Return on Safety Continued from page 37 an active role by leadership in safety and health positively impact injury rates. A leadership team that invests time and money in building a culture that values safety, learning and trust will see improvements in productivity, morale, reten- tion and the bottom line, as they empower workers to tap into the discretionary behavior that builds organizational resilience. Closing the loop on safety’s link to attracting more qualified employees, businesses with high employee engagement see nearly 100 percent more job applications. Many organizations have successfully integrated cultural markers into their hiring practices—in a sense building culture both organically and through targeted employment. DECISION-MAKERS ACROSS SEVERAL INDUSTRIES REPORTED AN AVERAGE PERCEIVED RATE OF RETURN OF $4.41 FOR EVERY DOLLAR SPENT ON SAFETY WINNING BUSINESS In industries like construction, engineering, shipping and over-the-road transportation, it is very common to see safety as an evaluation point that impacts an organization’s success in winning bids. In aviation, this is more prevalent at air- ports and when contracting with Part 121 air carriers, though the practice is gaining momentum more broadly in general aviation. Nearly every major safety or quality standard today asks an operator to consider the safety performance of companies it contracts with or for, and many requests for proposals are now asking for indicators—such as the workers compensation experience modifier, injury rates and evidence of a fully-functional safety management system. Not only does a poor safety record—and culture—make it more difficult to bid competitively because of increased overhead, but also it highlights inefficiencies to the con- tracting company that may elect to work with a competitor with more mature safety systems and the results to show it. For companies that understand the complex dependencies that arise when working with contracted ground handlers, flight departments or maintenance facilities, ensuring that vendors take the necessary precautions to avoid business Aviation Business Journal | 1st Quarter 2018 interruption because of a failure to understand risk and act appropriately is as important as managing safety internally. SAFETY ROI Your results are likely unique; but it’s worth knowing that, in a 2009 study by Huang, et al., decision-makers across several industries reported an average perceived rate of return of $4.41 for every dollar spent on safety. Other research, combined with case studies, reports even more encouraging figures, with over 60 percent of surveyed CFOs stating that productivity was the greatest benefit of investing in safety management. Decades of research show that the ratio of indirect costs to direct costs related to injuries varies from 2.73 to 1 to as much as 17 to 1, depending on injury and industry. So, we know that the alternative to thought- ful, comprehensive safety efforts is a tremendous cost to the business. What remains difficult to capture with certainty are things like the financial benefit of stronger leadership engagement. Returning to the more readily quantified reduction in incidents, ergonomics programs as part of a broader SMS reduce incidents by 51.6 percent, with train- ing, observation and feedback systems offering reductions of 38.6 percent, and committees, and facility and process focus and redesign each averaging 20 percent incident reduc- tions. Research specific to the construction industry showed consistent returns on SMS implementation of approximately 46 percent. As much as safety integration is driven by ele- ments of good corporate citizenship and a desire to support and care for employees and customers, resources remain limited; and, looking to tools such as ROI as a means of dif- ferentiating among possible safety solutions offers a struc- tured approach to a problem that may otherwise fall victim to flawed perceptions or, worse yet, never be fully validated for performance as safety assurance principles suggest. CALCULATING ROI Mathematically, the concept of ROI is fairly simple. It’s an exercise that can be completed without specialized software or financial background. Fundamentally, ROI looks at the ratio between investment and returns as a simple fraction: ROI= (Returns x probability of Success) - Costs Costs Of course, there are other modifiers that can be added to the formula, but the only one we’ve included 37
