EHS Case Study Extract:
National Steel – Measuring ROI in a Safety Incentive Program
Dr Jack Phillips, ROI Institute / Jack Phillips, Patti Phillips, and Al Pulliam, Measuring ROI in Environment, Health, and Safety, (387–396) 2014 c Scrivener Publishing LLC
National Steel is a large manufacturing operation with divisions in the Southeastern, Southwestern and Midwestern United States.
Each division has multiple plants. The company also has several foreign plants in operation and two others in the construction phase. The plants produce steel products such as bar stock and plate steel. They also fabricate specialized fasteners used in the commercial building industry. The nature of National Steel’s manufacturing business requires that safety always gets top priority with management and the workforce. Concern for employee safety is a significant issue. Additionally, domestic and foreign competition is a major factor in National Steel’s strategy to become a low-cost producer.
The company had always been concerned about the human element of a safe work environment, but economic issues became a significant concern, driven by the cost of accidents. The company had long had a group, the Central Safety Committee, in place to continually review safety issues, direct accident investigations and to establish policy and best practices. The committee was made up of a senior line officer (who served as the sponsor), one line manager, two foremen, six members of the work force, the corporate manager of safety and the vice president of HR.
A Performance Problem
The committee had recently informed senior management of National Steel that the Midwestern division was experiencing unacceptable accident frequency rates, accident severity rates and total accident costs. For a two-year period, these costs had been in the $400,000 to $500,000 range, annually—much too high for the Central Safety Committee and management to accept.
The safety manager was directed to meet with managers and employees in the three plants of the Midwestern division to seek causes of the problem and to work with the division manager to implement appropriate solutions. A team of HR specialists completed the assignment. The team also analysed the cost and types of accidents. The team of specialists concluded the following:
- Employee safety habits were inconsistent; employees were not focusing enough attention on safety.
- Employees knew and understood safety guidelines and practices, therefore, training was not an issue.
- A significant number of accidents and accident-related costs involved injuries of a questionable nature.
- Some type of monetary incentive would likely influence employee behaviour.
- Peer pressure could possibly be used to help employees focus on safety practices and to avoid the costs of seeing a physician when it was unnecessary.
As a result of the assessment, the team recommended that the division implement a group-based safety incentive plan at the three plants. A monetary incentive had been successful in another division during previous years. The division manager reviewed the details of the plan and even helped craft some of the components.
He accepted the recommendations and agreed to sponsor the implementation. The two objectives of the recommended plan are listed below:
- Reduce the annual accident frequency rate from a level of sixty to a much lower level of approximately twenty or less.
- Reduce the annual disabling accident frequency rate from a level of 18 to 0.
Measure of Success
To account for the success of the program, the team identified the specific data needed to analyse safety performance.
Additionally, management was interested in a payback for the incentive program. Although accident reduction and severity were major concerns, there was also a need to achieve low-cost provider goals. Management requested to see figures that demonstrated that the benefits from the plan exceeded the costs of implementation. The team members concluded that they could use the same tracking system to determine the return on investment.
Calculating the Return on Investment
To determine the return on investment, the costs and monetary benefits of the incentive plan were needed. The annual cost of incentive payouts were added to the annual administration costs provided the total incentive plan cost. The net benefits were calculated starting with the gross monetary benefits. Because the Central Safety Committee accepted the suggestion of the safety manager—that management attention played a role in influencing the improvement— an adjustment had to be made.
What do you thing were the ROI?
- What were the success measures used by the Central Safety Committee?
- What data were collected? What were the considerations and why it was important to determine and isolate the effects of the incentive plan?
- How the data were analyse and interpreted?
- How did the incentive plan perform in terms of business impact and improving safety?
- How the ROI was calculated in details?
- What specific result areas were communicate to the respective stakeholders?
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In line with our objective to offer best-in-class learning solutions for executives and professionals, London School of Business & Finance is proud to partner with The Business Evaluation Centre to offer “The Bottom Line on ROI (Measuring ROI in EHS)”, based on the Phillips ROI Methodology developed by Dr Jack Phillips of the ROI Institute, for the first time in Singapore.
- “Although executives are always prepared to invest in this important area (EHS), they want to see a return on their investment,” said Dr Patti Phillips, CEO and President of ROI Institute during the launch of the book “Measuring ROI in EHS” in 2014 as a result of the great success seen in its works in the EHS industry.
- As an EHS professionals, it is never easy to determine the benefits of your health and safety programmes and projects to your organisation in quantifiable or monetary terms. This is particularly true for EHS which provide vital value yet are often seen as little more than a cost centre.
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- Case study of actual ROI Impact Study on EHS programme will be discussed during the course to facilitate appreciation of the methodology for EHS participants.
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