What are the costs of an accident for the company?

When we talk about accidents, we are talking about people and families, lives, expectations, dreams and hopes, so the goal should be zero fatal accidents; it is an ethical dimension in which we must all commit ourselves.The occurrence of occupational accidents is a worrying phenomenon. According to ACHS estimates, in Chile an average of five workers die per week as a result of these events, being the Industrial (36%), Timber/Forestry (14.3%) and Construction (10.9%) sectors the most exposed to serious and/or fatal accidents.

According to the World Labor Organization (ILO), every 15 seconds a worker dies as a result of an accident or occupational disease and, in the same period, 153 workers suffer accidents. This means that 6,300 people die every day.

The situation is no different in Latin America:

In Peru, 162 notifications of fatal occupational accidents were received in 2017.
In the same year, 47 people were injured every hour in Mexico.
In Colombia, in the first five months of 2018, 10,500 occupational accidents were reported, of which 8 were fatal.
Apart from human losses -which are undoubtedly of great importance-, there are other damages in relation to the monetary loss suffered by organizations, which must be recognized and evaluated.

The iceberg of accident costs
The frequency of accidents is more costly than it seems. This is because this type of event entails expenses that are not obvious, but which constitute a real loss of company profits.

In this sense, it is necessary to distinguish between two types of costs:

Direct costs: these are those that involve both prevention and post-accident, and are related to worker compensation. For example, contributions for risk insurance or indemnities.

Indirect costs: these are the set of losses suffered by companies as a result of occupational accidents, such as time lost during the working day, damage caused to installations, machinery or equipment, loss of raw materials, financing of research, deterioration of the corporate image, loss of clients or psychosocial risks in the organization, among others.

Like the visible part of an iceberg, direct costs for companies are only a small fraction of the real costs, which can be measured and controlled. However, a company concerned with operational expenses must consider the “deep end of the iceberg,” i.e., indirect costs that require more complexity to quantify.

How much does a fatal accident cost a company?

According to Circular No. 3336 of the Superintendency of Social Security, in the event of a serious or fatal accident, the company must suspend the affected work and, if required, evacuate the workplace.

The monetary value of the losses, then, depends on the magnitude of the company’s operations. But if we consider that accidents are more common in sectors such as construction or forestry companies, the stoppage of work involves losses of millions of dollars.

In fact, it is estimated that labor incidents compromise 18% to 20% of the operations budget.

Loss management concepts
For a good cost management, it is necessary for organizations to integrate in their strategic plan concepts such as:

Estimated Production Loss (EPL): refers to those production losses due to the occurrence of an incident, without considering actions to mitigate the effects.

Avoided Production Loss (PPEV): consists of the costs for the implementation of plans to mitigate or contain the effects of incidents.
Real Production Loss (RPL): losses that have a direct effect on the company’s cash flow.

How to avoid fatalities?
To reduce the costs of an accident, business management must be accompanied by efficiency optimization. Hence, it is necessary to implement an occupational health and safety management system.

As we can see, it is important to design the strategic processes of operations and to implement timely management mechanisms that allow the right decisions to be made in terms of well-being at work. It is essential to take preventive and corrective measures What to do in the event of a serious or fatal accident?

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