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Research Shows Employers Who Test For Fitness See ROI of 300%
Research Shows Employers Who Test For Fitness See ROI of 300%

Research Shows Employers Who Test For Fitness See ROI of 300%

Blog and Opinions Red Slashes Jul 28, 2015
By: Dan Demers

 

“…just a single injury prevented over a two-year period results in a 300% return on investment.”

0511dh-graph-increase-results

The Employer’s Challenge

Every employer knows that worker injuries have significant direct and indirect costs. But too often, employers rely on subjective hiring practices that fail to assess whether candidates have the physical capability to complete the job they are assigned to. This “luck of the draw” approach leaves many employees—and employers—vulnerable to injury because the demands of the job are beyond the worker’s ability to get it done safely.

Despite the near-certain risk of injury over the long term, many employers do not invest in preventative measures at the time of hire. Those who do invest proactively in safety generally do so to comply with contractual requirements or corporate principles on safety. But increasingly, the reasons for proactive investment are also economic: earning a strong return on investment and gaining a competitive edge to increase market share.  

In order to reasonably evaluate their options and invest proactively, employers need to:

  1. Understand the impact of inaction—the true cost of an injury
  2. Find an effective proactive solution that gives them confidence in the anticipated benefit
  3. See objective proof that demonstrates the benefit in terms of return on investment 

“In Alberta, a single injury resulting in the average lost time typically costs Alberta employers approximately $87,500 in direct and indirect costs.[1,7]”

Building a Business Case for Safety

Identifying the True Cost of an Injury [9,10,15,16]

The true cost of an injury is often not obvious, as much of the cost is both indirect and spread out over time. Direct costs are just the tip of the iceberg; the largest portion lies beneath the surface, hidden from plain sight.  

Consider these direct and indirect costs:   

Direct Cost             Indirect Costs             
Lost Time$_____Cost of internal investigation$_____
Medical costs (initial and follow-up)$_____Raised premiums for the employer$_____
Compensation for work lost$_____Hiring, training, and paying replacement workers$_____
Penalties and fines$_____Production downtime$_____
Total direct costs:$_____Lower employee morale$_____
  Loss of goodwill and damage to reputation$_____
  Loss of products or services$_____
  Additional WCB costs for prolonged claims$_____
  Employee retraining/placement$_____
  Failure to be awarded contract bids$_____
  Total indirect costs:$_____
Direct costs $_________ ~30% + Indirect costs $_________ ~70% = True cost of an injury

 

Though the costs of an injury vary by industry and according to the nature of the incident, it is estimated that on average the indirect costs of an incident can be as much as four times the direct costs. [15]

Once a musculoskeletal injury occurs, the likelihood of a repeat occupational injury is significant. Repeat injuries can lead to compounded costs for employers as the duration of lost time extends and the injuries entail ongoing medical, administrative, and rehabilitative costs.[11]

“In the last decade, the largest category of lost-time injuries has been musculoskeletal injuries.[1,7,14]”

The first step in evaluating proactive investments in safety is to quantify the true total cost of injuries and the total cost of proactive measures. For proactive measures to return value from a solely financial standpoint, the following must be true:   

Total cost of injuries avoided =/> Total cost of proactive measures

Key Assumptions

In this exercise, we will consider Alberta as a whole. It is estimated that the total cost, direct and indirect, of a musculoskeletal injury resulting in 20 days lost time for a skilled worker in Western Canada is between $50,000 and $125,000, or between $2,500 and $6,250 per day.[1,4,7] For our purposes, we will use an average total cost of $87,500, or $4,375 per day lost.  

The rate at which Functional Fitness Evaluations identify candidates as unfit varies from position to position, but across industries, the average range is 5%–12%. Here, we will assume that an average of 8.5% of candidates are identified as unfit.

Industry Data

The provincial average, 3 injuries per year, translates to approximately 60 days of lost time for every 1,000 employees, which would result in costs of $262,500 per year, or $262.50 per employee per year.  

A Functional Fitness Evaluation costs an employer $175 per evaluation, so the total cost for 73 evaluations is $12,775.

Cost-Benefit / Break-Even Point 

Of the 73 candidates evaluated during the course of the year, an estimated 8.5% (or approximately six candidates) will be deemed unfit. Given that a reasonable estimate of the total cost of an injury is $87,500, only one lost-time injury needs to be avoided over an 82-month period for an employer to break even. That means that if even 2% of the unfit conclusions from the Functional Fitness Evaluations (or one out of every 500 Functional Fitness Evaluations) result in an avoided musculoskeletal injury, the program is financially sustainable.  

Return on Investment

A functional fitness program properly managed is designed to reduce the chance of a worker being injured and accommodate existing disabilities.

Ultimately, the return on investment is directly proportional to the number of lost-time injuries avoided. Therefore, even if 10% of evaluations identify candidates as being unfit, but an injury is prevented from occurring, employers can expect a return on investment of $3 saved for every $1 spent. In other words, just a single injury prevented over a two-year period results in a 300% return on investment.*

The above estimate is conservative and certainly simplified, but, based on provincial averages, most companies in heavy industry can reasonably expect that every $1 invested in a Functional Fitness Evaluation will save $2 to $4 in total injury costs. The return on investment is higher for companies that have below-average safety performance or that are larger employers, as they typically have higher lost-time injury rates.  

Fitness for Duty Testing: Facts at a Glance

  • A financial business case for a safety program requires that the reduction in total costs and liability arising from a lost-time injury outweigh the cost and liability of the preventative measure.
  • In Alberta, a single injury resulting in the average lost time typically costs Alberta employers approximately $87,500 in direct and indirect costs.[1,7]
  • In the last decade, the largest category of lost-time injuries has been musculoskeletal injuries.[1,7,14]  
  • The physical capacity of an employee is linked to the likelihood of that employee developing a musculoskeletal injury.[2,3,5,6,8]
  • Functional Fitness Evaluations determine whether a candidate can safely meet the minimum functional demands of the job. They typically identify 5–12% of candidates as being unfit for a role.
  • If even 10% of evaluations identifying candidates as unfit prevent a lost-time injury from occurring, a fit-for-duty program produces a 300% return on investment.
  • Once a musculoskeletal injury occurs, the likelihood of a repeat occupational injury taking place is significant. Repeat injuries can lead to compounded costs for employers as the duration of lost time extends and the injuries entail ongoing medical, administrative, and rehabilitative costs.[11]

*with a workforce of 1,000 and average turnover

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Questions or Comments?

Do you have any questions about what we wrote. Let us know and we'll get back to you!

References:

  1. Alberta Human Services. (2014, July 2). Occupational Health & Safety Statistics & Reports. Retrieved September 29, 2014, from Occupational Health and Safety Results 2013.
  2. Burton, A. K. (1997). Back Injury and Work Loss. Biomechanical and Psychosocial Influences Issue 22, 2575-2580.
  3. Burton, A. K. (2005). How To Prevent Low Back Pain. Best Practice and Research in Clinical Rheumatology Issue 19, 541-555.
  4. Burton, W., Morrison, A., Maclean, R., & Ruderman, E. (2006). Systematic Review of Studies of Productivity Loss Due to Rheumatoid Arthritis Issue 56. Occupational Medicine, 18-27.
  5. Cole, C., Ibrahim, S., & Shannon, H. (2005). Predictors of Work-related Repetitive Strain Injuries in a Population Cohort. American Journal of Public Health Issue 95, 1233-1237.
  6. Cole, C., Ibrahim, S., Shannon, H., Scott, F., & Eyles, J. (2001). Work Correlates of Back Problems and Activity Restriction Due to Musculoskeletal Disorders in the Canadian National Population Issue 58. Occupational and Environmental Medicine, 728-734.
  7. Government of Alberta Employment. (2011). Government of Alberta. Retrieved September 26, 2014, from Occupational Injuries and Diseases in Alberta.
  8. Institute for Work & Health. (2005). Institute for Work & Health. Retrieved April 13, 2013, from The Burden of Work-related Musculoskeletal Disorders (MSDs).
  9. Institute for Work & Health. (2007). Institute for Work & Health. Retrieved April 15, 2013, from Seven ‘Principles’ for Successful Return to Work.
  10. Katz, W. A. (2002). Musculoskeletal Pain and Its Socioeconomic Implications. Clinical Rheumatology Volume 22, S2-S4.
  11. Ruseckaite, R. C. (2011). Repeat Workers’ Compensation Claims: Risk Factors, Costs and Work Disability. BMC Public Health, 11:492.
  12. The Conference Board of Canada. (2013). Q&A: HR and Compensation. Retrieved June 16, 2014.
  13. Tjepkema, M. (2003). Repetitive Strain Injury. Health Reports Issue 14, 11-30.
  14. Workers’ Compensation Board of British Columbia. (2002). WCB Nature of Injury Codes. Retrieved April 5, 2013, from Worksafe BC.
  15. Worksafe BC. (2009). Worksafe BC. Retrieved June 16, 2014, from The Cost of Young Worker Injuries.
  16. Worksafe BC. (2014). Worksafe BC. Retrieved June 16, 2014, from Workplace Injury Cost Calculator.
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