An integrated approach to OHS

As Australian companies face ongoing pressure to reduce costs and increased accountability, managing risks in the work place is often overlooked as an effective way to control costs. Occupational Health and Safety represents a major risk management area for many organisations and managing this successfully not only generates strong financial returns, it also promotes a positive organisational culture.

Over the past 24 months the risk management industry has experienced a surge in the demand for effective and responsive OHS systems. The diverse and complex workers compensation schemes and insurance arrangements operating across Australia have dictated the need for integrated management solutions.

Corporations and public sector entities can no longer afford to pay mere 'lip service' to OHS laws and regulations, this area is now a prime target for improvement in many organisations. Having dealt with Y2K and the GST, organisations understand the importance of mitigating risks and are focused on eliminating unnecessary costs by taking control.

An integrated approach to OHS
Many companies are now challenging existing management structures and shifting from the traditional silo-mentality of managing OHS within the Human Resources function. OHS is no longer seen as a functional responsibility, but one that must be inculcated within all business processes and practices. This requires clearer accountability and the definition of key performance outcomes at an operational level.

Organisations that recognise the need for a more holistic and integrated approach to OHS risk management stand to gain significantly.

Not only does the organisation benefit by reduced workplace incidents and injuries, additional benefits include improved morale and significantly reduced costs. An improved attitude towards OHS enhances an organisation's culture and performance from the perspective of key stakeholders including shareholders, insurers and the growing number of socially responsible investment funds pursuing 'ethical investments'.

Risk management standards and increased emphasis on triple bottom line reporting provides further evidence of the need to integrate OHS within the strategic risk management framework of the organisation.

Eliminating gaps 
To effectively mitigate workplace risks and prevent injuries and workplace illness, organisations must introduce systems and processes designed to identify potential risks to employee heath and safety, property and the public. Early response systems are fundamental - however the ability to investigate, treat and respond appropriately to incidents in a timely and effective manner is a hurdle many organisations continually struggle to overcome.

The costs and potential benefits of improved management of OHS and workers compensation are not well understood by most business managers. Furthermore, the systems established in many instances actively remove line manager responsibility and accountability for investigating and undertaking corrective action. Line managers are allowed to "opt out" of the loop in terms of returning the injured worker to sustainable full-time employment.

Proof of the inability to achieve return to work is evident across all industries in Victoria. Accounts of the Victorian Work Cover Authority over the past five years show the number of claimants who have not returned to work within eight months of the injury has stagnated at 15%.

Self insurance - a viable alternative? 
For many employers, self-insurance may be a viable alternative - however this decision requires more than a financial cost/benefit evaluation. The skills and competencies of an organisation in managing claims, controlling and addressing workplace risks and establishing accountability for claims resolution is a challenge they are ill-prepared for. A comprehensive business case is essential for any Board of Directors to evaluate the quantitative and qualitative aspects of moving to self-insurance.

Lack of transparency
The costs of lost productivity and workers' compensation are rarely identified by financial reports and company directors are not obliged to disclose these costs. Few employers disclose information on workers compensation - those that do recorded multi-million dollar liabilities.

Workers' compensation costs generally represent the single largest premium within an organisation's insurance costs, and often second only to the cost of salaries and raw materials. The lack of transparent reporting often conceals the real costs and limits the value ultimately returned to shareholders.

Workplace performance transparency coupled with proper financial controls and accountability is central to reducing risks and the associated premiums paid for poor performance. There is no doubt that measuring and reporting performance against relevant benchmarks can help companies to derive far greater shareholder value.

What is crucial in this process is that the organisation chooses the right key performance indicators to promote improved performance. Having chosen the appropriate indicator and then measuring actual performance, gaps in workplace controls can be identified. Those organisations without appropriate indicators will struggle to obtain timely and accurate information.

A balanced combination of positive and negative performance measures designed to encourage development of OHS awareness, reward the good performers and pinpoint areas where greater focus, resources, equipment or training is required.

The direct costs of poor practices and performance are the premium paid or incurred claims cost for the self insured which are usually known. As are the number of days lost and injury frequency rates and often reported. However the true economic cost is difficult to measure and rarely reported.

The major categories of hidden costs are:

• make-up pay adjustments and other award benefits
• overtime and shift allowance covering absences
• unforced absenteeism
• recruitment and retraining costs
• hazard management
• repairs and replacement
• occupational health and safety
• workplace redesign.

Anecdotal evidence suggests the hidden costs can multiply the direct or known cost by up to four times. For some organisations this multiple can be as high as eleven times the actual cost.

These hidden costs can conceal poor worker or management practices and performance from key stakeholders, and prevent the direction of OHS efforts towards those areas in greatest need.

The flow-on effects from hidden performance factors are not usually valued. Their true economic cost is buried in divisional and departmental budgets. Moreover, there is no link from true performance to staff and management performance assessment and remuneration.

Corporate structures and management information systems conspire to conceal many of the real cost drivers. Human Resource systems are often not integrated with production and key financial systems. Unearthing real cost drivers and solutions therefore becomes a major and very difficult exercise for most companies to perform.

Incentives and accountability are the answer

In the absence of incentives and accountability most senior managers do not want responsibility for the problems and costs. Traditionally Occupational Health and Safety and HR personnel are expected to fix the problem. However workers compensation is often symptomatic of the way an entire business is run.

Without a clear and transparent link between performance and financial measurement, millions of dollars of shareholder funds are needlessly lost to high insurance premiums and related workplace injury costs.

The news for self-insurers is no more palatable. Despite reducing lost time injury frequency rates and introducing safety management practices, many Australian businesses are not seeing much evidence of financial dividends as a result of their efforts.

Employers, employees, shareholders, medical practitioners must change the way we view and manage workplace productivity if real progress is to be achieved. Adoption of a holistic and integrated approach will have a profound impact on the cost to employers and the community.

Employers can eliminate gaps in workplace risk, manage costs and improve competitiveness by taking an integrated approach to controlling workers compensation costs. By focusing on outcomes, identifying the cause of breaches in controls, systems and processes can then be implemented and corrective action taken. A balanced holistic approach to preventive controls and claims management is essential.