a floor can be wet or greasy. 

However, accidents continue to happen. Treating an injured worker s eyes with emergency eyewash is the first, critical component to ensuring a timely and healthful recovery. Injuries that are not properly treated can result in short-term or long-term, partial or complete vision loss, the effects of which can take a large toll on a person s productivity and quality of life. The cost to employers is significant, too. The Bureau of Labor Statistics estimates that the cost incurred by workplace eye injuries exceeds 934 million per year in both direct and indirect costs. 

Any accident or incidence of ill-health will cause both direct and indirect costs and incur an insured and an uninsured cost. It is important that all of these costs are taken into account when the full cost of an accident is calculated. In a study undertaken by the HSE, it was shown that indirect costs or hidden costs could be 36 times greater than direct costs of an accident. In other words, the direct costs of an accident or disease represent the tip of the iceberg when compared to the overall costs. 

The Health and Safety Commission has been so concerned at the large number of such accidents that it has identified slips, trips and falls on the same level as a key risk area. The costs of slips, trips and falls on the same level are high to the injured employee (lost income and pain), the employer (direct and indirect costs including lost production) and to society as a whole in terms of health and social security costs. 

In 1994 Worksafe Australia funded a study into the relation between direct and indirect cost associated with occupational injury in Australia (Larsson Betts, 1996). The results of this study indicated that few employers operating a small business meet their obligations under the Accident... 

As the leading cause of employee fatalities and a contributor to serious injuries, motor fleet vehicle accidents are costly. According to National Highway Traffic Safety Facts 2000, motor vehicle crashes cost more than 150.5 billion. The average cost of a fleet accident, including direct and indirect costs, is 14,000, as shown... 

Given that motor vehicle accidents cause numerous injuries and fatalities, it is essential that companies examine the various costs associated with them. The 1999 Annual Statistical Bulletin by the National Council on Compensation Insurance Inc. (NCCI) reported that the national average workers compensation cost per workplace fatality was 167,847. Other studies have shown that the total costs of such fatalities, including lost lifetime earnings and productivity as well as other direct and indirect costs, was 2.8 million per worker killed on the job. 

Early research on accident costs applied the market-pricing model. Here, the analyst registers the actual losses due to accidents for different production factors such as lost working hours, materials and production. These are assessed in monetary units by applying the market prices for each factor. The cost of lost working hours, for example, is set as equal to the hourly wage. Heinrich pioneered this work. He distinguished between direct and indirect costs, where direct costs are those paid by the insurer to the victim (Heinrich, 1959). Indirect (or hidden) costs include costs directly carried by... 

Construction accidents on site, however, leads to much social costs which harm the society (Hallowell 2010). The adverse outcomes create the need for accident prevention that requires knowledge of accident causal factors, how these factors contribute to accident causation and the extent to which causal factors contribute to accidents (Manu et al. 2012). This chapter aims at reviewing the direct and indirect causes from literamre. 

There are huge direct and indirect costs as well as pain, sufferings and grief of both the workers and their family members should an accident happen. In contrast, there are numerous benefits in improving constmction safety conditions on sites, in... 

However, because direct or indirect costs are involved in all th ree of the above instances, they are loss events and should therefore be considered accidents. 

Prevention costs less than accidents. This fact has been proven consistently by the experience of thousands of industrial operations. The direct cost is represented by medical care, compensation, etc. The indirect cost of four to ten times the direct cost must be calculated, as well as the loss of wages to employees and the reflection of these losses on the entire conununity. 

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 ... 

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. 

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. 

Western National Insurance, in a paper titled The Total Costs of Accidents and How They Effect Your Profits says Most experts estimate that the indirect costs are 3 to 10 times the direct costs of an accident. ... 

The International Labour Organization, in an undated training module titled Introduction to Occupational Safety and Health, says that It has been estimated that the indirect costs of an accident or illness can be four to ten times greater than the direct costs, or even more. ... 

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