The Financial arguments of loss events (Accidents, Incidents and ill-health ) at workplace : An Introduction

Any accident or incidence of ill health will affect the financial resources. Due to major accidents, organizations get closed because of the heavy losses incurred. Accidents damage the organization's market value and can make it go out of business in no time. (For Example: Union Carbide India Limited, Bhopal Gas Tragedy, India )

After an adverse event (accidents, incidents, ill health, etc.), various costs are involved. These costs can be classified as:

Direct Cost
Indirect Cost
Insured Cost
Uninsured cost

What are the direct costs?

Direct costs are the costs that are directly related to the accident.

“The cost to an organization that can be directly quantified or measured from an incident or accident is known as the direct cost.“

For example, during an accident, a bike's headlight got damaged. It needs to be replaced with a new one, which will cost around Rs. 5,000, including installation costs. So for a new headlight, bike riders need to pay Rs. 5,000.

Sometimes, direct costs can be called "visible costs," as everyone can see the damages after the accident.

Sometimes, direct costs can be called "known costs," as everyone knows the possible financial impacts after the accident.

Examples of Direct cost

Damage cost to buildings, equipment or vehicles;
Maintenance cost of machinery & plant
Production loss cost; (Items / raw materials)
Attendance cost/ Absence cost of employees.
Fines(cost) resulting from prosecution by enforcement authority;
Worker sick pay (cost);
Repair cost to product, equipment, vehicles;
Staff replacement cost;

Indirect cost

These are the costs that may not be directly attributable to the accident but may result from a series of accidents.

The cost to an organization that can’t be immediately quantified or measured from an incident or accident is known as an “indirect cost”.

Sometimes, indirect costs can be called "hidden costs," as everyone cannot see the damages after the accident.

Sometimes, indirect costs can be called "unknown costs," as everyone can not know the possible financial impacts after the accident.

Examples of indirect costs:

Production delays; (Loss of Production remainder of the day/months)- It is not certain when the production will restart after the accident. As all the accidents are different in nature and severity so timeframe is not fixed. So all production losses after the accidents are considered in the Indirect costs.
Accident investigation time and any subsequent remedial action required ( Accident investigation cost and recommendation implementation expenditure);- It is not certain when the Investigation will be finished after the accident. As all the accidents are different in nature and severity so timeframe is not fixed. The time losses due to investigation and its procedures may be considered in the Indirect cost.
Lower employee morale possibly leading to reduced productivity(Less output).
Cumulative business loss;
Loss of goodwill and a poor corporate image;
Overhead Cost
Lost time by Supervision
Product or process liability claims; Public liability claims;
Recruitment expenditure / cost of replacement staff.
Training cost of replacement staff/ new staff and extra supervision cost
Extra overtime payments;

Insured Cost :

Insured costs are visible and can be easily calculated by insurance agencies.

Examples :

Damage cost to buildings, equipment or vehicles: Any industrial machinery can be insured, and after the accident , the damages may be visible to the insurance agency and a possible claim can be calculated.
Maintenance cost of machinery & plant

Uninsured Cost

Uninsured costs are not always visible and can’t be easily calculated by insurance agencies.

Lower employee morale - After any accident, the workers morale will be low and it may have impact on the production, productivity and profitability of the business but morale is intangible and can be assessed directly. So morale of the workers can not be insured.
Reputation of Business after accident - After any accident, the business may get the bad publicity and the image of the business will be tarnished. The possible losses of future business can not be estimated. The Tarnished image may snatch the future orders and contracts from the business and have the negative financial impact on the business. The business reputation is an intangible component and can not be assessed directly so it is considered under the category of Uninsured cost.

Various financial impacts after the accident are :

Damage cost to buildings, equipment or vehicles;
Claims cost on employers & public liability insurance;
Maintenance cost of machinery & plant
Production loss cost; (Items / raw materials)
Attendence cost
Absence cost of employees.
Fines(cost) resulting from prosecution by enforcement authority;
Worker sick pay (cost);
Repair cost to product, equipment, vehicles;
Staff replacement cost;
Increases in insurance premiums cost resulting from the accident;
Compensation cost not covered by the insurance policy ;
Compensation payout by the Employer)
legal representation cost following any compensation claim.
Production delays;
Loss of Production remainder of the day/months)
Accident investigation time and any subsequent remedial action required
Accident investigation cost and recommendation implementation expenditure);
Cost of first aid treatment, Transport to hospital, hospital treatment cost,
Product or process liability claims; Public liability claims;
Recruitment expenditure / cost of replacement staff.
Training cost of replacement staff/ new staff and extra supervision cost
Extra overtime payments;
Lost time cost for other employees, such as first-aid staff, who helps to injured person;
Additional administration time incurred (Administrative expenditure);
Lower employee morale possibly leading to reduced productivity(Less output).
Cumulative business loss;
Loss of goodwill and a poor corporate image;
Overhead Cost
Lost time by Supervision
Contract Penalties ( due to failure to fill orders)