Employers that over-rely on cost-benefit analyses of WHS interventions are at risk of overlooking the high cost of incidents and allocating insufficient resources to safety, according to a new Safe Work Australia report.

Traditional cost-benefit analyses are “fundamentally poor”, the report says.

“Rather than strategically examining the cost-benefit to business of work health and safety, the typical ‘silo’-driven analysis produces a narrow focus on a very different concept: the cost-benefit to business of health and safety interventions.”

The direct cost of an intervention, the report says, “has a measurable impact on the bottom line”, but its anticipated benefits, or the costs of failing to introduce it, are often hidden, disregarded as “externalities” or “consciously ignored because they are perceived as too difficult to quantify”.

“As a result, work health and safety decisions tend to rely on vastly incomplete financial data. This renders cost-benefit analyses partial and unreliable, and has a tendency to bias financial analyses against investment in work health and safety interventions.”

In summary:

  1. The business case for work health and safety is generally misunderstood and poorly analysed;
  2. The legal requirements for work health and safety provide a clear business case for investment;
  3. The limitations of financial cost-benefit analysis make it inappropriate for informing decisions as to whether or not to invest in controlling risks to the health and safety of workers, however;
  4. Financial (cost) analyses are likely to be useful for highlighting the most obvious and measurable work health and safety cost implications of operational and financing decisions – although to avoid misinterpretation must be accompanied by a caveat that recognises the incompleteness of estimated financial benefits. To this end, detailed research that can provide industry with guides to ratios of visible to hidden costs for various injury and illness outcomes are likely to be useful); and
  5. Intervention cost analyses (as opposed to cost-benefit analyses) remain important for informing choices between equally effective risk controls.