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Bottom-Line Risk Management $

Transforming your safety program into a successful profit center

2003 Steven J. Geigle. All rights reserved. This material, or any other material used to inform employers of compliance requirements of OSHA standards through simplification of the regulations should not be considered a substitute for any provisions of the Occupational Safety and Health Act of 1970 or for any standards issued by OSHA. The information in this publication is intended for training purposes only.

Goals
Part One: Understand...
The direct, indirect and unknown costs associated with workplace accidents The benefits of paying for safety proactively The tools and techniques to measure those costs and benefits

Part two: Be able to...


Estimate direct and indirect costs of an accident Determine the potential risk: probability and severity of an accident Complete a cost/benefit analysis including return on investment, business volume and units required to cover costs, payback period, and costing-back.

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Form Groups
Introductions Elect a group leader Select a spokesperson

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Why do employers do safety?

The Legal Imperative

The Fiscal Imperative

The Social Imperative

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Workers Compensation Basics


How are rates determined? Manual rating - Basic rate applied to all industries of
the same type or standard industrial classification (SIC). Expressed as: Dollars per $100 dollars of payroll Example: $3.15 per $100 dollars of payroll.

Experience Rating - used to vary the companys


own rates, depending on its experience by comparing actual losses with expected losses.

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3.75 3.50

Manual Rate

3.00 2.75 2.50 2.00 1.75 1.50

Average Accident Rate

Above Average Accident Rate

Below Average Accident Rate

1.30 1.20 1.10 1.00 .90 .80 .75 .60

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MOD Rate

Z Inc. XY

Safety Costs at XYZ INC.

Instructions
1. Become familiar with XYZ, Inc. background information and your groups assigned scenario. 2. Complete assignment one and stop.

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Assignment One: Determine the nature of the Hazard


Hazardous Conditions Exposure/Work Practices Root Cause Factors - Management systems Most Probable Outcome

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Assignment Two: Determine the costs


Budgeted Losses
Planned Direct costs Workers compensation Medical costs

Unbugeted Losses
Unplanned Indirect costs 2-10 x direct costs (severity) 5-50 x direct costs (labor/capital investment)

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Total Estimated Direct Accident Costs $ _______________ Total Estimated Indirect Accident Costs: $ ________________ Indirect to Direct Cost Ratio: Indirect Costs Direct Costs = ______ to 1

Total accident costs Direct Costs$ + Indirect Costs = $______

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Assignment Three: Prioritize Step 1: Determine the risk Hazards


Risk = Exposure x Probability x Consequences Using the information from the three charts above and the risk score formula, determine the risk associated with your scenario.

Risk Score = Risk Scores


Scenario #1 Scenario #2 Scenario #3 Scenario #4 Scenario #5 Scenario #6

E __ x P __ x C __

= _________ = _________ = _________ = _________ = _________ = _________

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Assignment Four: Develop corrective actions Engineering controls Management controls


Immediate corrective actions.. Strategies: Estimated Costs: Long-term corrective actions. Strategies: Estimated Costs:

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Assignment Five: Determine the Costs/Benefits Cost/Benefit Analysis Techniques


Return on Investment ROI = Total Estimated Accident Costs Total Investment

Using the formula, determine ROI for the corrective actions your group developed.

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Business volume required to cover cost Volume = Cost of Loss Profit Margin Determine the business volume required to cover the cost of the potential accident which might occur in your scenario.

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Units required to cover costs Units Required = Business Volume Unit Selling Price Determine the number of humidifiers that must be produced to cover potential accident costs.

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Payback Period Payback Period = Total Investment Potential Accident Costs Determine the payback period for the corrective actions for your scenario.

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Assignment Six: Determine the adjusted profit margin


What will be the impact on XYZ, Inc. if management does not take action on these hazards?
Total estimated accident costs for all scenarios Scenario #1 Scenario #2 Scenario #3 Scenario #4 Scenario #5 Scenario #6 Total Annual net profit Total accident costs Adjusted net profit = = = = = = $ __________________ $ __________________ $ __________________ $ __________________ $ __________________ $ __________________ $ __________________ $1,200,000 - $ __________ $ __________

Adjusted net profit margin Adjusted net profit Annual Business Volume = ________ = ________ %
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