Safety Department: An Unrecognized Profit Center?
Safety is often viewed as a department that only generates savings. And many believe so, even veteran safety managers. You might think so as well.
However, I believe differently. I believe that safety is a profit center. That it positively affects the profits of a company. Why? Let’s dive into the reasons why.
What is a Profit Center?
A profit center is defined as a part of the business which generates identifiable contributions to the company’s profit. And the most common examples of profit centers are manufacturing and marketing departments.
Now, the reason why these departments are considered profit centers is that their contribution to the bottom-line profitability of the company is very significant. Also, these departments are considered profit centers is that their every contribution is easily measurable.
Why Safety Isn’t Considered a Profit Center
Measurability is the problem with safety. You see, people inside a company, especially the management team, only look at the numbers that a department generates. And the only thing that’s truly measurable in safety is cost savings. That’s it, the previous costs and current costs of insurance claims. So, it’s understandable that many see it only as a department that generates savings.
Safety Does Generate Return on Investments
One can argue that safety is a profit center if the savings that it generates is very large. I personally believe so. At one of the companies I’ve worked for, there was a year when I saved them almost 3 million dollars in insurance claims. That is huge and I believe that I improved their profits based just on that.
Now, safety does more than generate savings. Safety does more than just prevent accidents and claims. Its effect goes way beyond that. First and foremost, safety makes workers happy because it ensures that they are working in a safe environment. And happy workers mean productive workers which results in an increase in productivity and loyalty.
Safety also aims to improve the efficiency of the work processes. Even if it does mean investing some resources into putting in controls and providing training, it pays significantly in the long run.
In summary, although safety is not considered a profit center because not all of its effects can be measured, it is a profit center because it positively affects the company across all boards. And although others can’t see it, you can change their views by constantly showing them of what it does for the company.
How Investing In Safety Gives Companies A Positive Return On Investment
Safety Brye: [00:00:00] Are you tired of being told we don't have the budget for that, or we can't afford that right now when all you are trying to do is improve the safety and the work practices, do you feel like shaking your CFO and yelling, we can't afford not to, don't you get it? Well, in today's episode, this is what we're talking about.
Let's get to it.
Hey there, safety friends. Welcome to The Safety Geek Podcast. I'm Brye Sargent CSP and 20 year 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 that increases your management support, and employee engagement, all the while helping you
[00:01:00] 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 friends. How are you doing today? Today I wanna talk about one of the biggest hangups I see in organizations and what they think about safety and that it's an expense. Whenever we're talking about changing how things are done, all they wanna look at is the dollar figures of doing it and not the long-term benefits of doing it.
When I say safety actually makes the company money, you might have the attitude or the need to correct me and say, no, no, we don't make money. We save money. Yes, we
[00:02:00] do save money, but that savings can easily be translated into higher profit margins, allowing them to make more money off of the products that they sell.
This turned safety into a profit center, so instead of just looking at what we save them money on, meaning claims and injuries and insurance, the obvious, we have to look at all the different ways that we're saving them money. Because it really adds to that bottom line and makes the company more profitable.
But why don't they see it that way? Why don't they see safety as a profit center and why don't you see it that way? I've actually put this post out in social media several times where I would say safety as a profit center and pretty high up people in safety would correct me and go, no, we're not. We are not a profit center. We do save them money, but we are not a profit center. And it is true that we are not on that
[00:03:00] profit line in the financial statements, but we do make them money. We make them a lot of money. Like literally, there was this one organization that I worked for that before I went in there, they were spending 3 million dollars in claims and insurance.
That was just the easy Pickens, right? And I came in, set up a safety program. When I left that organization, they were spending a hundred thousand dollars a year in claims. So right there, I made that company nearly $3 million, $2.9million. That is enough to say safety is a profit center. Now granted it was a savings, right?
But they had to build in their budget for each year, putting out 3 million dollars in claims. And that's very easily measured, right? But all the other stuff that we do in safety is not necessarily
[00:04:00] easily measured. And because of the fact, and I think I talked about this on a previous episode, is that safety is like the last department that most organizations add.
They don't add a safety department until they start seeing the expenses start to grow. They start seeing claims go outta control, or they see compliance fines go outta control. Then they say, oh, okay, let's add in a safety department. So they already see it as an expense that they have to add to keep those costs under control.
And then when they add that department, it is their goal to reduce those expenses to a manageable level. But nobody ever is adding a safety department and comparing everything that we do and the impact that we have on everything to that savings. So in order to do this, in order to really communicate everything
[00:05:00] that we impact, you need to understand how profits are measured. So in very simplistic terms, a company sells a product. And then in order to provide that product, there is a cost of goods. When you think of cost of goods, and actually the lion item in accounting for cost of goods is the actual cost of goods. Like I'm making a t-shirt with a design on it. The cost of goods is the ink for the design and the t-shirt, but there are lots of other expenses that are associated with that cost to create that product.
Labor being one of them, safety being one of them, right? The safety expenses. Management being one of them, right? So it's like there's all of these other costs that are involved in creating that sale, and the difference between the sale and the cost to create that sale becomes profit. And the margin is the percentage that profit is of the sale. So if I create something that costs me a hundred dollars to make and I sell it for
[00:06:00] $150, then that is a 50% profit margin. Now, most companies do not run that high of a profit margin. Most profit margins are actually relatively low, somewhere in the less than 20% range. But that is the margin, and you have to kind of know what your company's margin is, because what safety does is safety reduces the cost that are incurred to create that product.
We reduce the cost of goods sold. Because the work that we do might reduce the obvious claims and insurance cost, but the work that we do actually reduces costs across the board. And when costs are reduced, the profit margin goes up. So we impact labor. We impact how often they actually have to hire somebody, because when you have a safe workplace, people tend to stay there. They don't quit, so they don't have to be replaced. We impact
[00:07:00] maintenance costs because our practices are to maintain the equipment properly so that way you don't have breakdown costs and preventative maintenance is cheaper. We reduce costs in damage product in several different ways. One, through our efficiencies and through our standard work practices, but also through having a workforce that enjoys being there, that has pride in their work.
And then we also impact qualities. We help them put out a higher quality product once again because of our impact on the labor force. I have this shirt in the Safety Geek Merch shop that says, safety equals happiness. And it's just one of those things, like somebody asked me this a long time ago, what does safety mean to you?
And I said, safety means happiness. Because when things are safe, I am happy when things are not safe. When I am in a situation where I am at risk or I could be hurt or things could go wrong, I am then stressed. I then
[00:08:00] don't feel secure. So your employees are the same way. When there is a safe workplace, when they go into work and they have job security and they know that they're gonna go home at the end of the day and they don't have to worry about a machine kicking back at them and them ending up at the ER or somebody running them over with a truck or you know, equipment that is well maintained when they have everything they need to be successful at their work.
To follow the procedures and everyone is doing what they're supposed to be doing. It makes them happier. And happy employees equal long-term employees, equal higher quality, equal less damage, equal better equipment. How do you make employees happy? Yes, you can pay them more and that will make them happy, but quite honestly, money does not equal motivation.
The only way to really make people happy at work is to give them autonomy, give them pride, give them purpose in their work. And the way you do that is through a
[00:09:00] safe workplace. You do that by having a safe workplace. You can pay somebody, you can overpay somebody, but if they're at risk of losing a limb every time they go into the office or into the production site, they're not gonna keep working there.
So safety definitely trump's salary. Okay. And I've seen this over and over again. Like I actually had a friend of mine, like literally every time he went to work, I was so afraid of how he would have to walk away from there. We called OSHA on them. It was that bad. Like he was at risk of chemical exposure.
He was at risk of machines breaking down. He actually had a machinery kick back at him because they refused to have the guards on the equipment. It was just a mess, but they paid him very, very well and he felt guilty about it, but at the same time, it was like, it is not worth your life to go in and be injured, and your employees think the same exact way. Safety equals happiness and happiness creates positive
[00:10:00] results for that organization across the board. This is why I say safety is the only department that positively affects all the other departments. However, we as safety leaders generally just see the money that we save as accidents, injuries, and insurance costs, and maybe, you know, not getting fined by OSHA.
So instead, what you need to do is start talking about how everything that we do has a positive return on investment. And the way you can do this, because the way that executives and management teams will actually react to this in a positive manner is to show them the data. You can't just tell them we have a positive impact on turnover.
You actually have to show them that data. So you need to start tracking your savings and then comparing it to the cost of your program. So figure out all the different ways that your safety department impacts that organization, whether it be HR, quality operations,
[00:11:00] track that, and then compare it to the cost of your program, your current program, as well as new projects.
So that way when you have a new project, instead of like wanting to take the CFO and shake them and say, we can't afford not to, you can actually prove to them that you can't afford not to. You can prove to them that, hey, we wanna add in this fancy engineered safety device and in return, this is the return that we're gonna get on this investment.
It is going to give us, you know, a 3% or 4% return on that investment over a five year period. Whatever you come up with, with your return on investment. So you wanna make sure that you are talking to your team in those terms and always showing that. We safety department has a return on investment and you always wanna share your return on investment everywhere. We're talking like at at your monthly manager's meetings, at your
[00:12:00] town hall meetings, at your newsletter. You have to share it enough that they're finally getting it because although we may never be a profit line on the P and L statement, we are a profit center. But if you don't show them how we are a profit center, they will never know it.
They will continue to see you as an expense instead of as a valuable department within the organization. And the more that you share this positive impact that we're having on the organization and on the company's bottom line, more importantly, like we can't just say. We, you know, safety equals happiness and having us here decreases turnover.
We have to be able to show it. We have to be able to show that since we started these safety initiatives, our turnover has decreased 10%. And since it costs us $8,000 to hire a new person, that equates to this
[00:13:00] many dollars to the bottom line. The more you do this, the more support and engagement you will have for your program.
So a lot of times when I'm talking to safety leaders and I'm answering the Q and A's in my student groups, they're always talking about regulations. They're always talking about, well, they're supposed to be doing this and they're not doing it. If you change how you talk about what you want them to do and change the why from because it's gonna reduce accidents or because the loss says so, or because we don't wanna get this regulatory fine.
If OSHA happens to knock on the door. And instead change it to, we wanna do this because it's going to add to the bottom line of the company and it's gonna give us a return on the investment. And on top of that, it's the right thing to do when it saves lives, right? So make the saving lives and saving injuries, make that your icing on top, but make your real reason
[00:14:00] being because it's good for the company. You do that enough and they start to shift. Alrighty, my safety friend. That is what I have for you this week. I hope that you feel my vibe on this and I, you understand how important you are to your organization and that you just have to tweak your language a little bit. And I will be chatting with you next week.
Bye for now.
Hey, if you're just getting started in safety or you've been out 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
[00:15:00] 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 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:
- Why Safety Management Is A Profit Center
- How Safety Adds To The Company’s Profit
- Safety Positively Affects The Profits Of A Company
- Investing In Safety Have Long Term Benefits To The Company
NOW IT’S YOUR TURN
Although we will never be a profit line in the P&L, we are a profit center. And the more you share your positive impact on the company’s bottom line, the more support and engagement you will have in your program.
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.