August 12, 2008 | Barb Carr

Where does EH&S fit in Business Improvement and Growth Development… the Bottom Line and ROI?

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I had the opportunity recently to discuss company direct and indirect costs with safety professionals the morning before one of our TapRooT® Root Cause Analysis courses. The term direct cost refers to any expenditure that CAN be directly related to a particular product or service (ref). An indirect cost, on the other hand, is any expenditure that CANNOT be directly related to a particular product or service (ref). Indirect costs are often referred to as overheads (ref). Not surprising, the group was able to list numerous examples of indirect costs but produced a very limited direct costs list. If the rest of the company sees the same imbalance of indirect funds going out compared to direct funds, is it a surprise that safety and other support groups are the first to go in crunch time?

In this group’s defense, they all had very supportive operation senior leadership who funded all projects as required in the name of safety following incident investigations. When asked if they could give me the sum of funds spent for safety in the last year, the group got quiet. If that same bucket of money were invested proactively instead of reactively what impact would that have had on direct costs and operations? How much lost production time, lost customer response time, or increased production cost could be tied to safety? This understanding of finances is key to running a proactive EH&S program and being a true business support function instead of an external auditor and incident response team. I encourage our TapRooT® users to sit down with their operations financial experts and get a better understanding of direct costs and processes which also gains you more commitment to corrective actions. If you would like to know more or how to start up this conversation, contact Chris Vallee at 865.539.2139, System Improvements, Inc.

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