The Centre for Workplace Leadership was commissioned by Safe Work Australia to examine Australia’s workplace health and safety, business productivity and sustainability as part of the Australian Work Health and Safety Strategy 2012-2022.
The paper aims to provide an assessment of the research evidence that healthy and safe workplaces are more productive and make businesses more sustainable. The report is intended to assist managers to develop appropriate business cases for securing the necessary resources and commitment for safety interventions.
Why work health and safety matters
Workplace illness, injury and death result in significant economic and social costs.
These costs are borne by the community at large, workplaces and individual workers who have suffered illness or injury or death.
Safe Work Australia estimates that in 2011-12 the total direct and indirect costs of workplace illness, injury and death are more than $60 billion dollars each year – a cost that represents around 4.8 percent of national GDP.
Imagine then how addressing this issue can improve Australia’s economic performance? Imagine how improving our WHS record can contribute to the competitiveness of many businesses and workplaces?
The importance of making a business case
Improving WHS can obviously make good business sense. Indeed the evidence indicates that where a business is able to justify WHS investments then the commitment to improving WHS outcomes is likely to be stronger. When we talk about making a business case for investing in WHS we are referring to which an objective assessment of the costs of a WHS initiative is likely to yield a net economic benefit to the business over a period of time. This approach involves assessing investments in WHS initiatives like any new investment a business might make, say, in new plant or equipment, or a marketing campaign to promote demand for its products or services.
Why is it difficult to make a business case?
The evidence suggests that many businesses continue to under-invest in better WHS systems.
There are many reasons why making a business case assessment for better WHS is more challenging than many other investment decisions made by a business or a workplace.
Most significantly there are many costs and benefits that a business may gain from better WHS that are difficult to attribute directly or to quantify in monetary terms.
Many studies have shown, for example, that better WHS is likely to be associated with improved employee attitudes and behaviours, such as engagement, many of which have been found to have positive effects on productivity and creativity. To make a strong business case for investing in workplace health and safety therefore requires a business to think carefully about the different ways that WHS improvements are likely to influence employee and management performance both directly and indirectly.
Why is it difficult to make a business case?
Many businesses also find it difficult to measure productivity and other performance indicators. This is especially so in service environments where counting units of output can be more difficult. Productivity is not simply about units of output or service – it has many facets, including quality and innovation, as well as quantity, that need to be taken into account. This challenge means that businesses need to think carefully how they measure productivity, and other measures of workplace performance that are likely to influence an assessment of the return on any investment made in WHS initiatives.
Don’t confuse the business case with the more general economic case for better WHS
Often there is a tendency to confuse with the business case with a more general economic case for better WHS. The economic case for better WHS seeks to account for all economic costs and benefits, irrespective of who incurs these costs or enjoys these benefits. However, the business case is focused solely on the question of whether the business is better off in making new investments in better WHS.
What does the evidence tell us?
In order to assess whether there is generally a business case for investing in better WHS, the Centre for Workplace Leadership undertook an extensive review of the national and international research on this question. In undertaking this study we have reviewed nearly 500 studies undertaken over the period since 2000 in the areas of safety science, management and business studies, industrial relations and human resource management. We also examined a number of major inquiries and government reports completed around the world over this same period. So, it was a fairly exhaustive study of the available evidence.
The cost-benefit of WHS
The simplest way to assess the business case for investments in a new WHS initiative is using a traditional cost-benefit analysis. This approach involves the business identifying the direct and indirect costs and benefits associated with a proposed WHS initiative, and determining the net cost or benefit. Like any investment decision, this will require a consideration of the appropriate time period over which the costs and benefits are likely to accrue, and making an assessment of the rate of return associated with WHS over that period. There are many tools available; some of them at no- or low-cost, to assist large and small businesses undertake such an assessment. The research evidence suggests that where businesses use this approach, what appear to costly practices turn out to be solid investments.
The risk of WHS failure
The research makes clear however that a cost-benefit analysis does not complete the business case for investing in better WHS. Business also need to be concerned about the potential risks and costs associated with WHS failure. This is most easily done where there are specific failures that can occur which have large effects on business performance. However, the research evidence also indicates that WHS failures that are not catastrophic in nature can also be costly to a business, often in the form of high workers’ compensation claims and rising insurance premiums, higher wage costs associated with replacing ill or injured workers, and repairs to plant and equipment. Such events can be costly to the business in ways that are invisible or difficult to detect, such as employee turnover, and low employee engagement.
The strategic value of WHS
The research evidence also points to ways in which WHS may also create strategic value for a business. This may be evident in a number of ways:
- Consumers may be less willing to remain loyal to a business that has a poor WHS record.
- Businesses operating in high risk industries in particular are able to use their safety record to attract high quality job applicants and demonstrate their commitment to corporate social responsibility.
WHS and workplace performance
Perhaps the most compelling reason to invest in better WHS is that it has been found to be associated in a number of studies to be associated with better workplace performance.
This may reflect the fact that attention to WHS systems is likely to occur in a more integrated way – where it is seen as a normal part of putting in place efficient and product management and workplace practices that support sustained business performance.
WHS in SMEs
Getting WHS right is particularly challenging for small- and medium-sized businesses (SMEs). Internationally, the evidence consistently shows that compared with larger firms, SMEs perform badly when it comes to WHS. There are a number of factors that explain the comparative poor WHS performance of SMEs. Among the most important of these reasons is a tendency to view WHS as a cost or a regulatory requirement that has to be complied with, rather than an investment or part of good management practice. Other evidence suggests that SMEs also face more intense production pressures, and limited ability to respond to them. The evidence however also shows that where SMEs do put in place WHS that are scaled to the business, then commitment to WHS should not be a barrier to profitability or performance. This suggests that where SMEs make the system fit the business it can be done cost effectively and in a way that supports business performance.
Our assessment of the extensive literature looking at the impact of WHS on business performance is that, done well, better WHS can support better business performance.
There is no silver bullet. WHS needs to be tailored to the business or workplace context.
The research also shows that it is important to undertake a business case assessment in a systematic and objective manner – just as the business might assess any other investment. While it is more challenging the research evidence also indicates the need to account for the longer-term and more strategic benefits of such investments, not just the short-term gains.
While a business, an SME in particular, may say that this is not for us, the evidence suggests that where businesses do go through the business case assessment the benefits can be substantial and improve the bottom line. There are many different tools and methodologies, tailored to different industry and workplace environments that can assist in making these assessments – it is often more feasible than you think.