July 22, 2022 / John C. Ratliff

The Non-Realized Costs of an Accident

What is the most effective way to show the costs associated with an accident? To do this accurately, several pieces of information need to be gathered. Some of this information is obvious, such as the number of days the worker misses because of the injury, medical costs, insurance costs, and time-loss payments. Those items alone can add up to an expensive claim, but that’s just the tip of the iceberg. The hidden, or non-realized, costs of accidents are much greater, and they figure prominently into companies' bottom lines.

Non-realized costs are costs we normally don’t think about, such as the labor costs for supervisors and other workers to temporarily cover for the injured employee; the costs of investigating the accident; the costs of damaged products and equipment; the costs of training a new worker to replace the injured employee, including benefits; and others. When these non-realized costs are added to the insured costs of an accident, the total cost can be eye-popping. Presenting this total to management can be an effective way of showing the value of health and safety interventions or process improvements that could have avoided the injury in the first place.

What can really get management’s attention, though, is presenting the costs in terms of the product—that is, how much money in sales is needed to offset the total costs of the claim. This amount can be determined by the following formula:

Ratliff 1
Equation 1. Calculation of the amount in sales required to offset the cost of an accident.

The costs of the accident can be further characterized by specifying how many units the company must produce to generate the required sales:

Ratliff 2
Equation 2. Calculation of the number of units that must be produced to offset the cost of an accident.

Finally, we can express the consequences of the accident by specifying how long, in terms of unit production, it will take to offset it:

Ratliff 3
Equation 3. Calculation of the time duration required to produce enough units to offset the cost of an accident.

For many years, I used a spreadsheet to calculate the non-realized costs of accidents. At my last place of work before retiring, I used this spreadsheet to show the actual costs of an emergency response to a leak of ammonium hydroxide. The ammonium hydroxide was in metal-lined drums, which were sent to a customer located in a state at a higher altitude. When the drums were shipped back to us, they went from an altitude of 2,700 feet to sea level, which allowed the plastic liners to delaminate from the drums, causing leaks on a regular basis.

Using my spreadsheet, I developed the non-realized costs of responding to these ammonia leaks. In one case, a worker was exposed to ammonia and needed to be checked out. That cost $1,000, but these insured costs were the only costs management was aware of. In addition, we had lost productivity associated with shutting down our production line to respond to the leak. I was able to show that adding the uninsured costs to the workers’ compensation costs resulted in total costs of more than $29,000. With our normal profit margin, we needed to sell about 1,167 drums of ammonium hydroxide to offset those costs. These figures led our management into further discussions with our customer about the requirement for steel-lined drums. Soon, we converted this customer to plastic drums, and never again experienced a leak of ammonium hydroxide from liner problems.

You can see the results of my analysis by downloading a copy of the spreadsheet. You can also replace the values in the spreadsheet to do your own analysis of accidents at your workplace. If you have any questions, please email me.

John C. Ratliff

John C. Ratliff, CSP (Retired), CIH (2006–2017), MSPH, retired from active practice in 2014.


Retired I.H.

Gordon, thank you for your comment. Yes, this will generate a lot of conference room banter, but also it will get top management attention.

By John C. Ratliff on July 23, 2022 12:01pm
Safety and Training Coordinator II, GSP Candidate

Talk about ammunition for the ever-ending conference room banter! Thank you for sharing!

By Gordon Johnson on July 22, 2022 5:51pm

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