Safety Executives of New York

1. 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

2. SENY – The Gang?

3. 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)

4. CEO’s Value of Safety Professionals - 1987

5. 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

6. 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 impacton 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.

7. MANAGER’S MOTIVATIONAL SCALE* EXCELLENT • Improve Operation Cost • Improve Production Rates • Improve Quality • Improve Customer Relations • Improve Labor Relations • Improve Worker Morale • Reduce Injury Rates • Legislative Compliance • Reduce Liability Potential GOOD FAIR * Frank Bird ‘Loss Control Manual “

8. Suggestive Methods of Showing Value “Corporate Organizations and Cultures are Unique”

9. What is your Organizations Loss Drivers? • Construction • Healthcare • Manufacturing • Pharmaceutical • Public Sector • Services • Transportation

10. 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?

11. 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

12. 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

13. 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?”

14. 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)

15. 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.

16. 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.

17. Current Events – Can they have a Business Impact? Can They Have a Business Impact? Production fell by 10,000 tons after ductwork and equipment collapsedDecember 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.

18. Insurance Cost

19. Florida Hurricane Prevention Plan

20. 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

21. Why a Safety Program Struggles? Best Management Practices Organizational Culture

22. 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

23. OSMSS Z10 Standard Model

24. Measuring Safety Performance

25. Traditional Views Contributing Bottom Line • Regulatory Compliance Penalties • Insurance Cost – Experience Modification Rates (EMR) • Lost Work Day Cases Incident Rates • Recordable Cases Incident Rates

26. Common Management Performance Tools • Industry Comparisons Trailing Indicators • Incident Rates • Benchmarking • Cost – Benefit Analysis (Project Specific) • Safety Metrics • Leading Indicators

27. Using Metrics to Measure Safety Performance • Activity Based – Measures Processes • Processes are in Control of Individual or Team • Measure Employee-Level of Involvement

28. 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)

29. BP Key Performance Indicators Sample

30. 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

31. Claims Cost - Sample Total Incurred Cost of Workers’ Compensation Claims1999-2004 (5 years)

32. ASSE BoSc Resources

33. 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

34. 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.

35. Questions