Slide 1 - Safety - American Society of Safety Engineers

							Safety Executives of New York
           “Business of Safety”
                          by
              James D. Smith, M.S., CSP
            Director, Risk Control Services
    Arthur J. Gallagher – Florida (Boca Raton/Miami)
       ASSE Board of Directors - Vice President

                                                          2004 Arthur J. Gallagher & Co.
SENY – The Gang?




                      2004 Arthur J. Gallagher & Co.
          Objective of Presentation



 Share Concepts/Purpose in Determining Value of Safety

 Discuss Client’s Management Perspective

 Share ASSE Business of Safety Committees Materials

 Discuss Measuring Safety Performance (Metrics)




                                                   2004 Arthur J. Gallagher & Co.
CEO’s Value of Safety Professionals - 1987




                                       2004 Arthur J. Gallagher & Co.
    1987 CEO Survey of Safety Programs

   60% indicated Safety Program contributes to the “bottom line”
   22% indicated Safety Program “pays for itself”
   10% indicated Safety Program “minor expense”
   5% indicated Safety Program is “major expenses”
   3% No response



Other Information:
 36% of CEO’s have personal involvement in the Safety Program
 56% of CEO’s keep track of the Safety Program



                                                                 2004 Arthur J. Gallagher & Co.
Liberty Mutual Group Executive Study
     A Majority Of U.S. Businesses Report Workplace
        Safety Delivers A Return On Investment
                 Liberty Mutual Survey Shows 61 Percent of Executives Save
                    $3 or More for Each $1 Invested in Workplace Safety

BOSTON - Ninety-five percent of business executives report that workplace safety has a positive
impact on a company's financial performance, according to the findings of The Executive
Survey of Workplace Safety announced today by the Liberty Mutual Group, the nation's
leading provider of workers compensation insurance. Of these executives, 61 percent
believe their companies receive a return on investment of $3 or more for each $1 they
invest in improving workplace safety The survey also reveals executives realize the
benefits of workplace safety go beyond the company's bottom-line, with 70 percent
reporting that protecting employees is a leading benefit of workplace safety. The survey
also helps shed light on the impact two types of costs associated with workplace accidents
are having on U.S. businesses: Direct costs, or payments to injured employees and their
medical care providers, and Indirect costs, such as lost productivity, overtime costs, etc.
Ninety-three percent of executives surveyed see a relationship between these costs, with
40 percent of them reporting $1 of direct cost generates between $3 and $5 of indirect
costs.



                                                                                   2004 Arthur J. Gallagher & Co.
                        MANAGER’S MOTIVATIONAL SCALE*

      Improve Operation Cost
                                                    EXCELLENT
      Improve Production Rates
      Improve Quality

      Improve Customer Relations
      Improve Labor Relations
                                                        GOOD
      Improve Worker Morale

      Reduce Injury Rates
      Legislative Compliance
      Reduce Liability Potential                       FAIR




* Frank Bird ‘Loss Control Manual “
                                                           2004 Arthur J. Gallagher & Co.
    Suggestive Methods of Showing Value


“Corporate Organizations and Cultures are Unique”




                                            2004 Arthur J. Gallagher & Co.
What is your Organizations Loss Drivers?


               Construction
               Healthcare
               Manufacturing
               Pharmaceutical
               Public Sector
               Services
               Transportation


                                     2004 Arthur J. Gallagher & Co.
            Financial Reality Checks


   Injuries/Claims Impact Production/Project Schedules
   Injuries/Claims Impact Operating Expenses
   Injuries/Claims Impact Experience Modification Rates
   Injuries/Claims Impact Hard Cost
   Injuries/Claims have Soft Cost (Indirect)
     • Intangibles – Turnover Rates or Recruitment
     • Intangibles – Public Reputation


How do we capture the “Cost” and make a Business Case?
                                                        2004 Arthur J. Gallagher & Co.
     Where are your Opportunities?


 Cost or Loss Reductions in Production/Operating Cost
 Cost or Loss Reductions Strategies in the Cost of
  Risk/Insurance Program
 Measuring Contributions to Financial Performance/Growth
  (Annual 10k Reports)
 Production or Service Increases/Decreases
 Public Reputation



                                                         2004 Arthur J. Gallagher & Co.
Current Management Realities

 Corporate Governances
   • Sarbanes-Oxley
   • Transparency
   • Code of Ethics
 Stockholder Demands for Return of Investment
   • Operation Cost
   • Income Growth
 Production, Quality and Profits = Economic Survival
 Competitive Advantages


                                                     2004 Arthur J. Gallagher & Co.
Audience to Consider – Finance Executives
  Senior Finance Executives are clear on financial goals/desired outcome
  Senior Finance Executives have unique Financial Terminologies
    • Cost/Benefits Analysis
    • Return of Investments
    • Equivalent Uniform Annual Cost (Outflows/Inflows)

  Senior Finance Executives have common characteristics:
    • Performance Driven (financial targets – variations)
    • Growth Oriented (Budget is outcome of growth)
    • Execution Mentality (Track Relentlessly)
    • Metrics/Measurements
      (Earning per share, gross margin top line & net income, RevPar)


“How does your Safety Management System fit into these Financial Goals?”

                                                                    2004 Arthur J. Gallagher & Co.
            Program Characteristics
               My View on Showing Value….

 Corporate Governance
   • Mission/Vision
   • Ethics
   • Public Reputation
 Positive Organizational Culture (Safety Climate)
 Safety Management System
 Capture Safety Performance (Metrics)
 Disclose the results in Financial Terms and Conditions
 Management Plan for Continuous Improvement
 Program Flexible to Respond to Current Events (Unplanned)

                                                              2004 Arthur J. Gallagher & Co.
                   Current Events
              Can They Have a Business Impact?


Los Angeles

Cherokee Chemical Co. Inc., of Los Angeles, has agreed to
pay the U.S. Environmental Protection Agency $53,749 for
failing to submit toxic chemical release forms, a
violation of the Emergency Planning and Community Right-
to-Know Act.




                                                    2004 Arthur J. Gallagher & Co.
Current Events – Can they have a Business Impact?
              Can They Have a Business Impact?

   New York Times, February 15, 2005

   Wheeling-Pittsburgh Says Accident Will Lower Earnings The
   Wheeling Pittsburgh Steel Corporation said yesterday that it
   expected to take a $23 million hit to its fourth-quarter
   earnings because of an accident that shut down a furnace for
   12 days in December. Company official did not immediately say
   how much profit they would report when results are released on
   March 15, but net income was like to be a fraction of the
   $35.6 million Wheeling-Pittsburgh made in the third quarter of
   2004.



                                                          2004 Arthur J. Gallagher & Co.
Current Events – Can they have a Business Impact?
             Can They Have a Business Impact?



      Production fell by 10,000 tons after ductwork and
      equipment collapsed

      December 9th in Mingo Junction, Ohio, damaging
      electrical lines and injuring two workers, the Chief
      Executive, James G. Bradley, said. First-quarter
      shipments this year will also suffer with a likely
      drop of about 85,000 tons, he said in a statement.




                                                         2004 Arthur J. Gallagher & Co.
Insurance Cost




                    2004 Arthur J. Gallagher & Co.
Florida Hurricane Prevention Plan




                                  2004 Arthur J. Gallagher & Co.
        Clients Interest – Cost of Risk

 Premium Cost
   • Property is based on rate on $100 total insurable value
   • Liability is based on $1,000 of revenue
   • Workers’ Compensation based on $100 of payroll

 Loss Sensitive Programs
   • Self-Insured Retention Layers
   • Retro-Programs

 Availability of Insurance

                                                        2004 Arthur J. Gallagher & Co.
    Why a Safety Program Struggles?

Best Management              Organizational
    Practices                   Culture




                                      2004 Arthur J. Gallagher & Co.
   What is a Safety Management System?

 A Safety Management System is a
  business process intended to assist
  Management in controlling losses
  associated with workers’ compensation,
  general liability, property and automobile
  liability claims.

 This business process consists of various
  program elements that will attempt to
  influence a positive organizational culture
  in how management/employees view and
  tolerate on-the-job injuries, risk exposures
  and various types of claims


                                                    2004 Arthur J. Gallagher & Co.
OSMSS Z10 Standard Model




                              2004 Arthur J. Gallagher & Co.
Measuring Safety Performance




                                  2004 Arthur J. Gallagher & Co.
Traditional Views Contributing Bottom Line



   Regulatory Compliance Penalties
   Insurance Cost – Experience Modification Rates (EMR)
   Lost Work Day Cases Incident Rates
   Recordable Cases Incident Rates




                                                      2004 Arthur J. Gallagher & Co.
Common Management Performance Tools


      Industry Comparisons Trailing Indicators
        • Incident Rates
      Benchmarking
      Cost – Benefit Analysis (Project Specific)
      Safety Metrics
        • Leading Indicators



                                                   2004 Arthur J. Gallagher & Co.
Using Metrics to Measure Safety Performance



        Activity Based – Measures Processes
        Processes are in Control of Individual or Team
        Measure Employee-Level of Involvement




                                                        2004 Arthur J. Gallagher & Co.
Management Process Controls – Safety Metrics

     Site Specific Best Practices
     Supervisors/Lead Staff
       • Pre-Job Safety Meetings with Work Crews
     Management Work Practice Observation (Time Intervals)
     Accident Investigation – Accident Reporting
     Self-Inspection Program
     Employee Suggestion/Feedback
     Recognition Program
     Communication Network
     Claims Experience (Outcome Data)

                                                       2004 Arthur J. Gallagher & Co.
BP Key Performance Indicators Sample




                                   2004 Arthur J. Gallagher & Co.
Common Management Performance Tools


      Claims Cost Comparisons
      Department Loss Driver Comparisons
      Cost Allocations – Performance Bonus
      Corporate – 10K Annual Reports
      Continuous Improvement
        • Project Team Wrap-Up Assessments



                                                 2004 Arthur J. Gallagher & Co.
ASSE BoSc Resources




                         2004 Arthur J. Gallagher & Co.
ASSE Business Safety Committee


  Research Data Collection post on Web Site
  Conducting Research Opportunities
  Web Site Data:
    • 1987 ASSE CEO Study
    • White Paper Annual 10K Report Findings
    • Interviews with Key Executive Management
    • ORC – Return of Investment Findings
    • BP Safety Metrics
    • OSHA VPP


                                               2004 Arthur J. Gallagher & Co.
ASSE Return on Investment White Paper

 OSHA Office of Regulatory Analysis (20% Reduction in injury and
  illnesses and return of $4-$6 for every dollar invested)
 OSHA Benefits in Partnering in VPP – 2001
   • Mobil Oil Company Plastics Production Plant (WC cost cut 70%,
     LWDC Incident Rates declined 32%)
   • Occidental Chemical Company (73% decline in incident rates)
   • Kerr-McKee Chemical Plant (injuries decline, Production all time
     – increased 35%)
 Measuring ROI, Jervis/Collins noted in Forbes 1999 Corporate
  Financial Ranking, among those listed, 10 of the most successful
  businesses were in the OSHA VPP program.


                                                              2004 Arthur J. Gallagher & Co.
Questions




               2004 Arthur J. Gallagher & Co.