Health & Safety Caught in the Financial Undertow

Article written by David West for National Safety Magazine. This article was first published in the December/January 2008 edition of National Safety Magazine and is reproduced with the permission of the National Safety Council of Australia.

The financial tsunami has sucked more than money out to sea. It seems likely that this vast reduction in wealth will affect every area of personal and corporate life — and the application of risk management and OHS may not be an exception.The overall losses during the financial meltdown are staggering. In the past year, the All Ordinaries has lost almost 40% of its value with around a half of the losses coming in the last two months. For some the cost will be the difference between a Mercedes and a Holden; for others it will be their job, their superannuation or their home.

There are fears among a range of experts that there is the potential for many areas of risk management and OHS to be downgraded or neglected during a downturn. They cite the loss of knowledge through job losses, a reduction in training and communication and employees finding themselves in a weaker position from an industrial relations standpoint as just some of the potential scenarios.

The cost of failing to apply the required standards of risk management and health and safety could be very high. According to National Occupational Health and Safety Commission (NOHSC) estimates, the cost of workplace injury and disease in 2001 was $34.5 billion or 5% of GDP. Three per cent of these costs were borne by employers, 44% by workers and 53% by the community.

NOHSC estimated that the cost of pain, suffering and early death could add $48.5 billion to the total.

Collateral consequences
Barry Sherriff, senior partner of the national OHS legal practice of Freehills and a member of the three-person National OHS Review Panel, believes that in a downturn there is the possibility of collateral consequences for risk management practice and it will require greater flexibility to manage reduced resources.

‘Financial stringencies may well place greater pressure on workplace systems in an attempt to get more out of fewer people,’ Sherriff said. ‘Cost cutting, particularly reducing resources, can certainly compromise or stress existing safeguards, thereby increasing the risk exposure of the organisation.'‘The costs of failing to effectively manage risk — for example, compensation costs, investigations or prosecutions — will be proportionally of greater significance even if remaining static. These costs, however, may be likely to increase in quantum.'

‘There is also the risk of a reduction in safety support services such as training and seeking professional advice in matters of policy and procedure.'

‘There is also the possibility of attention being drawn away from safety issues as management is preoccupied with managing the many other changes that a downturn can bring.' ‘Risk management approaches and strategies also need to be more flexible in times of economic downturn to take into account and respond to often rapidly changing circumstances. It requires a greater focus on how to allocate resources, and a carefully considered and planned strategy to ensure existing risk management processes are preserved and enhanced.’

Sherriff adds that safety support mechanisms can fail under pressure from outsourcing transferring the risk to others who are not within the safety support net.‘Take the work offsite, you take the risk out of sight,’ he said. Sherriff, however, points out that risk management can be an opportunity to assist with financial viability and to help organisations to understand the basics of their operation.‘There are some positives for those who are sufficiently enlightened to understand the financial benefits that safety can bring,’ he said.

OHS should remain top priority
Steven Mullins, OHS officer for the Australian Council of Trade Unions (ACTU), believes that given the clear legal obligations any downturn should not affect the way in which business approaches health and safety. However, a concerned Mullins quotes the autumn edition of the Australian Industry Group (AiG) newsletter which stated, ‘It is often suggested that OHS should be the top priority. While this is admirable and a worthy ideal every business should strive for, the reality is that making a profit will always be the highest priority’.

‘I personally found this statement chilling and it seems to ignore the fact that business has mandatory obligations to fulfil in relation to health and safety,’ he said.

‘We certainly do not want to see corners being cut in relation to health and safety just because of a downturn.’

Mullins says that the ACTU is concerned that if there are job losses in the coming year it will force workers to spend even longer in more intense and dangerous hours of work exacerbating the existing health and safety issues around long working hours. ‘We already have around 680,000 workplace injuries and illnesses and around 8000 deaths per year, which is appalling. Any increase would be unacceptable.’

Mullins points out that workplace injuries and fatalities currently cost the nation $34 billion per year, according to the ASCC 2004 report: ‘The Cost of Workplace Related Injury and Illness for Australian Employers, Workers and the Community.'

‘It just doesn’t make financial sense to reduce investment in safety — it will only lead to increase in the cost of workers compensation and healthcare,’ he said.

Loss of knowledge
Paul Barnes, senior lecturer at Queensland Institute of Technology’s School of Management, is concerned that in some organisations a downturn may expose a less than total commitment to risk management. ‘Obviously in a downturn, where organisations are employing survival strategies, risk management and safety strategies may not be seen as core to financial survival,’ he said.

‘This comes down to how sophisticated an organisation’s approach to risk management is — in some organisations good corporate governance and risk management is only skin deep and their commitment is likely to be tested by severe financial disturbances.' ‘Of course in some cases the degree of financial distress may be too great even for an organisation with a sophisticated understanding of risk management.'

‘Risk management is a core function that helps to make an organisation resilient. A downturn can be used as a trigger to rethink, reconsider and reappraise just what are the core functions of the organisation are, and then to identify where vulnerabilities lie and what needs to be invested in.’

Barnes does not think that there is a particular area of OHS that is likely to be overlooked during a downturn, but fears that there may be a tendency to cut some corners. He believes that one of the greatest risks during bad economic times is for an organisation to lose knowledge and wisdom through job losses and redundancies. ‘It is important for management to hold on to knowledge. To do this, management must set out to identify precisely what human capacities exist within their organisation, especially risk management skills,’ he said.

‘From a business continuity perspective, individuals with risk management knowledge add a great deal of value to an organisation.'‘One way to approach this is by cross tasking — that is, matching experienced people with less experienced people within the workplace so that skill and knowledge are passed on.’

Barnes sees government regulatory agencies as having a role to play, not just in enforcing regulation and investigating accidents, but also in being a fall back storehouse of knowledge. ‘Inspectors are one the best storehouses of knowledge about risk management and OHS practices that we have,’ he said.

‘Some organisations are going to be close to the edge financially and reduce spending on OHS training and communication, which is where the regulatory agencies could lean forward and step in to play a role as a supportive member of the community in difficult times.'‘This may require changes to legislation. How events will trickle down and perhaps cascade means that the regulation of OHS will be a critical thing.’

The ACTU’s Steve Mullins is also concerned about the effectiveness of regulatory authorities during a downturn, but due to a lack of resources.

‘Victorian WorkSafe lost $600 million during the financial year due to poor investments. We will be watching the impact of these kinds of losses on the regulators and their enforcement activities — we would not want to see them reduce their commitment, especially during a downturn,’ he said.

Downturn — an opportunity?
According to Michael Weissman, national environment and quality manager for Atlas Copco Australia (the Swedish multinational that provides equipment, compressed air and industrial tools for manufacturing and mining), there are already signs that orders from the mining industry have begun to decline.

Weissman believes that any downturn that comes out of the financial crisis will provide an opportunity for companies to find ways to streamline processes and activities and thereby improve their risk management and health and safety performance.

‘In boom times, many companies can not afford to release enough employees due to a lack of resources because of market demands,’ he said. ‘In an economic downturn, since the economic affect on the business is not immediate, the situation presents an opportunity for businesses to utilise the excess time of employees in improvement activities.'

‘If this is done as a project — that is, in a structured and coordinated way — it can result in boosting the morale, reducing cutting corners on OHS and provide an opportunity to enhance people skills, resulting in a springboard to boost profits when market conditions change for the better.'

‘Companies now know that slashing health and safety budgets is not the way to go — it will cost them in fines and insurance premiums.'

‘This is why we must use slower economic times to improve and streamline all our processes and this is done by looking for all areas that do not add value to the company.’

Weissman argues that workers will show signs of an increase in stress levels whether they are more idle or are given too much to do. ‘What is likely to happen is that work will be carried out by fewer workers with a resulting increase in stress. This is likely to cause in increase in the number of incidents.’

Reducing the impact
Weissman lists seven areas that can always be improved: defects, overproduction, waiting, transportation, rework, inventory and motion, and that each of these have an affect upon risk management and OHS. He believes that companies should seek to achieve what he calls a ‘steady state velocity’ between manufacturing and warehouse and suppliers.

‘By reducing non-essential activities such as excessive trips by a forklift to the warehouse you reduce the exposure of workers to potential accidents,’ he said. ‘During a downturn you have the time to look at issues like this. The solution could be to move the warehouse closer to the point of manufacture.'

‘Risk management and OHS are integral to every activity carried out by companies, but it would be a mistake to only focus upon risk management at this time.'

‘Downturns are also a time when line managers have an opportunity to conduct more communication sessions and to carry out much needed housekeeping.’

He recommends a number of impact-reduction strategies, including:

  • ongoing, more frequent, simple language and compassionate communication by CEOs in order to keep employees informed and to reduce animosity and shock
  • the application of waste reduction and lean enterprise methodology. He strongly recommends the Toyota Lean Production System, which offers an integrated way to improve business performance though engagement of employees and improve efficiencies by reducing waste.
  • a review of all business activities in all departments and operation
  • the elimination of ‘dead wood’, ie those activities that either don’t add value or are going to be greatly affected in a short term by the economic factors
  • the reassessment of risks in an integrated way aimed to reduce total loss (people safety, production loss, financial loss)
  • to adjust work velocity to lower levels to meet current market demand
  • to employ free time for continuous improvement in risk assessment to reduce potential losses in people, product, property, business.