2004 arthur j. gallagher & co. safety executives of new york “business of safety” by james...

2004 Arthur J. Gallagher & Co.

Safety Executives of New York

“Business of Safety”by

James D. Smith, M.S., CSP

Director, Risk Control Services

Arthur J. Gallagher – Florida (Boca Raton/Miami)

ASSE Board of Directors - Vice President

“Business of Safety”by

James D. Smith, M.S., CSP

Director, Risk Control Services

Arthur J. Gallagher – Florida (Boca Raton/Miami)

ASSE Board of Directors - Vice President


SENY – The Gang?


Objective of Presentation

Share Concepts/Purpose in Determining Value of Safety

Discuss Client’s Management Perspective

Share ASSE Business of Safety Committees Materials

Discuss Measuring Safety Performance (Metrics)


CEO’s Value of Safety Professionals - 1987


1987 CEO Survey of Safety Programs

60% indicated Safety Program contributes to the “bottom line” 22% indicated Safety Program “pays for itself” 10% indicated Safety Program “minor expense” 5% indicated Safety Program is “major expenses” 3% No response

Other Information: 36% of CEO’s have personal involvement in the Safety Program 56% of CEO’s keep track of the Safety Program


Liberty Mutual Group Executive Study

A Majority Of U.S. Businesses Report Workplace Safety Delivers A Return On Investment

Liberty Mutual Survey Shows 61 Percent of Executives Save $3 or More for Each $1 Invested in Workplace Safety

BOSTON - Ninety-five percent of business executives report that workplace safety has a positive impact on a company's financial performance, according to the findings of The Executive Survey of Workplace Safety announced today by the Liberty Mutual Group, the nation's leading provider of workers compensation insurance. Of these executives, 61 percent believe their companies receive a return on investment of $3 or more for each $1 they invest in improving workplace safety The survey also reveals executives realize the benefits of workplace safety go beyond the company's bottom-line, with 70 percent reporting that protecting employees is a leading benefit of workplace safety. The survey also helps shed light on the impact two types of costs associated with workplace accidents are having on U.S. businesses: Direct costs, or payments to injured employees and their medical care providers, and Indirect costs, such as lost productivity, overtime costs, etc. Ninety-three percent of executives surveyed see a relationship between these costs, with 40 percent of them reporting $1 of direct cost generates between $3 and $5 of indirect costs.


MANAGER’S MOTIVATIONAL SCALE*

Improve Operation Cost Improve Production Rates Improve Quality

Improve Customer Relations Improve Labor Relations Improve Worker Morale

Reduce Injury Rates Legislative Compliance Reduce Liability Potential

EXCELLENT

GOOD

FAIR

* Frank Bird ‘Loss Control Manual “


Suggestive Methods of Showing Value

“Corporate Organizations and Cultures are Unique”“Corporate Organizations and Cultures are Unique”


What is your Organizations Loss Drivers?

Construction

Healthcare

Manufacturing

Pharmaceutical

Public Sector

Services

Transportation


Financial Reality Checks

Injuries/Claims Impact Production/Project Schedules

Injuries/Claims Impact Operating Expenses

Injuries/Claims Impact Experience Modification Rates

Injuries/Claims Impact Hard Cost

Injuries/Claims have Soft Cost (Indirect)

• Intangibles – Turnover Rates or Recruitment

• Intangibles – Public Reputation

How do we capture the “Cost” and make a Business Case?


Where are your Opportunities?

Cost or Loss Reductions in Production/Operating Cost

Cost or Loss Reductions Strategies in the Cost of Risk/Insurance Program

Measuring Contributions to Financial Performance/Growth (Annual 10k Reports)

Production or Service Increases/Decreases

Public Reputation


Current Management Realities

Corporate Governances

• Sarbanes-Oxley

• Transparency

• Code of Ethics

Stockholder Demands for Return of Investment

• Operation Cost

• Income Growth

Production, Quality and Profits = Economic Survival

Competitive Advantages


Audience to Consider – Finance Executives

Senior Finance Executives are clear on financial goals/desired outcome Senior Finance Executives have unique Financial Terminologies

• Cost/Benefits Analysis

• Return of Investments

• Equivalent Uniform Annual Cost (Outflows/Inflows)

Senior Finance Executives have common characteristics:

• Performance Driven (financial targets – variations)

• Growth Oriented (Budget is outcome of growth)

• Execution Mentality (Track Relentlessly)

• Metrics/Measurements (Earning per share, gross margin top line & net income, RevPar)

“How does your Safety Management System fit into these Financial Goals?”


Program Characteristics

Corporate Governance

• Mission/Vision

• Ethics

• Public Reputation

Positive Organizational Culture (Safety Climate)

Safety Management System

Capture Safety Performance (Metrics)

Disclose the results in Financial Terms and Conditions

Management Plan for Continuous Improvement

Program Flexible to Respond to Current Events (Unplanned)

My View on Showing Value….My View on Showing Value….


Current Events

Los Angeles

Cherokee Chemical Co. Inc., of Los Angeles, has agreed to pay the U.S. Environmental Protection Agency $53,749 for failing to submit toxic chemical release forms, a violation of the Emergency Planning and Community Right-to-Know Act.

Can They Have a Business Impact?Can They Have a Business Impact?


Current Events – Can they have a Business Impact?

New York Times, February 15, 2005

Wheeling-Pittsburgh Says Accident Will Lower Earnings The Wheeling Pittsburgh Steel Corporation said yesterday that it expected to take a $23 million hit to its fourth-quarter earnings because of an accident that shut down a furnace for 12 days in December. Company official did not immediately say how much profit they would report when results are released on March 15, but net income was like to be a fraction of the $35.6 million Wheeling-Pittsburgh made in the third quarter of 2004.



Current Events – Can they have a Business Impact?

Production fell by 10,000 tons after ductwork and equipment collapsed

December 9th in Mingo Junction, Ohio, damaging electrical lines and injuring two workers, the Chief Executive, James G. Bradley, said. First-quarter shipments this year will also suffer with a likely drop of about 85,000 tons, he said in a statement.



Insurance Cost


Florida Hurricane Prevention Plan


Clients Interest – Cost of Risk

Premium Cost

• Property is based on rate on $100 total insurable value

• Liability is based on $1,000 of revenue

• Workers’ Compensation based on $100 of payroll

Loss Sensitive Programs

• Self-Insured Retention Layers

• Retro-Programs

Availability of Insurance


Why a Safety Program Struggles?

Organizational Culture

Organizational Culture

Best Management Practices

Best Management Practices


What is a Safety Management System?

A Safety Management System is a business process intended to assist Management in controlling losses associated with workers’ compensation, general liability, property and automobile liability claims.

This business process consists of various program elements that will attempt to influence a positive organizational culture in how management/employees view and tolerate on-the-job injuries, risk exposures and various types of claims


OSMSS Z10 Standard Model Figure 1 The OHSMS Model

Plan

Do

Check

continual improvement

4.0 PolicyMgmt ldr & E. Participlation

7.0 Checking & Corrective

Action

6.0 Implementation &

Operation

5.0 Planning8.0 Mgmt Review

employee H&Sproductivitysatisfactionimage

hazardrisksincidentscomp costlost time

Act


Measuring Safety Performance


Traditional Views Contributing Bottom Line

Regulatory Compliance Penalties

Insurance Cost – Experience Modification Rates (EMR)

Lost Work Day Cases Incident Rates

Recordable Cases Incident Rates


Common Management Performance Tools

Industry Comparisons Trailing Indicators

• Incident Rates

Benchmarking

Cost – Benefit Analysis (Project Specific)

Safety Metrics

• Leading Indicators


Using Metrics to Measure Safety Performance

Activity Based – Measures Processes

Processes are in Control of Individual or Team

Measure Employee-Level of Involvement


Management Process Controls – Safety Metrics

Site Specific Best Practices Supervisors/Lead Staff

• Pre-Job Safety Meetings with Work Crews Management Work Practice Observation (Time Intervals) Accident Investigation – Accident Reporting Self-Inspection Program Employee Suggestion/Feedback Recognition Program Communication Network Claims Experience (Outcome Data)


BP Key Performance Indicators Sample


Common Management Performance Tools

Claims Cost Comparisons

Department Loss Driver Comparisons

Cost Allocations – Performance Bonus

Corporate – 10K Annual Reports

Continuous Improvement

• Project Team Wrap-Up Assessments


Claims Cost - Sample

$4,125,423

$4,529,714

$6,648,694

$5,658,693

$3,152,986

$4,155,636

$3,048,874

$5,048,935

$2,419,038

$5,713,768

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

1999-00 2000-01 2001-02 2002-03 2003-04

Undeveloped Developed

Total Incurred Cost of Workers’ Compensation Claims1999-2004 (5 years)

Total Incurred Cost of Workers’ Compensation Claims1999-2004 (5 years)


ASSE BoSc Resources


ASSE Business Safety Committee

Research Data Collection post on Web Site Conducting Research Opportunities Web Site Data:

• 1987 ASSE CEO Study

• White Paper Annual 10K Report Findings

• Interviews with Key Executive Management

• ORC – Return of Investment Findings

• BP Safety Metrics

• OSHA VPP


ASSE Return on Investment White Paper

OSHA Office of Regulatory Analysis (20% Reduction in injury and illnesses and return of $4-$6 for every dollar invested)

OSHA Benefits in Partnering in VPP – 2001

• Mobil Oil Company Plastics Production Plant (WC cost cut 70%, LWDC Incident Rates declined 32%)

• Occidental Chemical Company (73% decline in incident rates)

• Kerr-McKee Chemical Plant (injuries decline, Production all time – increased 35%)

Measuring ROI, Jervis/Collins noted in Forbes 1999 Corporate Financial Ranking, among those listed, 10 of the most successful businesses were in the OSHA VPP program.


Questions

2004 arthur j. gallagher & co. safety executives of new york “business of safety” by james...

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