Direct and Indirect Costs of Accidents in the Workplace, Essay Example

Injuries in the work place have been found to have considerable costs to both the injured employee and the business as well. There are a number of costs that are not as evident on surface evaluation of the costs of the incident. However, these underlying costs inflate the costs of accidents in the workplace. The direct costs entail the payment of compensation claims covering indemnity payments and medical costs. The indirect costs are more obscure and require a detailed look to effectively identify and quantify them.

According to a study conducted by Yueng-Hsiang Huang, Tom B. Leamon, Theodore K. Courtney, Sarah DeArmond, Peter Y. Chen and Michael F. Blair, the perceived ratio of direct to indirect costs was obtained from different professionals in corporate finance. These professionals represented medium to large-sized enterprises. They were subjected to a survey that involved questions that were valid in terms of content, tested and verified by different subject-matter experts. The research revealed a perceived direct to indirect cost ratio depicted in the graph below. In the study, the average ratio of direct costs to indirect costs was $2.12.

According to OSHA (Occupational Safety and Health Administration), there is a given general trend that depicts the ratio of direct and indirect costs varying widely with 1:1 being the lowest and 20:1 being the highest. The graph below depicts the ratio of direct to indirect costs relative to the direct cost of the claim.

Taking into consideration a situation where an employee suffers from multiple injuries with no apparent emotional trauma, a direct and indirect cost analysis can be obtained using the OSHA provided guiding principles. The OSHA safety Pays program helps employers to make an assessment of the effect that different occupational illnesses and injuries have on their profitability. While the main aim is not to provide a detailed analysis of the illness and injury costs that a company would incur, it is integral in formulating the foundational comprehension of the implications of accidents in the workplace and the importance of workplace safety.

To clearly comprehend the implications of injury and illness in the workplace, the simulation for the injuries shall be conducted for a different number of injuries. The analysis will include from 1 physical injury to 5 physical injuries. This provides a detailed view of the implication of the severity of injuries to the company’s profitability. The simulation assumes the company has a 5% profit margin.

Taking into consideration the perceived ratio of direct and indirect costs found in the research mentioned earlier, we can obtain the comparative values for each number of instance of multiple injuries for the alternate ratio. With the average ratio of direct to indirect cost being $2.12, i.e. there is an incurred dollar of indirect cost for ever $2.12 of direct cost realized.

According to the comparative analysis highlighted above, the ratio of direct to indirect costs associated with injury to personnel in the workplace is slightly different under OSHA and the SH&E survey. OSHA estimates depict a much higher ratio of direct to indirect costs. While the direct cost are the same under the analysis, the indirect costs are perceived quite differently. The higher ratio in OSHA gives it much higher indirect costs and results in higher total costs.

In conclusion, the total cost of implementing a control measure is represented in the value obtained from the sales to cover indirect costs. This value represents the cost of the remedy to be employed to mitigate, transfer or eliminate the risk of occurrence of injury in the workplace. The value realized as a result of implementing these strategies is represented in the additional sales column.

Works Cited

American Industrial Hygiene Association. Demonstrating the Business Value of Industrial Hygiene. New York: AIHA, 2008. Print.

Huang, Yueng-Hsiang, et al. “Business of Safety: Financial Decision Makers’ View on Safety.” Professional Safety(2009): 36-42. Print.

International Labour Office. Estimating the economic costs of occupational injuries and illnesses in developing countries : essential information for decision-makers. Geneva: ILO, 2012. Print.

Reese, Charles D. Occupational health and safety management : a practical approach. 2nd. Boca Raton: CRC Press, 2009. Print.

United States Departmet of Labor. Costs of Accidents. 10 June 2015. Internet Source. 16 July 2015. <https://www.osha.gov/SLTC/etools/safetyhealth/mod1_costs.html>.

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