The ROI of Safety in Manufacturing

Transcription

1 The ROI of Safety in Manufacturing Boost your bottom line with safety management software WHITEPAPER

2 The ROI of Safety in Manufacturing Boost your bottom line with safety management software Copyright 2016 Intelex Technologies Inc. intelex.com /intelextechnologies /intelex-technologies-inc. /intelexsoftware 2 of 12

3 Safety Investment Equals Increased Profit Businesses in the U.S. spend more than $170 USB per year on occupational injury and illness related costs that eat away at corporate earnings. In Manufacturing, the risk of severe injury or illness is higher than most other industry sectors, making a proactive and holistic approach to health and safety management imperative. According to OSHA, implementing a Safety Management System (SMS) in the workplace can reduce injury and illness costs by 20 to 40 percent. The manufacturing industry is subject to changing operating environments, inherent hazards due to processes and heavy machinery, and reliance on temporary workers and contractors. Thus the opportunity for improvement and cost savings is significant, making effective safety management the difference between operating in the black and running in the red. The big challenge that companies must address is how to balance so many competing priorities while ensuring a safe work environment: Changing customer demands; rapidly transformative technologies; needs for increased operational efficiencies (better, faster, cheaper products); and increasingly stringent regulatory requirements. The first step is understanding not only what you have to lose, but what you stand to gain by implementing an SMS into your organization s DNA. According to the National Safety Council, $1 invested in an SMS returns anywhere between $2 and $6. This stems from direct and indirect costs, with savings of an additional $4 of indirect incident costs for every $1 in direct costs. These benefits are a result of management accountability, cultural safety impacts, and ultimately reduced workplace injuries and fatalities. Be a Leader Not a Laggard Most manufacturing companies will have some form of an SMS in place to help support long-term business goals. But in today s world, organizations can t proactively manage workplace safety without the help of a powerful safety management software solution. The true ROI of safety lies in shifting your SMS from a reactive operation that tracks lagging indicators to a proactive one that mitigates risk by leveraging leading indicators to stop incidents before they happen. Lagging Indicator Measure the end result of the OHS processes, policies, and procedures. A record of things that have already happened. Examples include OSHA recordable injuries and lost workdays. Leading Indicator Focus on future health and safety performance with the intent of continuous improvement. An indicator of what is being done ongoing to prevent worker illness and injury. Examples include safety training, risk assessments and safety audits. 3 of 11

4 Put simply, lagging indicators tell the story of what has already happened providing the appropriate statistics to demonstrate how well you are managing safety. Leading indicators will take your safety efforts beyond compliance and allow you to identify areas of improvement that ultimately lead to a reduction in incidents, workers compensation claims, and lost time. To be effective, the leading indicators you decide to track and measure should be clearly linked to your desired outcome. For example, if your objective is to reduce vehicle incident rates by 20%, you could perform root cause analysis on your incident and near-miss data, then implement and track the impact of training and behavior based safety programs that address these root causes. Who Really Uses SMS Software? The short answer Everyone. The following table describes some of the benefits that can be realized by using software to manage safety issues at manufacturing facilities, as described from the perspective of different roles in the safety organization: Safety Coordinator/Specialist Safety Manager Director/VP of Safety Single centralized tool to properly track and report on safety data, saving time and reducing errors caused by disparate systems Improve visibility of facility and department-level activities while increasing accuracy and timeliness of reports Improve visibility into activities across the entire organization to boost efficiency and reduce costs Shift from data entry to data analysis and focus on corrective actions related to near-misses Reduce departmental costs and shift from reactive to proactive corporate processes Significantly minimizes risk across the organization and protects against litigation and loss of employee morale Better equipped to address existing and emerging legislation: OHSAS 18001, ISO 45001, ISO Mitigate the probability of non-compliance or incidents at the plant and business unit level Ensure compliance with laws affecting global operations to minimize risk 4 of 11

5 It s important to understand the potential value a safety management software solution can yield for your organization in the short and long-term. This will help validate or disprove any assumptions regarding outcomes, and demonstrate the value of the software as it pertains to various stakeholders. Ultimately this creates a strong business case for why effective safety management software needs to be a top priority. SAFETY FIRST Intangible ROI A large part of this is driving user adoption to enforce a strong and trusted safety culture within your business. An effective vendor will provide you the tools to speak to the different stakeholders in your organization to establish trust and engagement at each level. An effective solution will clearly demonstrate value to stakeholders and reflect their own pain points and objectives, from end-users concerned with functional requirements, up to executive level management looking to reduce risks and increase profits. Clearly understanding how their role is touched by safety management software and evidently improved creates buy in, which results in adoption and fuels your safety culture. This is your intangible ROI and greatly contributes to the overall business objective of creating a safer, more efficient and compliant organization. Tangible ROI An approximate estimate of ROI for safety management software can be determined by evaluating direct and indirect savings opportunities, and incorporating those values into a final calculation. In this section we will outline key inputs in calculating the ROI of a safety management solution for manufacturing companies. 1. Data Collection & Reporting It s not uncommon among companies that rely on a spreadsheet-based safety management approach for safety managers/coordinators to spend a significant portion of their time (30 to 40 per cent) manipulating spreadsheet data: pushing and pulling data to and from spreadsheets, other software, and data sinks. The time spent on these tasks could be spent much more effectively on the floor, observing processes and proactively seeking opportunities to create a safer work environment. This approach is further compounded when adding near-misses, the cornerstone of a good SMS. In many organizations near-misses are being done ad hoc, if they are considered at all, and are a significant opportunity for savings if managed more efficiently. 5 of 11

6 If we refer to the well-known ConocoPhillips Marine Safety Pyramid, we know that when near-misses < reportable incidents, this signifies a breakdown in a company s safety paradigm. On average, every fatality can be associated with at least 300,000 at-risk behaviours. By effectively tracking near-misses these behaviors can be reduced/eliminated, resulting in fewer fatalities and worker s compensation claims. Smurfit Kappa Group was able to reduce the accident frequency rate from 1.90 per annum to 0.83 and improve near-miss reporting by 64% using Intelex. Key benefits of the software included: saved time and resources; standardized processes and centralized data; improved accuracy and quantity of data; and improved business performance while reducing costs. A comprehensive software solution can entirely eliminate the silos of data created by unintegrated, disparate software systems and enable safety personnel to focus on more valued-added activities. For example, safety management software should effectively send out notifications to Safety Managers or Full Time Employees (FTEs) to alert them when a corrective action has not been completed a significant issue in many organizations as unfortunately these often fall between the cracks. Table 1 illustrates the potential savings realized by reducing/eliminating the amount of time safety personnel spends manipulating data through spreadsheets. Company Size/Sites Employees H&S Staff Annual Savings Small (3 sites) $25,200 Sandy Smith, Editor of EHS Today Medium (8 sites) 1, $86,400 Large (48 sites) 5, $360,000 For the purposes of this table, the following assumptions were used: i. Assuming an average annual salary of a Safety Manager/Coordinator is approximately $60,000. ii. That the time savings through the implementation of a safety management software solution accounts for 30 per cent of the time invested in professional responsibilities by a safety manager or FTE. 6 of 11

7 Note: In Table 1, the number of safety managers and coordinators is considered a surrogate for the overall number of personnel involved in safety matters. Examples of key activities by nonsafety staff include reporting on incidences information and investigating and/or following up on corrective actions related to incidences. Pace Industries has seen a significant shift in safety personnel s time from inputting data into excel spreadsheets/ generating reports to assessing the appropriate corrective actions using Intelex software. The end result was a 62% reduction in the OSHA Recordable Rate, a 75% reduction in Days Away, Restrictions and Transfers (DART) Rate, and an 85% reduction in the incident Severity Rate from 2012 to Lost Time Injury By ensuring that near-misses/reportable incidents are properly documented and corrective actions are taken, many companies have demonstrated clear reductions (20% - 60%) in both lost time and alternative work. These results will depend on the current state of your organization s SMS for example if your company is currently not tracking near-misses and associated corrective actions at all, the reduction will be on the higher end. This can be calculated by taking the average value for lost time over the last two years and multiplying by the anticipated reduction. Smurfit Kappa Group was able to achieve a 58% reduction in Lost Time Injuries (LTIs) using Intelex. As indicated above, a significant reason for this reduction was related to a focus on near-misses which resulted in a reduction of OSHA recordable by 62%. 7 of 11

8 Table 2 illustrates the potential savings realized by reducing LTI across the organization. Company Size/Sites Number LTI Annual Savings Small (3 sites) 10 $1,364 Medium (8 sites) 400 $54,545 Large (48 sites) 916 $124,909 For the purposes of this table, the following values are assumed: i. Assuming an average, fully loaded annual salary of a Safety Manager/Coordinator is approximately $60,000 and works approximately 220 days/year (conservative value). ii. Administration costs associated with LTI associated with a lost time is equal to 25% of the employee s salary. iii. That the implementation of a safety management software solution will reduce LT by 40%. Pace Industries lost days were reduced by 1,161 days from 2012 to 2015 following the implementation of Intelex solution. As indicated above, a primary reason for the reduction was shift in Safety personnel s time to prevention versus data collection. 3. Workers Compensation Premiums In the U.S., Workers Compensation premiums are typically determined by multiplying the base premium (determined by the prevalence of injuries within a particular industry) by the Experience Modification Rating (EMR) (determined by the company s individual history of injury incidents). If the company s current EMR is >1.0 there is significant room for improvement and savings on premiums. EMR Classifications Excellent Good Average to At Risk At Risk to Adverse Projections of 11

9 In Canada Workers Compensation premiums are set by provincial agencies, e.g., WorkSafeBC. Typically the agency will compare the organization s costs to see if they are above or below the average for a particular rate group - typically referred to as Experience Rating (ER). If costs are lower than average, the company will receive a discount on premiums and if higher, they will pay a surcharge. Note that an EMR over 1.0 may actually hinder a company s ability to bid on certain projects unless an explanation of why the rating is so high and what steps are being taken to lower the value is provided. It is possible for an organization to modify its EMR/ER by implementing a robust health and safety program that reduces the number of injuries within the company. Proactive measures developed through the analysis of data provide indications of why, where and how accidents occur the sort of data captured and expressed by safety management software. In 2002 Pace Industry s Group Recordable Rate for OSHA was 12.6, which meant a lot of employees were getting hurt. That same year their die casting sector was listed, was listed in the top 10 industries on OSHA s watch list for safety, and aluminum die casting was listed in fifth place on the Bureau of Labor Statistics highest incidence rates of total nonfatal occupational injury and illness cases in private industry, with a rate of By implementing a proactive safety management system and leveraging Intelex software, Pace Industries Worker s Compensation Dollars were reduced by $1.2 USM from 2012 to Table 3 provides examples of potential impact of EMR ratings on companywide savings. Company Size/Sites Employees WC Premiums Current EMR Value WMS Post SMS WC Premium Savings Small (3 sites) 350 $280, $112,000 Medium (8 sites) 1,200 $1,056, $316,800 Large (48 sites) 5,000 $5,600, $1,120,000 Since the savings expressed in the table would be achieved year over year, it is clear the initial software costs and maintenance costs would be returned in their entirety over a three-year period. 9 of 11

10 4. Avoid or reduce government inspections and enforcement activities Types of violations that may be cited and the penalties that OSHA may propose: (1) Serious Violation - $1,500 to $7,000 depending on the gravity of the violation. Other-Than-Serious Violation - $0 to $1,000 for each violation. Willful Violation - $5,000 to $70,000 for each willful violation. An employer who is convicted in a criminal proceeding of a willful violation of a standard that has resulted in the death of an employee may be fined up to $250,000 (or $500,000 if the employer is a corporation) or imprisoned up to 6 months, or both. A second conviction doubles the possible term of imprisonment.(3) Repeated Violation - Up to $70,000 for each violation within the previous 3 years. Failure-to-Abate - Failure to correct a prior violation may bring a civil penalty of up to $7,000 for each day that the violation continues beyond the prescribed abatement date. Note: OSHA Penalties are scheduled to increase for the first time in 25 years in August 2016 by as much as 80%. For your organization s ROI you will need to enter either historical or best estimate data of potential fines, taking into account any legal counsel costs if pertinent to the particular violation. Similar to Lost Time, a factor would then be applied to account for the reduction in these costs following the implementation of a robust software solution typically a function of the type of fines (administrative non-compliance versus accident) and severity. As indicated above, a robust SMS that focuses on ensuring corrective action for near-misses will substantially reduce the number of reportable incidents and fatalities. Quick access to enforcement activity and potential fines Summary of Savings The following table summarizes the savings discussed above (excludes government fines/enforcement and brand damage) and may be conservative, i.e., underestimates the actual savings. Company Size/Sites Employees H&S Staff Number LTI WC Premiums Total Savings Small (3 sites) ,000 $138,564 Medium (8 sites) 1, ,056,000 $457,745 Large (48 sites) 5, ,600,000 $1,604, of 11

11 Budgeting for your SMS Software CAPEX vs OPEX It s important to decide early on in the process which financial model will be used to purchase new safety management software: capital expenditure or operating expenditure budget. These budgets don t overlap and are for distinctly different spending categories with potentially unique criteria and approval hierarchies in place. There has been a notable shift in technology s purchasing landscape over the last several years, and this shift is especially evident in software. Software as a Service (SaaS) offers new purchasing options beyond the traditional perpetual software licensing model. Rather than perpetual ownership, the SaaS model utilizes your business s operating budget and is included as part of your company s profits and losses. Manufacturing organizations have a great deal of fixed capital assets from manufacturing plants and the land they are built on, to machinery and equipment used in the production of their products. Safety management software is one aspect of their business they can easily transition to an operating expense to maintain a leaner balance sheet and preserve cash flow. Understanding the Benefits of SaaS: Lower up-front cost of SaaS makes securing budget significantly easier SaaS license fees are an operational budget expense which often times is more flexible SaaS infrastructure investment is on the provider for hosting servers and in-house administration Pay-as-you-go means support and upgrades are included, so your business will always have the most up-to-date, modern technology at their fingertips Conclusion Safety Management is inevitable in manufacturing, but rather than going through the motions when it comes to safety, make it work for you not against you. By understanding how to successfully leverage your SMS with the help of effective safety management software, you hold the key to unlocking countless opportunities for increased efficiency, improved processes, and safer workplaces that at the end of the day put money back in your pocket. Contact Intelex Today If you d like to have a conversation with an Intelex Account Executive about how you can demonstrate the value of safety software to your greater organization, please reach out to us at intelex@intelex.com. Or find out what our software solutions for EHS and quality management look like in action! REQUEST A DEMO intelex.com 11 of 11