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This study explored the relationship between occupational risks, accidents and economic performance of construction firms.

Data came from 502 Spanish construction sites over a 6-year period.

Providing background, it’s noted:

·         Companies have a difficult time factoring in the economic consequences of unsafety since they rarely have accurate estimates of the economic impact of accidents

·         Moreover, there seems to be “low awareness of its [safety] strategic value”

·         “In order to keep companies being competitive, many contractors try to control short term total operation costs by executing only basic safety measures during construction project implementation”

·         Prior work established a negative relationship between accidents in one year and firm financial performance one year ahead (e.g. as accidents go up or down one year, financial perform goes in the opposite direction the following year)

·         It’s argued that there’s a quadratic relationship between accidents and financial performance, such that for low levels of accidents there’s an increasing positive effect on firm financial performance; this relationship hits a tipping point at higher accident levels, leading to a negative effect on firm performance

·         This study was interesting also in that it didn’t solely rely on incidents, but rather a composite measure that included incidents and also evaluated the average risk resulting from 10 site risk variables

·         A key measure is return on asset (ROA). ROA is the “the ratio of income before leverage to total assets in percent, indicating firm profitability before leverage relative to its size”

Results

Key findings were that:

·         “When the number of accidents is relatively low, increments in accident rates will be associated with increments in ROA”, such that allowing unsafety/accidents is more profitable than investing in prevention

·         However, this relationship changes at a tipping point of high accidents, where the direction becomes negative; resulting in decreases in profitability

·         These findings suggest a quadratic relationship between unsafety and economic performance

·         More site risk (as per their assessment tool) was linked to a greater number of accidents

·         A lasting relationship between site risk level and accident rates was found, where they noted “Despite of the contingency dilemma between risk and accident and the fact that all likely accidents do not finally occur (Sundström-Frisk, 1985), we can conclude that when risk expositions are repeated along the time, the rate of accidents increases”.

The relationship is shown below:

They argue that if you base decisions purely on economic terms, then “it seems that having a given number of accidents may be more efficient in economic terms than trying to eliminate them”.

That is, “there seems to be an optimal number of accidents, from a purely private economic point of view, which would differ from the optimal social objective of reducing or even eliminating accidents on constructions sites”.

Their data indicates that “the associated costs for accidents are not enough to affect negatively the profitability of the companies”, and that companies in the construction sector “might be able to bear most accident costs during long periods”.

However, this positive economic benefit of unsafety will likely hit a tipping point, where it will subsequently result in declining economic performance (what they termed a “relatively high accident rate”).

Thus, it may be “economically profitable maintaining high accident rates, especially in context of increasing production and consequently profits, which implies a clear conflict of interest from a social perspective”.

Concluding, because of the economically bearable nature of accidents, social and regulatory perspectives of risk are indeed important since “the total cost of accidents by itself might not be enough to influence firms to invest in safety prevention”.

That is, considering ethics, corporate citizenship, reputation and competitive advantage, and regulatory action etc.

Although few large organisations probably act purely on economic terms with safety investment, it may be more pertinent for small to medium sized businesses with less resources.

Authors: Forteza, F. J., Carretero-Gomez, J. M., & Sese, A. (2017). Safety science, 94, 61-76.

Study link: http://dx.doi.org/10.1016/j.ssci.2017.01.003

LinkedIn post: https://www.linkedin.com/pulse/occupational-risks-accidents-sites-economic-firms-ben-hutchinson