$257,349

1. Financial Impact of Safety - WCAHS - UCD Dec, 2008

2. $257,349 Financial Impact of Safety - WCAHS - UCD Dec, 2008

3. Financial Impact of SafetyWCASH - UC Davis - Dec 1st, 2008 Amjad A Ramahi, MS

4. Amjad Ramahi • PhD Candidate in Biological Systems Engineering focusing studies on biomechanics and ergonomics with a minor in Epidemiology. Interested in stoop work within agriculture and development of chronic low back pain. • Received M.S. at Davis in 2005 in the same field. • I have been working for the past 3.5 years as a Sr. Safety and Health Consultant at Zenith Insurance and majority of my work is with agricultural accounts and hence I became the “Ag specialist” in the region. Financial Impact of Safety - WCAHS - UCD Dec, 2008

5. Agenda • Impact of Safety on the bottom line • Direct and hidden Costs of injuries • Financial Implications of injuries • Insurance • Government Fines • Other Implications of injuries • How materials presented relates to academia Financial Impact of Safety - WCAHS - UCD Dec, 2008

6. The impact of workplace injuries • The financial impact of workplace injuries is high. • In 2003, employers spent $50.8 billion--nearly $1 billion every week--on wages and medical care (direct cost) for workers hurt on the job. (O'Rourke, 2005) • The direct costs are typically paid for directly by Workers’ Comp insurance and ultimately falls back on the employer in the long run. • Other studies suggest that hidden expenses are much larger than the direct costs • Indirect costs are the responsibility of the employer Financial Impact of Safety - WCAHS - UCD Dec, 2008

7. Direct Costs are just the tip of the iceberg Medical Costs Lost Wages Lost Production Re-hiring Re-training Overtime OSHA fines Litigation Costs Lost Wages Poor Morale Ex-Mod Impact Admin time, etc.. Financial Impact of Safety - WCAHS - UCD Dec, 2008

8. OSHA's Ratio of Indirect to Direct Costs • 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. (OSHA, 2008) • OSHA's approach is shown here and says that the lower the direct costs of an accident, the higher the ratio of indirect to direct costs. Financial Impact of Safety - WCAHS - UCD Dec, 2008

9. + 30,000 30,000 1.1 33,000 30,000 33,000 63,000 Financial Impact of Safety - WCAHS - UCD Dec, 2008

10. Accidents are Expensive 5% 63,000 1,260,000 .05 Financial Impact of Safety - WCAHS - UCD Dec, 2008

11. Accidents are Expensive Financial Impact of Safety - WCAHS - UCD Dec, 2008

12. THE INDIRECT COST OF ACCIDENTS REQUIRED SALES DOLLARS TO RECOVER YearlyProfit Margin Incident Costs1% 2% 3% 4% 5% $1,000 $100,000 $50,000 $33,000 $25,000 $20,000 5,000 500,000 250,000 167,000 125,000 100,000 10,000 1,000,000 500,000 333,000 250,000 200,000 25,000 2,500,000 1,250,000 833,000 625,000 500,000 50,000 5,000,000 2,500,000 1,667,0001,250,000 1,000,000 100,000 10,000,000 5,000,000 3,333,000 2,500,000 2,000,000 150,000 15,000,000 7,500,000 5,000,000 3,750,000 3,000,000 200,000 20,000,000 10,000,000 6,666,000 5,000,000 4,000,000 Sales Required To Cover Losses Financial Impact of Safety - WCAHS - UCD Dec, 2008

13. Financial Impact of Safety - WCAHS - UCD Dec, 2008

14. Multiple Indirect and Hidden Financial Implications Medical Costs Lost Wages Lost Production Re-hiring Re-training Overtime OSHA fines Litigation Costs Lost Wages Poor Morale Ex-Mod Impact Admin time, etc.. Financial Impact of Safety - WCAHS - UCD Dec, 2008

15. Workers Comp. What is it? NO FAULT SYSTEM !! • Benefits cannot be denied due to employee negligence • Workers’ Comp is “Exclusive Remedy” • Prevents employers from being sued directly by injured employees (Tort Liability) (some rare exceptions to the above) Financial Impact of Safety - WCAHS - UCD Dec, 2008

16. Experience Modification Driving components of your Ex-Mod • Compares losses to others in the same industry • Penalizes Frequency vs. Severity • Proper classifications • Follows three years prior to most recent one Actual losses (Company X) Expected losses (Industry) = Experience Modification Financial Impact of Safety - WCAHS - UCD Dec, 2008

17. Frequency vs. Severity • Frequency R Us, Inc. • $7,000 • $6,000 • $9,000 • $10,000 • $14,000 • $14,000 • $10,000 • $23,500 • $9,500 • $12,800 • $115,800 = Total Losses • **Ex-Mod Factor = 120% • Severity Corporation • $112,800 • $1,000 • $1,000 • $1,000 • $115,800 = Total Losses • **Ex-Mod Factor = 89% Financial Impact of Safety - WCAHS - UCD Dec, 2008

18. 150% 75% 125% Ex Mod = Expected Losses vs. Actual Losses for a 3 Year Period (Moving Average) Most recent loss year is not counted record follows for 3 years! Financial Impact of Safety - WCAHS - UCD Dec, 2008

19. Annual High ExMod – Poor Safety Company (Example) Financial Impact of Safety - WCAHS - UCD Dec, 2008

20. Comparison to Other Similar Operations with Varied Attention to Safety Financial Impact of Safety - WCAHS - UCD Dec, 2008

21. $15.00 (rate) x $2Mil (payroll) = $300K  $300K x 125% (Ex mod) = $375K $15.00 (rate) x $2 Mil (payroll) = $300K $ 300K x 75% (Ex mod) = $225K The Competitive Effect of Ex Mod Factors Similar businesses with the same payroll, but widely different Ex Mod Factors Smith Almond Inc. (bad safety) Jones Almond Inc. (good safety) • $150,000 Savings for Jones Almond compared to Smith Almond just this year! Financial Impact of Safety - WCAHS - UCD Dec, 2008

22. Calculate in Tons of Almonds Financial Impact of Safety - WCAHS - UCD Dec, 2008

23. Effects of x-mod on Paid Premium and Potential Savings Financial Impact of Safety - WCAHS - UCD Dec, 2008

24. Effects of x-mod on Paid Premium and Potential Savings

25. Why So Much On ExMod? • Because this is a controllable expense • Companies can control losses and related expenses! • The objective of this system is to penalize companies that fail to control injuries through management practices. Financial Impact of Safety - WCAHS - UCD Dec, 2008

26. Polling Questions True or False? Cal-OSHA has a process in place to penalize businesses with an Ex-Mod exceeding a certain percentage. Financial Impact of Safety - WCAHS - UCD Dec, 2008

27. Answer? TRUE • Cal-OSHA has a targeted inspection/compliance program for businesses with an Ex-Mod over125% (High Hazard Employer). • Automatic fee assessments are charged to businesses based on payroll. • Companies may elect to have Cal-OSHA consultation unit come out to help your business be in compliance. Financial Impact of Safety - WCAHS - UCD Dec, 2008

28. Cal-OSHA • Regulatory side • Targets high hazard employers unless they are working with the consultative side • Involved after serious injuries • Spot inspections (e.g. heat illness) • Consultative side • Assist employers that request service and provide safety resources, materials, and trainings. Financial Impact of Safety - WCAHS - UCD Dec, 2008

29. Cal-OSHA Fines Add to Costs • Serious and Willful Penalty = $72,000 max • Multiple Major or Minor Violations = ? • Failure to Report Serious Injury within 8 hours = $5,000 - Death - 24 Hour Hospital Stay - Permanent Disfigurement - Loss of Any Member of the Body • If a Company Experiences a Serious Injury – Be Prepared! • Documentation is Critical Financial Impact of Safety - WCAHS - UCD Dec, 2008

30. Effects on Company Reputation • Media – 6 o’clock News • Business Interruption • Loss of Customers • Law Suits • Backlash from the Community • Countless Other Issues…….

31. What does this mean to Academia? • Your are very much like a business with employees and activities • You pay insurance and are affected by the government rules as well as the hidden costs! • Research work in the field or lab is often risky and requires risk assessment before starting • PI is like a business manger or supervisor with responsibility to ensure the safety of their employees (students) • Students are like employees who need to follow safety rules and look for self and others’ wellbeing • Department’s bottom line is affected through budget lines dedicated to insurance cost. Financial Impact of Safety - WCAHS - UCD Dec, 2008

32. What does this mean to Academia? Continued … • Proposals and conducting research! • Need to describe what is in it for the business owner to participate in a study • A link between the problem statement and the financial impact on the business should be clear • Example: There is high incidence of back injuries in strawberry harvesting. Our research investigates new devices that may reduce the chance of back injuries during strawberry harvest. Devices like these may lower your exposure to costly workers’ comp claims allowing you to reduce insurance expenses in the future compared to other farms in your area. • This approach to seek “buy in” will increase the chances of success in: • Conducting research • Implementing solutions (RTP) Financial Impact of Safety - WCAHS - UCD Dec, 2008

33. What to do • Safety Improvement Process • Organizational commitment to safety • Management leadership and interest • Employee/ Student participation • The goal is to establish a culture of safety • Safety Culture is described as, “The product of individual and group values, attitudes, perceptions, competencies and patterns of behavior that determine the commitment to, and the style and proficiency of, an organization’s health and safety management.” (UK- Nuclear Safety Advisory Committee) Financial Impact of Safety - WCAHS - UCD Dec, 2008

34. How to Do it 1 – Start by Implement the IIPP (Injury and Illness Prevention Program) which: • Outlines roles and responsibilities for everyone • Describes a system of hazard assessment and correction • Addresses training and Communication needs • Ensures compliance • Describes how to conduct Incident Investigation • Record keeping plan 2 – Look for motivating factors or incentives for employees to participate in implementing the safety program Financial Impact of Safety - WCAHS - UCD Dec, 2008

35. Summary • Safety impacts businesses at many levels • Financial impact is noticeable for business and becomes a burden that requires radical changes • Hidden costs are of huge implications but go by unnoticed in many cases (personal experience) • Academic settings can utilize the financial approach to increase “buy in” that improve safety performance of departments and when: • Approaching a research project audience • Implementing solutions or giving recommendations Financial Impact of Safety - WCAHS - UCD Dec, 2008

36. Summary continued … • Things to remember • Ex-Mod is a ratio and is influenced by injuries • Unmanaged workers’ Comp expense can become a burden for employers • There are direct and indirect costs to each injury with the indirect being much higher in certain cases • Cal-OSHA is there to help but will hold businesses accountable when necessary Financial Impact of Safety - WCAHS - UCD Dec, 2008

37. References • Fed OSHA Website: http://www.osha.gov/SLTC/etools/safetyhealth/mod1_costs.html • UK - Nuclear Safety Advisory Committee http://www.hse.gov.uk/aboutus/meetings/iacs/nusac/ • O'Rourke, Morgan. The impact of workplace injuries (financial impact).Risk Management. Nov 2005. Financial Impact of Safety - WCAHS - UCD Dec, 2008

38. Links • OSHA's "$afety Pays" program is an interactive expert system to assist employers in estimating the costs of occupational injuries and illnesses and the impact on a company's profitability. • http://www.osha.gov/dcsp/smallbusiness/safetypays/index.html Financial Impact of Safety - WCAHS - UCD Dec, 2008

39. Questions?aramahi@ucdavis.edu Financial Impact of Safety - WCAHS - UCD Dec, 2008