Ergonomics ROI: affecting worker's compensation costs, productivity, quality, and revenue.

Return-on-investment is nothing new

In contrast, cost justification is a recent reality for health and safety professionals. The purpose of their programs--improving employee health by reducing work-related hazard exposures--has been important enough to support their funding needs in past decades. Consequently, the health and safety field has not focused on the skills and data collection systems to support ROI statements that result from their contributions and achievements. The result is that ergonomics, a relatively new frontier for health and safety, is often seen as an expense (rather than an investment with financial gains) at the time when companies are significantly tightening expense budgets.

The shift of ergonomics from an expense to an investment is much like the shift of quality programs from total quality management to Six Sigma. In earlier times, it was enough to improve customer quality metrics such as product failure rates and warranty claims. Today, improvements in quality and the associated cost savings are a tool for the Six Sigma black belt to achieve ROI. Financial gain is the new yardstick.

The key to achieving ROI in ergonomics is not a mathematical equation--it's getting results that achieve financial gains. Many ergonomics improvements are ill-conceived, poorly deployed, and don't achieve results of any kind. Consequently an ROI calculation will only highlight the lack of positive outcomes. However, ergonomics projects that are both effective and efficient can achieve three-year ROIs above 1,000 percent.

Achieving results with ergonomics

Ergonomics projects must first be effective in reducing hazard exposures. This is accomplished primarily through engineering controls--changes to the equipment, tools, controls, piece presentation, workstations, and workflow that eliminate or significantly reduce risk factors (primarily poor postures, excessive forces, and high rates of repetition). Projects that result in administrative controls (changes to task responsibilities that reduce exposure to ergonomic risk factors) or work practices (changes to procedures and work methods that reduce exposure to ergonomic risk factors) are less effective in reducing injury potential and typically provide no gains in productivity, quality, or other areas that are seen with engineering controls.

Ergonomics projects must also be efficient in reducing hazard exposure. This is accomplished by focusing first on the low-hanging fruit of low-cost, high-impact job improvements. Starting with the simple stuff has two advantages: It keeps the investment side of the equation down, and it encourages grass roots participation, resulting in far more opportunities for improvement than you could find on your own. Surprisingly, there seems to be an almost unlimited number of opportunities for low-cost, high-impact improvement when the entire shop floor is engaged.

Calculating ROI

ROI is a commonly used calculation for cost justification. Several other calculations may be used in your company, but the inputs are basically the same--how much will the project cost, how much money will be saved, and over what time period will the money savings occur. Some calculations require an interest rate (which is company-specific and can be obtained from people in the finance department). Other popular cost justification calculations include internal rate of return, net present value, and payback period.

Remember, cost justification is based on a simple concept: The benefit of an improvement should outweigh the cost. Project costs are usually easy to determine, while financial benefits are complex and require research into a variety of areas. Savings can come from numerous areas of improvement, and companies can achieve significant financial benefits in four main areas: productivity, workers' compensation costs, quality, and absenteeism.

Depending on your company, one or more of these areas might provide the results you need for an ROI equation. A good beginning point is to consider what the current business initiatives are and use existing measurement systems to capture the benefits.

To calculate ROI, apply the following formula. Since savings often continue for many years, it is often necessary to determine a reasonable time frame. Three years can be illustrative, but you should check with your finance department on how they like to see the ROI calculation presented.

Three-year ROI =

(three-year savings - initial investment)/initial investment

Ergonomics ROI is clearly a focus area for ergonomics in industry. It is the natural progression of an emerging field. First, we learned to identify ergonomics issues in the workplace. Then, we learned to assess jobs for ergonomic risk. More recently, we have begun focusing on solving ergonomics challenges and designing good ergonomics into the workplace.

It makes sense that for ergonomics to be successful in business, it must be deployed as a business initiative. In this era, business initiatives must not only make an important impact on measures such as injury rates and workers' compensation costs, but also demonstrate a compelling ROI.

Mike Wynn, C.P.E., is a vice president and ergonomics engineer for Humantech Inc.