Calculating the True Cost of Industrial Machinery Accidents

Rockford, IL, February 10, 2017

In the United States, workers operating or maintaining industrial machinery suffer more than 18,000 amputations, crushed fingers and other traumatic injuries each year. While these injuries vary greatly, all have one thing in common: they are 100% preventable with the installation of machine safeguarding and providing user training.
Despite these sobering statistics and the billions of dollars machine accidents cost industry, many companies still view machine safeguarding only as an expense and fail to see it for what it is: an investment delivering a quantifiable, real-world ROI. By comparing the installation cost of machine safeguarding over the productive life of a machine versus the direct and indirect costs of even a single accident, any executive can plainly see the financial benefits.
It should be obvious that machine safeguards are essential for protecting workers from needless and preventable injuries. But where does safeguarding fit into a business strategy? Is there a return-on-investment on safeguarding equipment? Can safeguarding be quantified by using cost-benefit financial analysis?
WHAT DOES AN ACCIDENT COST?
Insurance workplace studies show machine safeguarding provides an opportunity for businesses to substantially reduce bottom-line operating costs by eliminating both direct and indirect costs of an accident, while improving productivity and employee morale. How much can be saved? Liberty Mutual reported in its annual Workplace Safety Index that US employers spent $48.6 billion for wage and productivity losses, medical expenses and administrative expenses for workers hurt on the job. This is roughly equivalent to the annual sales of Cisco, Pfizer or FedEx.
Direct costs of an accident refer to out-of-pocket expenses like hospital and medical bills. They also include the loss of a worker’s time because of the accident, lost productivity by the machine involved in the accident being idled or requiring repairs, and the other machines further down the production line being shut down. Costs continue to cascade throughout the company with overtime required to make up the lost productivity and the new workers who need to be hired and trained. The National Safety Council estimates that the lost time associated with the average injury costs nearly $30,000.
Costs related to an injury do not end there as an accident will influence indirect costs far outside company walls. For example, a single accident can result in OSHA fines up to $70,000 per machine if the violation is found to be willful. In 2010, 24 percent of OSHA’s Top 10 citations for manufacturing dealt with machine guarding violations, resulting in more than $6 million in proposed penalties. Insurance rates can rise dramatically or coverage can be dropped entirely. Investments targeted for company growth may need to be diverted to cover the costs of the accident, employee morale may drop, and the company’s reputation will likely be damaged by negative publicity. And there may be legal fees, plus management time spent dealing with regulators and attorneys. Analysis of most accidents reveal that the actual total cost can range from four to ten times the visible, direct cost stated by an insurance company.
OSHA CALCULATIONS
OSHA’s interactive $afety Pays website (www.osha.gov/dcsp/smallbusiness/safetypays) allows businesses to calculate direct and indirect costs of an accident. For our example, let’s use a company with annual sales of $5 million and an 8% pre-tax profit margin. By means of insurance company claims data, $afety Pays calculates that a crushing accident will cost the company, on average:

  • Direct Cost: $56,557
  • Indirect Cost: $62,212
  • Estimated Total Cost: $118,769

By entering profit margin information, $afety Pays will also project the additional sales required to recover the costs of the injury. In this instance additional sales revenue necessary to cover costs is $1,484,612 based on the 8% profit margin or approximately one third of annual sales. If pre-tax margins are less, the sales impact is even greater.
On the other side of the ledger is the cost to safeguard the machine involved in the accident. Assume that the company had an onsite risk assessment performed by a reputable firm that encompassed ten machines on the plant floor at a cost of $5,000, or $500 per machine. Next, assume that the machine involved in the crushing accident from the example above was a hydraulic power press brake and that safeguarding measures for that press had been implemented per ANSI standards at a total cost of $10,000. Adding in its prorated share of the risk assessment, total cost to safeguard the press would be $10,500, a figure that compares very favorably to the estimated $118,769 cost of the accident.
A poll by Liberty Mutual Group insurance showed that the majority of executives surveyed (61%) reported that for every one dollar spent on safety, three dollars is saved. And nearly all (95%) said workplace had a positive effect on financial performance. It should be noted that OSHA estimates a 6:1 ratio for saved dollars for every one dollar invested in safety, twice Liberty Mutual’s 3:1 ratio.
What is a manufacturer to do? An onsite machine safeguarding survey will uncover dangers posed by machinery no compliant with current OSHA/ANSI standards, and typically will provide a proposal of specific recommendations. Click here to learn more about safeguarding surveys.

About Rockford Systems, LLC.

Headquartered in Rockford, Illinois, Rockford Systems, LLC delivers innovative machine safeguarding solutions for organizations working with industrial machinery. As a trusted adviser since 1971, Rockford Systems helps organizations interpret and apply complex Occupational Safety and Health Administration (OSHA) regulations and American National Standards Institute (ANSI) machine safety standards for a broad array of industrial applications. In addition, Rockford Systems provides complete Safety Life-Cycle Management, including on-site surveys, customized solutions, proprietary products, installation and integration services, safety training, 24×7 technical support and ongoing compliance validation. Rockford Systems has improved the profitability of many of North America’s largest companies by increasing compliance, reducing worker risk, enhancing productivity and decreasing costs.

Media Contact

Kari Larson
Rockford Systems, LLC
800-922-7533
[email protected]
Dan O’Connell
O’Connell Communications
708-363-6118
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