Module 4

FORMATIVE ASSESEMENT - TEN

 IAC1001 Given various risk situations learners will be able to: a. Identify and describe the
appropriate risk assessment processes to deal with the risks;

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4.2.11. KM-04-KT11:
Economics of occupational health and safety and how this impacts on

the value chain (Intermediate)

KT1101 Calculate and explain the short, medium and long term costs of
accidents and incidents: a. Direct and indirect costs; (Humane
KT1102 aspects, Socio economic impact of accidents and incidents, Ill
KT1103 Health as a result of exposure etc.) (NQF Level: 5)
KT1104 Identify the potential economic value of effectively managing
KT1105 Occupational Health and Safety. (NQF Level: 5)
Explain and give examples of the elements of a typical
Occupational Health and Safety budget; (NQF Level: 5)
Describe the process for developing and managing an
appropriate Occupational Health and Safety budget. (NQF
Level: 5)
Describe the impact of occupational health and safety
performance on the value chain of a typical business. (NQF
Level: 5)

CALCULATE AND EXPLAIN THE SHORT, MEDIUM AND LONG TERM COSTS OF ACCIDENTS AND
INCIDENTS:
DIRECT AND INDIRECT COSTS; (HUMANE ASPECTS, SOCIO ECONOMIC IMPACT OF ACCIDENTS
AND INCIDENTS, ILL HEALTH AS A RESULT OF EXPOSURE ETC)

Direct Costs of an Accident
When an employee suffers a job-related injury or illness, the accompanying pain and
discomfort are compounded by the immediate cost of treatment for the condition. Then
may come the additional medical costs: physician and hospital bills, prescription medicine,
occupational therapy, and medical equipment, such as crutches and wheelchairs.

Indirect Costs of an Accident
An accident that causes a worker’s injury will often have costs that are absorbed with the
operations.
Examples of hidden costs can include:
-Damage to the vehicle or equipment the worker was using at the time. This could require
expensive repair or replacement.

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-Loss of the worker’s time. There may be loss of time by fellow employees and supervisors
responding to the injury-causing incident, or transporting the injured employee to the
medical facility.
-Temporarily lowered morale, efficiency, and productivity by co-workers and supervisors.
-Cost of hiring and training a temporary or permanent replacement for the injured
employee, with lower productivity during the hiring and training process. Also the other fellow
employees that have to pick up the injured employees duties while he is absent from work
(e.g., 3 employees doing what takes 4 to do normally).
-The cost of Loss Control to investigate the accident, and communicate with the insurance
company.
-The time it takes your supervisor to complete the accident report and communicate with
Loss Control.

Other indirect costs include such factors as a surcharge on the company’s insurance
premium. Other costs may include civil or criminal penalties imposed by state or federal
officials if the accident is found to have resulted from flagrant violation of workplace safety
requirements.
Studies have shown that such indirect costs usually total three to four times the direct costs of
the accident and could amount to as much as 20 times the direct costs

Consequences of accidents at work and work-related ill-health for different groups

Non – tangible More or less tangible

Victim Pain and suffering Loss of salary and premiums

Moral and psychological suffering Reduction of professional capacity

(especially in Medical costs

the case of a permanent Loss of time (medical treatments

disability)

Lowered self-esteem, self

confidence

Strain on relationships

Lifestyle changes

Family and Moral and psychological suffering Financial loss

friends Medical and family burden Extra costs

Strain on relationships

Colleagues Psychological and physical distress Loss of time and possibly also of

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Worry or panic (in case of serious premiums

or frequent Increase of workload

accidents/cases of ill-health) Training of temporary workers

Company Presenteeism Internal audit

Company image Decrease of the production

Working relations and social Damages to the equipment, material

climate Quality losses

Training of new staff

Technical disturbances

Organisational difficulties

Increase of production costs

Increase of the insurance premium or

reduction

of the discount

Early retirement

Administration costs

Legal sanctions

Society Reduction of the human labour Loss of production

potential Increase of social security costs

Reduction of the quality of life Medical treatment and rehabilitation

costs

Early retirement

Decrease of the standard of living

Source: De Greef and Van den Broek, 2004 (a)

IDENTIFY THE POTENTIAL ECONOMIC VALUE OF EFFECTIVELY MANAGING OCCUPATIONAL
HEALTH AND SAFETY
A well designed and executed occupational health and safety program is often said to be
good for business as well as being a key legal and social obligation. Effectively managing
the occupational health and safety;

 Helps to demonstrate to all stakeholders that a business is socially responsible,
 Protects and enhances an organization’s credibility
 Helps maximize the performance and/ or productivity of employees.
 Enhances the employee’s commitment to the team/ organization as a whole.
 Builds a more competent, happier and healthier workforce.
 Reduces business costs and disruption
 Enables organizations to meet OHS expectations, and
 Encourages the workforce in general to stay longer in active life.

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The combination of operating in a market driven economy alongside a society that is more
aware of risks means that many enterprises now therefore realize the significant gains that
can be made from integrating well designed OHS performance into their wider business
model and strategies. Theses wider benefits include;

 Improvements in the image, brand value and wider reputation of the enterprise
 Delivering on corporate social responsibility commitments.
 Maintaining and promoting investor confidence and,
 developing positive stakeholder engagement at all levels
simple improvements to workplace safety practices can quickly increase competitiveness,
profitability and the motivation of employees. The implementation of a new ohs
management system can rapidly provide and effective framework to prevent or minimize
accidents and workplace created ill health and thereby show an immediate return on
investment.
EXPLAIN AND GIVE EXAMPLES OF THE ELEMENTS OF A TYPICAL OCCUPATIONAL HEALTH AND
SAFETY BUDGET;

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From an occupational health and safety perspective, the main budgets used are a capital
budget, an operating budget and a project budget. A capital budget is used to forecast
costs of major capital purchases, such as computers and health surveillance or noise
monitoring equipment/ whilst an operating budget is used to forecast costs of products and
services a business may use in a budgeted period. From a health and safety perspective,
these may include external audits, vaccinations, hearing tests and personal protective
equipment. A project budget may be set for a defined piece of work or project to list down
and track costs.

DESCRIBE THE PROCESS FOR DEVELOPING AND MANAGING AN APPROPRIATE OCCUPATIONAL
HEALTH AND SAFETY BUDGET.
The process of setting and preparing budgets will depend with the management style of an
organisation and the type of budget. Many traditional companies use top down budgeting,
which is
where top management outline figures and available budget for middle and lower level
managers to plan their work and costs around.

Other organisations use bottom-up budgeting, which is where lower and middle level
managers anticipate their department’s resource needs and put these into a budget, which
is passed up the organisation to top management. You can see this outlined on the slide
here.
What works well in most organisations is a combination of both top down and bottom up
budgeting, as it draws on top management knowledge of company goals and available
resource and on lower and middle management knowledge of day to day operations.

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Costs may be final if figures are known, or they may be forecasted or projected to help
calculate a budget before actual costs are known. Budgets are generally set towards the
end of one financial year, for the coming year, or at the start of a project if it’s a one off item
of work.
Whilst it’s important to have structure around budget setting, it’s also important to have some
flexibility as things may change through the period that the budget is set for.

DESCRIBE THE IMPACT OF OCCUPATIONAL HEALTH AND SAFETY PERFORMANCE ON THE VALUE
CHAIN OF A TYPICAL BUSINESS.
Workplace illness, injury and death impose large costs on national economies. These costs
accrue to individual workers who suffer, their families, the businesses that employ them, and
society at large due to the costs associated with health care and treatment. The investment
in OHS systems and practices makes sound business sense. The is usually based on the
assessment that investing in OHS can result in improved business performance and
profitability in a number of different ways, including:

 lowering OHS compliance costs (e.g., reduced Work Cover premiums);
 reducing sickness on-the-job (presenteeism);
 reducing costs associated with workplace accidents and fatalities;
 reducing the costs associated with return-to-work processes;
 reducing labour costs associated with absenteeism and turnover;
 higher levels of employee productivity as a result of improved morale, motivation,

commitment and/or engagement;

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 more efficient work processes;
 better risk management;
 protecting intangible firm assets (e.g. brand image and customer loyalty); and
 improving business reputation.

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FORMATIVE ASSESEMENT - ELEVEN

 IAC1101 Given an integrated case exercise (Reports, statistics and data) be able to
demonstrate the understanding as described in the learning activity guidelines.

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