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Managing the Financial Side of Safety

Managing the Financial Side of Safety. Ron Pettit, MS The Harry A. Koch Co Loss Control Specialist. The objective of every business, is to… “ Maximize Value”.

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Managing the Financial Side of Safety

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  1. Managing the Financial Side of Safety Ron Pettit, MS The Harry A. Koch Co Loss Control Specialist

  2. The objective of every business, is to… “Maximize Value” “Business is the art of extracting money from another man’s pocket without resorting to violence.” - Max Amsterdam It not how much money you make – It’s how much money you get to keep!

  3. What’s Wrong with this Picture?

  4. THE ICEBERG AFFECT Direct Costs Medical Compensation Hidden Costs Hiring Costs Training Costs Lost Production Lost Customer Cost of Overtime Shut Down-Start Up “Accident Iceberg” Indirect (hidden) costs can easily be 3 to 5 times higher than Direct costs !!!

  5. Example job accident costs • Workers Comp • Medical costs $ 10,550.00 • Reserves $ 6,440.00 • Incurred Costs $ 16,990.00 • Other Costs: • Employee lost time $ 1,600.00 • Reconfigure costs $ 5,000.00 • Production managers time $ 1,600.00 • Additional safety training $ 1,280.00 • Office staff time $ 1,100.00 • Total $ 10,580.00 NOW ADD IN: Hiring Costs Property/Equipment Lost Production Lost Customer Cost of Overtime Legal Issues Total Costs $ 27,570.00

  6. IMPACT OF ACCIDENTS ON PROFITS AND SALESU.S. Department of Labor website

  7. Why we don’t look at the costs of accidents • Accidents/WC claims have a “long tail” • WC Insurance; waiting on claim to close, • What costs are associated to the accident? • Project ends before the claim costs come in • Not accounted for as a job/dept. cost. • If you did add accident costs to the job; • “Did you make any Money?”

  8. The Tail that Follows the Accident Part 1: • The cost associated to the “Loss Ratio” Part 2: Experience Modification Rating, National Council on Compensation Insurance, Inc. (NCCI) • The Experience Mod is an indicator of how safely or unsafely the business has operated over a three year period. Both predict the future cost of WC insurance

  9. Example Premium CalculationWorkers’ Compensation EMod - Experience Modification Rating BASED ON PRIOR 3 YEAR LOSS HISTORY Example Premium = $100,000 per year MOD Effects on Pricing WC: • ($100,000) x (0.80) = $ 80,000 • ($100,000) x (1.00) = $100,000 • ($100,000) x (1.20) = $120,000 Premium potentially fluctuates $40,000 based strictly on the company’s loss experience.

  10. Enduring the Cost of an Accident • Employee may be out for weeks or months • Insurance premiums may go up • The cost of replacing employees • Repairing damaged tools and equipment. • Job falls behind; you may loose a customer • Depending on the accident, employers may face Legal Issues or OSHA fines and expenses • After effects could ripple on to other people

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