How much is enough?MBA KZN – MAY 18, 2016

WHY?

Sustainability

CompliancePlanningAvoids fines

Keeps firm around longer

Better decisions

The higher the investment in H&S, the better the H&S performance

COST OF H&S MODEL

INVE

STM

ENT

IN H

&S CO

ST OF IN

JURIES

CONSIDERATIONS• Perception of risk often influenced by time and economic constraints

• Spending on H&S perceived not to improve production

• Contractors prioritise production criteria, regarding resources dedicated to occupational safety as expenditures that have nothing to do with production aims of organization – costs rather than an investment

(Fernández-Muñiz, Montes-Peón and Vázquez-Ordás, 2009)

HOW MUCH?• True costs of construction injuries may increase overall construction

costs by as much as 15% (Everett & Frank 1996)

• There is business case to invest in accident prevention

• Minimum H&S investment should be about 0.80% of contract sum (Tang 2004)

• Between 1% and 10% of project cost has been suggested (Hinze, 2006)

Benefits of H&S

Investment

• What gets measured gets managed! Peter Drucker

• What gets managed gets done!

• You cannot improve what you do not measure!

DECISION-MAKING

• Guides behavior proactively• Reduces administrative effort

RIGHTINFORMATION

TO RIGHTPEOPLE

AT RIGHTTIME

EFFECTIVEDECISIONS

What should be measured and how?

COMPLIANCEDuties of client5.1 (g) • Ensure that the potential principal contractors submitting tenders

have made adequate provision for the cost of health and safety measures

5.1 (h) • Ensure that the principal contractor to be appointed has the

necessary competencies and resources to carry out the work safely

COMPLIANCEDuties of principal contractor and contractor7.1 (c) (ii)• Ensure that potential contractors submitting tenders have made

sufficient provision for health and safety measures during the construction process

7.1 (c) (iii)• Ensure that no contractor is appointed to perform construction work

… has the necessary competencies and resources to perform the work safely

COMPLIANCE

Duties of principal contractor and contractor7.2 (c) … be reasonably satisfied that the contractor that he or she intends to appoint has the necessary competencies and resources to perform the work safely

Some form of judgement call must be made

So how much is enough?

What do we measure?

How do we measure it?

COST TYPES

Other studies show different ratios

DIRECT COSTS

• Sometimes referred to as ‘obvious’ costs• Also as ‘insured’ costs• Normally reimbursed• Can be extracted from the mandatory legislative and

regulatory compliance requirements

EXAMPLES OF DIRECT COSTS

• Medical expenses• Wages• Repair or replacement costs• Health and safety appointments• Health and safety meetings• Signage• Training• WC and insurance premiums• Induction program

• Health and safety plan• Health and safety file• Health and safety audits• Fitness for work certificates• Health and safety inspections• SWPs or SWOPs• Health and safety equipment• PPE

INDIRECT COSTS• Sometimes referred to as ‘hidden’ costs• ‘Not obvious’ costs• ‘Uninsured’ costs• Normally not recovered• Have to be extracted from historical records which may not

be detailed• Usually only after something has gone wrong!

EXAMPLES OF INDIRECT COSTS

• Injured workers lost time• Lost supervisory time• Co-workers’ lost time• Damaged equipment, plant and

tools• Overtime costs• Loss of expertise• additional medical costs• damage to property • idle plant and equipment

• Recruitment cost• Training of replacement/learning

curve• Legal costs• Delays and disruptions• Community costs• Loss of reputation and goodwill• Fines• Costs of investigation• Waste

COST ACCOUNTING RELATIONSHIP

Indirect costs difficult to measure

Direct costs easily quantifiable

Cost of compliance (Cc)= direct costs (Cd)

Cost of prevention (Cp) = Cd + indirect costs (Ci)

If, Cp = Cc + Ci

then Cp > Cc

So how much is enough?

If direct cost is known can total cost be projected?

A STUDY

• Cost data extracted from accident reports of selection of 100 construction accidents in organization with major annual construction spend

TYPES OF ACCIDENTS INCLUDING FATALITIES

Nature of Accident Fatalities % Accidents %

Burn 0 0% 2 2%

Cut/Caught 0 0% 17 17%

Electrical 6 43% 18 18%

Exertion/Ergonomics 0 0% 3 3%

Fall 6 43% 35 35%

Falling Object 0 0% 2 2%

Struck 2 14% 23 23%

Total 14 100% 100 100%

Analysed from both flash re

ports and

detailed corporate investigation re

ports

COST

S BY N

ATURE

OF ACC

IDEN

T

Nature of Incident

Qty

% Direct Cost

AverageDirect Cost(R’s)

% Indirect

Average Indirect

Cost (R’s)

Avg Total Cost(R’s)

Exertion/Ergonomics 3 34.62

  

11,033 65.38

  

20,833

  

31,867

Burn 2 29.98 20,550 70.02 48,000 68,550Falling Object 2 47.81

 39,300 52.19

 42,900

 82,200

Cut/Caught 17 33.33 9,612  66.67 19,224 28,835

Struck 23 29.78 55,957  70.22 131,974 187,930

Electrical 18 31.72 212,733  68.22 457,833 670,567

Fall 35 29.65 132,998 70.35 315,610 448,609

Nature of Incident

Exertion/Ergonomics (ee)

tcee dc + 1.9dc 2.9dc

Burn (b)tcb dc + 2.3dc 3.3dc

Falling Object (fo)tcfo dc + 1.1dc 2.1dc

Cut/Caught (cc)tccc dc + 2.0dc 3.0dc

Struck (sb)tcsb dc + 2.4dc 3.4dc

Electrical (el)tcel dc + 2.2dc 3.2dc

Fall (f)tcf dc + 2.4dc 3.4dc

Total costs of various types of

accidents

Non-fatal Accidents (nf)

tcnf dc + 1.6dc 2.6dc

Fatal Accidents (f)

tcf dc + 2.5dc 3.5dc

All Accidents (a)tca dc + 2.27dc 3.25dc

Direct Costs vs

Indirect Costs

Including Fatalities

Non-Fatal Fatalities

Direct Costs 30.59 38.92 28.70

Indirect Costs 69.41 61.08 71.30

Ratio of Direct to Indirect Costs

1:2.27 1:1.57 1:2.48

ANOTHER STUDY

• Pilot study to determine how much contractors allow for construction health and safety

• Cost has a role in reducing accidents and improving efficiency

REFERENCE TO H&SDOCUMENT 0 1 2 3 4 5 MEAN

SSM 23.8 33.3 14.3 19.0 0.0 9.5 1.67

JBCC 28.6 28.6 14.3 9.5 14.3 4.8 1.67

GCC 42.9 14.3 14.3 19.0 0.0 9.5 1.48

MODEL PREAMBLES 28.6 28.6 28.6 9.5 0.0 4.8 1.38

NEC 47.6 19.0 4.8 19.0 0.0 9.5 1.33

FIDIC 57.1 19.0 14.3 4.8 0.0 4.8 0.86

H&S NOT GIVEN PROMINENCE IN CONSTRUCTION CONTRACTS AND DOCUMENTS

PROVISION FOR H&SFORM OF PROVISION %

Provisional Sum – 2013/2014 < 10%

Provisional Sum – 2014/2015 ~ 20%

Detailed H&S Preliminaries – 2013/2014 > 10% < 20%

Detailed H&S Preliminaries – 2014/2015 > 20% < 30%

• PREFERENCE FOR DETAILED PRELIMINARIES• INCREASING NEED TO ALLOW FOR FINANCIAL

PROVISION FOR H&S

COSTING AND FINANCIAL PROVISION

• Detailed H&S section in Preliminaries section of Bills of Quantities• At least provisional sum in Preliminaries section of Bills of Quantities• Contract documents should promote H&S• Existing contract documents do not promote H&S• Contractors are not given opportunity to price items in H&S

specifications on equitable basis• H&S specifications did not include ‘design and construction’ method

statements

H&S CONTRIBUTION TO COST

LACK OF KNOWLEDGE OF INDUSTRY OF NECESSARY FINANCIAL PROVISION FOREFFECTIVE MANAGEMENT OF CONSTRUCTION H&S

COST UNSURE NO YES %Tender cost estimate 42.9% 23.8% 33.3% 5.9%Project cost 47.6% 23.8% 28.6% 10.9%

IMPORTANCE OF H&SPROJECT PARAMETER 0 1 2 3 4 5 MEAN

Project Quality 4.8 0.0 0.0 0.0 9.5 85.7 4.67

Project Cost 4.8 0.0 0.0 0.0 9.5 85.7 4.67

Project time (duration) 4.8 0.0 0.0 0.0 14.3 81.0 4.62

Project H&S 2.4 0.0 4.8 21.4 14.3 57.1 4.17

Environment 2.4 0.0 9.5 23.8 28.6 35.7 3.83

Construction ergonomics 7.1 0.0 2.4 26.2 33.3 31.0 3.71

H&S STILL LAGGING BEHIND QUALITY, COST AND TIME

OBSERVATIONS

• How are costs going to be arrived at?

• Accurate recordkeeping required

• Set up H&S Cost Center• Cost-benefit analysis

necessary

• Costs dependent on type of activities

• Cost dependent on history of accidents

• Limited opportunity to include true cost of H&S

• Lack of equitable means

CONCLUSION• Focusing only on cost of compliance may result in under-

provision• Focus should be on cost of prevention• Using costs of accidents possible to calculate cost of prevention• Increased investment in cost of prevention reduces cost of

accidents• Minimum is between 1% and 10% of project cost