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Business aspects of OSH

Improvement of health and safety at work is important not only in human terms, to reduce workers’ pain and suffering, but also as a way of ensuring that enterprises are successful and sustainable, and that economies thrive in the long term.

Every year, 4.9 million accidents result in more than 3 days’ absence from work. The cost of accidents at work and occupational illness ranges for most countries from 2.6 to 3.8% of Gross National Product (GNP). It costs individual businesses, as well as national economies.

National economies and individual businesses with better standards of occupational safety and health (OSH), meanwhile, tend to be more successful.

Good safety and health is good business.

Whatever your particular area of interest or industry sector, you will find here information and advice to help you understand the business case for good safety and health – how it relates to economic performance, and why good OSH is worth investing in.



Why is a good working environment good for business?

Accidents at work and occupational injuries represent a considerable economic burden for individuals, employers and to society as a whole. For small companies in particular, accidents can have a major financial impact. Some of these costs, such as lost workdays or lost income, are obvious and can be expressed readily in monetary terms. However, many of the economic consequences of accidents are hidden to some extent, or cannot be easily quantified.

It is not only this range of costs that enterprises must be aware of, but also the added benefits that proper management of safety and health bring. Studies have clearly shown that an efficient and integrated management of occupational safety and health is closely related to business excellence and profitability.

What benefits can good safety and health bring?

  • Healthy workers are more productive and can produce at a higher quality;
  • Fewer work-related accidents and diseases lead to less absence. In turn, this results in lower costs and less disruption of the production processes;
  • Equipment and a working environment that are optimised to the needs of the working process and that are well-maintained lead to higher productivity, better quality and less health and safety risks;
  • Reduction of injuries and illnesses means less damages and lower risks for liabilities.

Benefits for Large Enterprises

Good OSH helps to differentiate the best performing enterprises from the rest.

Improving OSH in large enterprises requires a careful analysis of the environmental, organisational and job factors, and human and individual characteristics which influence behaviour at work. Practical examples include:

  • Re-design of plant layout and workstations resulting in higher productivity and lower OSH risks such as musculoskeletal disorders
  • Implementing preventive health screening and health surveillance programmes
  • Improving job design and work life balance to minimise OSH risk and improve motivation of workforce.

In terms of staff motivation, what works is:

  • Senior executives demonstrating clear and consistent leadership
  • Working conditions that are safe and healthy and that stay that way
  • Employees who are confident and competent in the work they do
  • Effective OSH policies and systems that are shown to be used and work
  • Employees who are fully involved in OSH decision-making
  • Individuals, teams and organisations being recognised and rewarded for their successes.

The precise approach will depend on the nature and complexity of the organisation.

Above all, good OSH is about managing risk. If you prevent and control OSH risks effectively many of the business benefits of good OSH will follow. Doing nothing is not an option. Taking action could prove seriously beneficial to your business, your profits and your profile.

Benefits for Small and Medium-sized Enterprises

Good OSH can play a major role in helping small enterprises maintain and enhance their business performance.

Small enterprises have the most to lose through poor OSH standards, but they also have the most to gain.

There are 23 million small and medium-sized enterprises (SMEs) in the EU, employing over 100 million people . However, SMEs record an over-proportional 82% of all occupational injuries, rising to about 90% for fatal accidents .

60% of companies experiencing a disruption lasting more than 9 days go out of business .

Increasingly too, good OSH is essential in winning new business.

Clients in every sector are expecting ever-higher OSH standards of the enterprises they interact with. This is due to the higher priority they are giving to their own OSH performance and reporting.

OSH performance standards are increasingly being written into public and private sector contracts. Selection and appointment of enterprises is increasingly dependent on OSH performance.

Small enterprises can expect the following to be written either explicitly into their contracts, and to be routinely assessed and monitored:

  • Evidence of effective OSH policies and procedures
  • Routine risk assessment and risk control programmes
  • Details of recent or impending OSH prosecutions and related OSH enforcement actions
  • Statistical breakdown on all relevant OSH related accidents and incidents
  • Details on any current or impending OSH-related claims.


This is now regarded as the basic information that many clients are requesting: increasingly we are seeing more comprehensive evidence of OSH performance being demanded.

Insurance and OSH

Insurance (often called workers’ compensation) can play a major role in improving OSH, alongside regulation and other incentives.

On the one hand, the cost of workers’ compensation is very significant, constituting a real financial consideration for insurers. On the other, insurers can promote and assist with OSH improvements in enterprises.

Insurance costs can be very significant, depending on the type of business.

Insurance systems differ greatly between Member States. But by providing financial incentives and assistance to enterprises, insurers throughout the EU can contain or even reduce the number, severity and cost of claims, and reduce their risk of the cost of claims exceeding premiums charged to enterprises.

Depending on the national insurance system, enterprises often have their premiums linked to the number and cost of claims, and so improving their OSH directly helps to reduce insurance costs.

Furthermore in some Member States a number of schemes have been developed that involve offering discounts to enterprises that conduct specified OSH activities, such as investment in safer machinery or training. This promotes actual prevention activity by enterprises, rather than merely looking only at results in terms of accident figures.

These more innovative incentive models should especially motivate SMEs to a greater extend as they create a clearer link between OSH investment and economic return. For more information see the Agency Forum publication “Effectiveness of economic incentives to improve occupational safety and health” .

Health and safety assessment schemes are also being developed that provide a ‘proxy’ measure of health and safety performance. Self-assessment tools are specifically designed to give businesses an idea of their OSH performance, and have a positive impact on insurance claims and in addition to improving the OSH reputation of the business.

Rehabilitation and return-to-work schemes are also things that insurers provide incentives for, since they help to improve the long-term health and well-being of workers and reduce the cost of workers’ compensation.

Investors and OSH

Investors and investment managers have traditionally analysed risk using financial criteria. But there is a growing recognition of the importance of non-financial criteria in affecting the value of a company, and these are increasingly being taken into account by investors in making their decisions.

The assessment of Occupational Safety and Health plays an important role in ensuring that the risks in a business are properly understood and managed, as part of a strategy for maximising shareholder value.

Studies show that those enterprises with the best OSH performance also achieve significantly better economic results than the average stock market . Quality of work was found to be one of the strongest predictors of economic success and the best companies in this regard consistently outperform major stock indices over various periods of time .

The European Socially Responsible Investment (SRI) market is now valued at over €1 trillion.

Benefits of good OSH in construction and infrastructure procurement

Businesses in the construction and infrastructure procurement sector, in particular, can see their economic performance improve significantly with good OSH.

Every construction project needs to deliver on time, with the right quality and to budget, while also avoiding accidents and ill health. Good OSH can help deliver both.

Figures show that the construction sector accounts for significantly more work-related accidents than other sectors. The EU construction industry is estimated to be worth €902 billion a year, and with accident and ill-health costs in the sector totalling 8.5% of project costs, that means that poor OSH standards in construction could be costing over €75 billion each year – nearly €200 for each member of the population.

Because of this, there is growing recognition among leading public and private sector clients of the OSH benefits for infrastructure and other major projects, and they are taking on a greater role and responsibility for setting the OSH standards for major projects.

The benefits of good OSH in construction include quicker and more cost effective completion of projects, higher profit margins, and greater likelihood of becoming the preferred supplier of choice.

But the benefits can only be achieved if clients are prepared to take a lead by taking ownership of the project in terms of OSH standards, and working in partnership with all contracting parties. Clients set the objectives; they control the resources and ultimately clients set the OSH performance standards for the project.

Public bodies have an especially high responsibility in this area, since they can influence the market very strongly through their enormous purchasing power. They are in a position to provide an example of best practice of inclusion of OSH standards in the procurement of public projects.

National economies and OSH

For governments, their regulators and agencies it is important to improve occupational health and safety. By doing so, they reduce the cost to society arising from injury and illness, whilst at the same time improving competitiveness and national efficiency.

Countries with less developed OSH systems spend a far higher percentage of GDP on work-related injury and illness – taking resources away from more productive activities.

Many Member States therefore aim to promote improved occupational safety and health as part of national strategies to improve their national economies. As many of the costs of poor health and safety are hidden or borne by society rather than enterprises, there is widespread interest in encouraging enterprises to improve OSH through incentives.

Good OSH affects national competitiveness and productivity by:

  • Increasing the availability of labour and labour force participation – by reducing the number of people who retire early or are unavailable for work due to work-related injury and illness
  • Reducing the social costs of injury and illness – a smaller proportion of GDP is spent on healthcare for people unable to work
  • Increasing the number of hours that people are able to work, partly by reducing the number of people having to leave work to care for family members
  • Increasing the ability of older workers to remain in employment
  • Improving productivity, by stimulating more efficient working methods and technologies.


OSH will have a particularly important role to play, with the European population ageing. With more older people needing to stay in work, catering for their OSH requirements is a key factor. This can include making the job fit the person rather than the person fit the job, through workplace modifications such as providing less physically demanding work and flexible working hours, and provision of ergonomically suitable equipment and work spaces.

For Government agencies and other bodies aiming to communicate the ‘business case’ to enterprises, our Report “ Health and Safety – Campaigning ” - covers the basic principles you need to bear in mind when running a publicity campaign, whether at European, national or workplace level.

A good working environment is good business

 

graphic

Figure: Economic effects of safety and health at company level. (see more at http://osha.europa.eu/publications/reports/207/ )

It might be, however, difficult to convince employers and decision-makers of the profitability of improving working conditions. Often an effective way is to make financial or economic estimations. Although making calculations or making an analysis of costs and future benefits need not be complicated, many safety and health professionals are put off by the potential difficulties. Indeed, some elements in economic appraisal, like the value of health or human life, can sometimes be complicated. However, the basic principles are quite straightforward and can easily be performed by safety and health professionals and managers.

 

It is necessary to study the economic effects of health and safety policy at company level in order to be able to:

  • take a balanced decision with regard to the allocation of company resources;
  • bridge the gap between health and safety needs and management requirements and desires;
  • take account of legal requirements.

We should remember that the economic approach to health and safety at company level cannot replace the value of the human requirements and social obligations. Health and safety is part of the social and ethical role of a company and policy cannot only be based on economical parameters alone. It is difficult or even impossible to quantify qualitative costs such as suffering, reduction of the quality of life, family problems, decrease of life span time, etc. in monetary terms.

EU strategy

The European Commission has published a Communication on the EU Strategy, "Adapting to change in work and society: a new Community strategy on health and safety at work 2002-2006". This document states that it is necessary to set up initiatives to ‘Develop knowledge of, and follow-up to, the “cost of non-quality”, i.e. the economic and social costs arising from occupational accidents and illnesses. The Commission will, in conjunction with the Bilbao Agency, instigate work on collecting data and other information with a view to improving the fund of knowledge on this subject.’ Furthermore, the Commission indicates ‘that a safe and healthy working environment and working organisation are performance factors for the economy and for companies.’ 

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