Showing the Value of Safety Through Calculating the ROI
Convincing the management team to support your safety programs is very challenging even if you use compliance as a justification.
So, in order to get support for your programs, what you need to do is show safety as something valuable to the company. And one of the best ways to show value is a return on investments (ROI). Let’s dive into it!
Safety Programs Should Be an Investment
What was your most expensive purchase recently? Perhaps a house, a vehicle, or a continuing education program? Remember how difficult it was to make that decision?
But, what made you finally decide on pulling the trigger and buying it? I’m sure you justified its worth by the benefits you’re getting.
This also happens to your management team. You see, safety programs come at a cost. And it can be expensive especially if you’re planning to install engineering controls. And to justify that cost, the management team needs to see the financial benefits. This is where the calculation of return on investments comes in.
How to Calculate the Return on Investment
The formula to calculate the return on investments is straightforward. You take the net benefits, meaning the savings minus the costs, and divide it by the cost. Then, multiply it by 100 to get a percentage.
Now, what can you consider as benefits?
Savings on claims is one. You can also include the positive effects that it will have in other departments such as increased productivity, increased morale, and lowered turnovers.
Correlation does not equal causation but the work we do in safety does have an impact. So, when you include the benefits to other departments, just include a percentage of it. This way, it will be believable. Don’t claim 100% of the improvement, but maybe 15% or 10%.
Now, what can you consider as costs? The initial costs of materials, equipment, and training to be done. You can also include the costs of the time lost due to implementation and employee training.
Do keep in mind that the projected return on investments needs to be positive. Because if it is negative, then you have to relay on other factors, such as morals, decency, or fear of fines, to drive the decision.
In summary, return on investments is a great way to show the value of safety programs which will gain the support you needed. And calculating ROI is simple, you just need to divide the net benefits with the costs and multiply it by 100. Just do make sure that the ROI is positive before you present it.
Simple Steps To Calculating The Return on Investment of Safety
Safety Brye: [00:00:00] People will not change their behavior or invest in safe work practices just because you told them to. Most of the time they won't even do it when the law tells them to. So when we're trying to get support for our programs, it is up to us to sell them on the value, and that is done through showing them a return on investment.
Today we are talking everything ROI, so let's get to it.
Hey there, safety friends. Welcome to the Safety Geek Podcast. I'm Brye Sargent CSP and 20 years safety professional after spending years training safety leaders across the globe for a large corporation and creating safety programs from the ground up over and over again. I am now sharing my processes and strategies with you. At the Safety Geek, you will learn how to manage an effective safety program
[00:01:00] that increases your management support, and employee engagement, all the while helping you elevate your position and move up in your career. If you're ready to step into the role of a safety influencer and leader, you're in the right place. Let's get to it.
Hello. Hello. Hello, my safety friend. So, I want you to think back, close your eyes if you can. If you're driving, don't do that. But I want you to think back to your last large purchase, something that for you to buy this thing or spend this money or make this investment, had a little sting to it. It's a little bit of money for you to put out and you're just like, uh, I'm not sure if I want to.
So I want you to think about how you justified that purchase. What were the thoughts going through your mind and why did you ultimately decide to say, yes, I am going to put that
[00:02:00] money or that time, or whatever it is into this purchase, and why you finally made the leap. Now what I'll bet is that it came down to what you believed you were gonna get out of it.
It was some sort of benefit of that item that you got. So for me, my last largest purchase was actually a training class and coaching. I'm always investing in my continuing education, but it was how to plan and host an online summit. So yes, little side note here, I'm hosting a summit. I'm so freaking excited about it.
So it's gonna be an online summit here at The Safety Geek and the dates, by the time you're listening to this, I should have the save the date page. The dates are gonna be July 25th through the 27th, and it's gonna be all online. So you can do it at your own convenience and it's gonna be amazing. So if you're interested in
[00:03:00] speaking, possibly by the time this comes out, I still have speaking openings available. So prior to signing up for this class and this coaching, I kind of sat back going like, I can figure it out. I can DIY an online summit, right? I'm a smart person. I'm techy, right? I can figure this out and why would I need somebody to help me with it, right? So I looked at what I was gonna get out of it.
How was this program different than what I was currently thinking I was gonna do? What would I get out of it? Would I actually make my money back because I worked with these people on the summit? Instead of it being a summit that breaks even. Maybe it's a summit that actually makes me a little bit of money on top of it, right?
So I also looked at what it would cost me, you know, to do it on my own. And in this case, I also looked at what it was gonna cost my attendees,
[00:04:00] because one of the things about my summit that I'm very adamant about is that I want it to be professional looking. I want it to be easy for you to attend. I want it be easy for you to get the information.
I want it to be something that you are excited to attend and that afterwards, you're still bragging about it like a year later, right? And something that I can repeat annually or biannually, right? So that was the cost of me doing it on my own was that I wouldn't necessarily have the summit of my dreams type of thing.
Now I'm kind of like living up like this summit in July. It better be amazing, right? That if I didn't get the guidance, then that it was what I'd get. So then I also waited against the time it would take me to kind of wing it right against the cost of the program. And I'm always valuing my time so much because I'm extremely busy person and my time fills up quickly.
So it was like for me to do this on my own, it's gonna cost me this much time for me to do it with help, it will cost me this much time. So that's
[00:05:00] like a savings, right? So I can go on and on about my summit and my summit planning. But this episode is not about my decision to invest in my continuing education, but rather my decision making process.
So I wanted you to understand the things that I went through in my mind, and I'm sure in that big purchase you made, you went through it in your mind as well. Because every single time we go to our management team and we ask them to either make a change or make a purchase, I want you to realize they're thinking these same things.
Now granted, they're thinking it in a business sense, right? Like, do they have the budget? Is there a return on investment? Is there, you know, what's the benefits of us doing this? So they're thinking about that too. And what we end up doing, most safety managers I begin working with, I ask them, how are you asking for it?
And they'll go, this is what I wanna do and it should affect our injuries, which are currently costing us this, right? And it's not a real cohesive plan. So today, I wanna show you how to kind of stack the odds in your
[00:06:00] favor by using a little math and understanding return on investment. So to get started over the last few episodes, we have been talking about the value that you provide to the organization.
And as you know, I believe that we are a profit center and that we are the most important department. Not necessarily, but I'd like to think that. And that we have a positive impact on all the other departments. So now we're gonna take that information that we've been talking about, all those little tiny pieces of value that we provide, and we're gonna use it to generate a return on investment or an ROI.
So when calculating the ROI for a safety initiative, what you have to realize, is that it can be very subjective. The way you calculate it can be totally different than the way your executive team is gonna calculate it. So we wanna make sure that we do this in a
[00:07:00] way that is believable. So the reason why it is so subjective is because the results of your safety initiative are dependent on other people following the program, the process, the procedure, right?
And this is why having an extremely strong accountability system in place is so important. And I have an entire lesson on this in Safety Management Academy as well as training materials, because this is actually in the first module. Because what I have found is that so many management teams, they want accountability, but they don't understand what accountability is and what it takes to hold their teams accountable.
So that's one of our starting points in Safety Management Academy is actually teaching your management team what is accountability, and how accountability is generated and how to hold people accountable. Now, another reason why the ROI is so subjective is because we, in order to get a
[00:08:00] positive ROI, we have to take credit for positive results in other departments. Now I understand that correlation does not equal causation. However, I have seen enough world-class safety programs, and I know that when you have a strong, solid safety program, the company makes more money. I see it over and over and over again. So yes, correlation does not equal causation, but there is enough causation in there for us to take credit for it.
So they can easily argue to you that you didn't generate that positive impact. And that's what makes it subjective. But I say that if we contributed towards it, then you can take some of the credit and that is a valid argument. So that's why I said when we're doing this ROI, we wanna make sure that we are doing it in a manner that is believable. So if we had no turnover, I'm not gonna say, well, I did all of that, right? So I can say no, but I contributed
[00:09:00] 20% to that reduced turnover. Okay? And that is a reasonable amount. Okay? So calculating ROI, the basic calculation is the net benefits divided by the cost, and then you times it by a hundred to get a percentage.
Net benefits is the savings or the benefits, right? The return of the project minus the cost. So if I anticipate getting a hundred thousand dollars return, but it costs me $50,000, my net benefit is going to be $50,000. And then the ROI is I take that 50,000 and I divide it by the cost, which was 50,000, which gets me a one, and I times it by a hundred, and it's a hundred percent return on investment.
That's a very elementary math. And yours is never gonna end up that simple. And we are just looking for a positive return on investment. It doesn't have to be huge, it just has to be
[00:10:00] positive. Okay? So let's say that you wanted to implement a Warmup for Work Program, which is essentially a stretching program if you're not familiar with that term.
So the very first thing you're gonna do is you're going to calculate the cost of creating that program. So what is the actual cost in creating that program? Are you having to bring in a consultant? Are you having to pay your insurance company? Are you winging it and doing it DIY? There is a cost to the program, even if it is your time.
Okay, so calculate what that cost is. How many hours is it gonna take you to create it? Times by your hourly rate, which is your salary divided by 28. Okay, so there is a cost of creating that program. You're likely gonna have some materials or some handouts. Maybe you have some posters, maybe you have some promotional materials, maybe you have brochures, whatever the cost of creating those that goes into cost, how
[00:11:00] much time is it gonna take to implement? How are you gonna train everybody on it? How many meetings are there going to be? Who's gonna be in those meetings? What is their hourly rate? That is your cost of time. To implement it. And then once it is implemented and people are doing it daily, what is the production time to do it daily? So if you're having your team stop and do a warmup to work every day for 20 minutes, that is 20 minutes times the 30 people that are working times their hourly rate times by five days a week, that is the cost to production for them to do that warmup for work. And,
also think about the new hire training time. Whenever you have a new hire, they're gonna have to be trained on the program. How much time does that take? What are you paying that new hire? How many new hires on average do you get? All of these things go into cost, and when you calculate it all, you go, okay, the cost of the program is gonna be
[00:12:00] $10,000 a week and you know, $50,000 to implement it, right? Whatever it happens to be. So now you have your costs. Next is going to be your benefits. So what is the benefit of doing this program? Now, the first thing you're obviously going to look at is claims. How many muscular skeletal disorder injuries such your strains in your sprains that you had over the course of the last three years?
I always think three years is a good timeframe to look at. And what was the average cost of those claims? Right. And then how much do you anticipate this warmup to work program to reduce MSD injuries? And that's very subjective too, because it's not gonna reduce some 100%, but maybe you can justify a 50% or 25% reduction. So now you have like, it's gonna save us this much a year
[00:13:00] in muscular skeletal disorder injuries. And then next it would be, what other benefits is this going to do? And right off the top of my head, I can tell you it's gonna increase morale. People may complain about doing a warmup of work, but honestly, they like to work for places that do this, that actually care about their employees.
So it's gonna increase morale. It's gonna reduce turnover. So if it's doing those things, what is the average cost of a new hire? And what percent do you anticipate reducing that turnover? So that could go into your benefit and then think about other ways that this is going to benefit the organization.
You might have an increase in productivity. You might have an increase in quality. So think about those things as well. But be very conservative in your benefit numbers. You don't wanna say, oh, it's gonna increase quality 50%. No, it's likely gonna increase quality 10%, maybe even only 8%. When you're putting in those
[00:14:00] smaller numbers, they're definitely more believable. It's getting back to that, like it's not a hundred percent causation, but it's a little bit, right? There is some correlation in there. So get all of those benefits together, and now what you're gonna do is take your total annual cost, so that's gonna be your cost to implement. And then your cost to annually do it, and then you might wanna do it over a three year period.
You might wanna expand it out to kind of spread out that implementation cost, because you're gonna have a very high implementation cost, but have a very low ongoing cost. So go. Okay, I wanna do a three year ROI. So what is the cost over three years divided by the benefit over three years. Or minus the benefit, I'm sorry, I'm getting this backwards.
You wanna do the benefit over three years, minus the cost over three years to get you that net benefit and then you're gonna divide it by the total cost and then do that percentage. So yeah, it might cost you $50,000 to implement and then
[00:15:00] $10,000 a year to have it go ongoing. Right? So that is $80,000 cost. But if your benefit is a hundred thousand dollars, that is $20,000 savings. I don't have a calculator in front of me divided by the cost, and that's gonna get you the ROI. Once you have that ROI, make sure it's positive. It always has to be positive. Doing anything that has a negative ROI is extremely difficult to get past.
The only way you're gonna get that passed if they have some strong moral standards or like their customers are making them do it, or like there's a really good chance they're going to get found out by the law or something. That's usually the only way you're gonna get a negative ROI through. So you have to make it positive. So if it's not positive, then I want you to go back and look at your benefit numbers and look at your
[00:16:00] cost numbers and see how you can shift or add things in there and try to think like outside the box of other ways that this program can benefit them. So here I might be thinking that a stretching program takes 20 minutes a day times five days a week, right?
But if your team is already doing a pre-shift meeting, you just have 'em do the pre-shift meeting while they're warming up at the same time. So now you've just eliminated that cost, right? Or maybe if you already had them doing toolbox talks one day a week, that one day a week, they could do the toolbox talks while they're stretching.
If anyone's ever participated in a Warmup for Work Program, it's very easy to sit there chatting. So instead of them chatting with each other, you actually have somebody leading a discussion during the stretching as well. It totally works and it helps you reduce our increase that return on investment.
And if you still can't make it positive, because I actually had a Safety Management Academy student have this exact issue. They
[00:17:00] were not having enough ergonomic injuries to justify a warmup for work program. And no matter how we played with the numbers, it could not be positive, but she really wanted it.
In those cases, sometimes just had to bite the bullet and just say, it's not the right project, it's not the right time. Go put your efforts into something that has a positive ROI. Why are you trying to do a warmup for work when you're not having the muscular skeletal disorder injuries? That's not the right project for you to be getting that braggable track record of results that we always talk about.
So that is return on investment. I hope I didn't confuse you too much. It's kind of hard to do math on audio, right? It's kind of weird, but what I want you to do, is that now that you know how to calculate ROI for your safety program, and hopefully you can see how all the little pieces of value that I've been showing you over the last several weeks can add up to get you support for your program, but now it's your time to actually
[00:18:00] try it out. So I want you to look at one of your upcoming projects or ideas and actually calculate an ROI. I had a SMA student do this when he got through module one. He was a very, very new student. It was like, I don't know, one week, two weeks into it. He actually did got his first project that he said they had been fighting him on, but when he calculated the ROI, it was like, oh, that makes sense.
Yeah, let's do it. I now get it. So calculate the ROI, and when you go to get approval, just imagine how you're gonna look. You're gonna be a rockstar because they're gonna look at you like, oh my gosh, like you are so well prepared, and you get it. You get the business right. And it's so much easier to get support when you can clearly demonstrate the positive impact that you're having on the organization, and they look at you differently because now they don't see you as the person that's just trying to get the laws in and get the safety rules in. They see you as the person that is trying to help the company actually impact their bottom line. So
[00:19:00] I hope that helps you, my safety friends, we will chat again next week, but that's all I have for now. Bye for now.
Hey, if you're just getting started in safety or you've been at this for a while and are hitting a roadblock. Then I wanna invite you to check out Safety Management Academy. This is my in-depth online course that not only teaches you the processes and strategies of an effective safety management program, but how to entwine management support and employee participation throughout your processes.
Are you ready to finally understand exactly what you should be doing and ditch that safety police hat forever? Then you have got to join me and your fellow Safety Scholars over at Safety Management Academy, just go to thesafetygeek.com/sma to learn more and to get started. That's
[00:20:00] thesafetygeek.com/sma and I will see you in our next Students only live session.
Bye for now.
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Highlights From This Episode:
- How To Effectively Sell Safety Using Return On Investment
- Calculating Return On Investment For A safety initiative Can Be Subjective
- How To Calculate the ROI For Safety Initiatives
- What To Do To Get A Positive In Your Return On Investment
NOW IT’S YOUR TURN
That’s how you calculate the ROI of your safety initiatives. And hopefully, you see how all the little pieces of value can add up to get you the support for your program.
Now it’s time for you to try it out, and look at one of your upcoming projects or ideas.
And when you go to get approval, you will look like a rockstar when you present it. How can they say no when you’re clearly demonstrating a positive impact on the company?
Hi, I'm Brye (rhymes with sky)! I am a self-proclaimed safety geek with two decades of general industry safety experience. Specializing in bringing safety programs to a world-class level and building a safety culture, I have trained and coached many safety managers, just like you, on how to effectively manage workplace safety in the real world. I would love to help you too.