Return on Investment (ROI)
Research has shown that a good ergonomic program are always cost effective – they save more than they cost. We all know that keeping employees productive, safe and happy states the obvious: an employee vested in and cared for by their company, will “repay”you back by providing more commitment, dedication and hard work for their company.
Bottom line: investing in a good ergonomics program is your greatest asset for all involved. A win/win for both employee and the owner of a company. Not only will you have productive, happy, pain free employees, you will have more money in your pocket. So, how do we save you and/or company money…
Having an established ergonomics program will save you or your company money by lowering the injury rate, reducing workers compensation costs, increasing productivity, reducing turnover and absenteeism while also increasing morale and employee satisfaction. This money savings term is called return on investment or ROI. In simple terms it means, how long will it take to earn back the money that was originally invested so a profit can be seen?
When it comes to office ergonomics this is not a simple, clear cut, answer because there are many factors to consider when determining the ROI. The two main factors in determining the ROI are direct costs and indirect costs associated with an injury. The direct costs are pretty simple. What are you paying for the workers compensation claim and any additional medical care costs (i.e. physical therapy, rehab, etc.). The indirect costs are a bit harder to determine. They include increased insurance premiums, lost productivity, decreased work output, turnover, new personnel and any replacement costs for damaged materials, tools or property. In most cases you have to make assumptions for many of these costs, but, in general, the indirect costs can greatly outweigh the direct costs by up to a ratio of 4:1.
To help calculate ROI, benefits of office ergonomic could be classified into categories such – costs saved, costs avoided etc. We can estimate the impact of ergonomics interventions on injury costs, it can use the following simple formula: Injury cost (pre-intervention) – Injury cost (post-intervention) - cost of intervention = Total cost of savings.
The easiest way to see the positive benefits of an ergonomic program in the office setting is to look at long range studies that have been completed and see their positive outcomes:
A study completed by the United States Government’s General Accounting Office (GAO) looked at 5 different companies that varied in size and job function and determined that the average cost per injury claim after an ergonomic program intervention was reduced by up to $16,500.
In a 250 case study by Goggins et al it was stated that the average payback period (ROI) for ergonomic interventions was less than one year.
In a case study by DeRango et al involving 200 office employees it was determined that the benefit-to-cost ratio was nearly 25 times greater than the cost of the initial intervention.
WHAT AND HOW CAN WE MEASURE?
Institute for Occupational Safety and Health goes further and shows how we can measure benefit-cost ratio, look at the cost-benefit analysis and how we then can measure the Return on Investment to show how to recover the cost on the investment.
Benefit-cost ratio measures the present or annual worth of a project or proposal’s benefit cost related to the initial cost (Badiru & Omitaomu, 2007). If the ratio is greater than the investment it shows benefits out weigh the cost. If the ratio is equal, then the investment is a break even. If the ratio is less than the investment it shows the cost out ways the benefits.
Cost-benefit analysis (pay-back period) is the amount of time it takes for the benefits to pay back on the cost of investment. It includes factors outside of investment such as savings from injuries prevented.
An example shown by National Institute for Occupational Safety and Health reviewing other cost factors showed the old system has the potential for employees injuring themselves from manual lifting to load the fork lift. By changing to the new system a direct cost avoidance from potential sprains ($30,000) and back strain ($33,000) was $63,000 over a year. The cost-benefit is the cost of equipment divided by the estimated benefits for one year. The saving benefits are injury savings plus increased productivity over the year. In this case increased productivity is $69/day*365days/year =$25,185.00/year. Total savings benefits ($63,000+ $25,185= $88,185.00 per year). Payback ($53,800 /$88,185 yr= .61 years or 7.3 months.
Return on Investment (ROI) can be calculated as the amount of time it takes to recover the cost of the initial investment.
ROI (time)=Initial cost/savings (time interval)
Another example shown by National Institute for Occupational Safety and Health, Metals Recycling Company wants to replace their current loading dock and fork lift system to transport scrap metal with 2 new scrap conveyor systems. The company runs production 365 days per year. The total for both scrap conveyor systems installed is $53,800. They estimated that the new system saves a total of 3 hours per day. Their employees are paid $23.00 per hour so savings per day is $69 per day. Total cost of equipment: $53,800. Savings on time: hrs/day *pay/hr = ?/day (3 hrs saved a day x $23 paid per hr) =$69.00 per day
Return on Investment (ROI): total cost of equipment/savings on time= ($53,800 divided by savings on time)= 780 days or 2 years and 50 days to recover the cost on the investment.
The question now is, how can you NOT invest into a good ergonomics program?
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Resources and work cited:
United States Government’s General Accounting Office (GAO): GAO/HEHS-97-163Private Sector Ergonomic Programs : //www.gao.gov/assets/230/224570.pdf.goa.gov, August 1997, accessed April 27, 2020
DeRango, K., Franzini, L. (2003). Economics evaluations of workplace health interventions: theory and literary review. JC Quick, Tetrick LE (Eds.). Handbook of Occupational Psychology. Washington, D.C. American Psychological Association. 417-430.
Goggins, R. W., Spielholz, P., & Nothstein, G. L. (2008). Estimating the effectiveness of ergonomics interventions through case studies: Implications for predictive cost-benefit analysis. Journal of Safety Research, 39(3), 339-344.
Return on Investment for Ergonomics Interventions: Jonathan Puleio, CPE Jenny Zhao, AEP, Human Scale://www.ergolink.com.au/theme/ergolinkcomau/assets/public/File/reasearchpapers/return-on-investement_03272015.pdf, accessed April 27, 2020
Occupational Safety and Health Administration: //www.osha.gov/safetypays/estimator.html, https://www.osha.gov/smallbusiness/ accessed April 27, 2020
National Institute for Occupational Safety and Health://www.cdc.gov/niosh/topics/ergonomics/ergoprimer/step5.html July 18, 2017, accessed April 27, 2020