Safety and Your Profits

Several years ago, Raymond Levitt, now the academic director of Stanford University’s Construction Management Program, visited a bridge construction project in the San Francisco Bay area. While walking the grounds, Levitt noticed the site was riddled with construction debris.

Although there had been many job site accidents, the superintendent was valued for his ability to turn a profit. But Levitt and his team were wary of this assumption, and decided to run the numbers. “If we took his accidents in the last three or four years, we found that he had cost them way more than they had made,” says Levitt, who is also professor of Civil and Environmental Engineering at Stanford University and co-author of Construction Safety Management. Based on those findings, the superintendent was released from the project.

Accidents’ true cost
Investments in safety like hard hats or goggles immediately show up on your books. But, expenses related to injuries play out over the course of months and even years in the form of lost productivity, worker’s compensation, higher insurance premiums and, in some cases, litigation.

“Taking into consideration all the costs associated with workplace injuries and illnesses, businesses spend $170 billion a year—expenditures that come straight out of company profits,” according to the U.S. Department of Labor Occupational Safety & Health Administration Office of Small Business (OSHA). “For a small business, even one serious workplace injury can have a significant impact on its bottom line.”

After an accident, the rise in worker’s compensation premiums can have a devastating impact on businesses. For example, Levitt says: On average, for every $100 carpenters spend on payroll, they typically pay $12 toward worker’s compensation. But a carpenter with an exceptional safety record may only pay $6 for every $100, and a carpenter with a very poor safety record could be paying $24 for every $100.

Prepare your workers
While accidents can take a heavy financial toll, most—if not all—job site accidents are preventable.

Give your workers a head start on safety, by creating an employee manual that requires all workers to attend safety meetings and report safety hazards, says Michael Stone, owner of Construction Programs and Results (CPR), a Camas, Wash.-based firm that provides business management estimating and sales training to the construction industry.

Addressing safety with new workers is especially crucial because they are four times more likely to have accidents within their first six months, Levitt says.

Safety manuals are a great start, but in order to have a real impact, safety must be an ongoing priority. Stone advises businesses to hold regularly scheduled meetings to cover safety procedures. The meetings can be brief, 15 to 20 minutes, and most insurance companies have programs already put together.

On-the-job safety
When your team is on the job, it’s important to designate one person responsible for ensuring work site safety. This person should be in a position of authority such as a foreman or a superintendent, Stone says. Levitt suggests taking it one step further by tying team leaders’ bonuses to project safety and when there are accidents, to measure the costs associates with the accident at the time it occurs.

James M. Kramon, author of Smart Business for Contractors: A Guide to Money and the Law, and of counsel at Kramon & Graham, PA, in Baltimore, Md., offers these tips:

Agree on a place where all tools, supplies and garbage should be kept. If there’s evidence of tampering, don’t hesitate to hire a night watchman. If someone arrives at a job site intoxicated remove him or her immediately. “When there is a hazard brewing, stop, take stock of it and correct it, because if it comes to fruition, it’s going to cost a lot more than a day’s time,” Kramon says.