Calculating the cost of an accident at work is an arduous, expensive and complex task that we are not always in a position to carry out.
The ideal situation would be to carry out a detailed analysis of all accidents in a particular company during a specific time period, calculating all of the cost elements for each one that may influence the accident in order to be able to determine the average costs for each type of accident. Unfortunately, there are few companies that can afford this analytical work.
That is why they use estimation methods that, despite not enjoying the accuracy of the above method, can quickly provide a rough overview of what accidents may be costing the companies. There are several estimation methods, but today we are highlighting the famous Heinrich Method.
Herbert William Heinrich (1886-1962) was a pioneer in American industrial safety in the 1930s. Heinrich was an engineer in the engineering and inspection division of theTravelers Insurance Company, when he published his book Industrial Accident Prevention, A Scientific Approach in 1931. An empirical conclusion of his book became known as the Heinrich Law, which stated that for every industrial accident that causes serious or fatal injury, 29 accidents result in minor injuries and 300 incidents or accidents occur without personal injury.
In addition to this known law, which we will discuss on another occasion, the engineer also established a simple method for estimating the actual cost of accidents at work that is still valid today.
Heinrich introduced the concept of direct and indirect costs and his famous ¼ ratio. This ratio has been maintained for many years, but thereafter its value was updated in 1962 with a ratio of 1/8.
The total cost of accidents is determined from the following sum:
Total cost = Direct cost + Indirect cost
The value of the indirect cost is obtained from the expression Ci = α x Cd, α being a value dependent on company size, activity, location, etc. adopting as a more generalized value of α = 4, with the result that Ct = Cd + 4 x Cd = 5 x Cd, which allows deducing that the total cost of the accident is five times the direct costs, with the calculation being based on the aforementioned factors.
Although it may seem that it is a very old method, it is one of the most used accident cost estimation systems in Spain, and has been corroborated subsequently by experts in the field such as Roland P. Blake, who in the 70s carried out different analyses in different companies based on the same criteria as Heinrich, obtaining results that indirect costs were between 1:1 and 8:1 of the direct costs, which in his opinion coincided with and supported the average obtained by Heinrich.
Although Heinrich’s theories have been challenged over time, and even years after the death of the engineer some of his disciples revealed that their numbers were mere intuitions that did not have any scientific work to back them up, fundamentally Heinrich’s ideas remain valid and the simplicity of his method results in estimations and guidelines given the wide variations existing in estimating indirect costs.
In addition to Heinrich’s cost chart, we should also add today values related to CSR and the reputation of the company to both society and their own employees, including indirect costs values. In Spain there would also be a place for it as direct costs caused by the famous and not without the controversy of applying for benefits.
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