Accident Prevention Investment – Scenario
Able Construction is a small company that builds homes. One of their workers got seriously hurt on the job and broke a bone. Because of this, the company had to spend a lot of money. Now, we want to show why spending $10,000 on safety improvements is a smart idea to prevent accidents like this in the future.
How the Accident Affected Company Profits
Before the accident, Able Construction made a net profit of $2,000,000. After the accident, they had to pay:
- $50,000 in direct costs (like medical bills and workers’ compensation)
- $150,000 in indirect costs (like lost work time, damaged equipment, training new workers, and higher insurance)
Total accident costs = $50,000 + $150,000 = $200,000
New net profit after the accident = $2,000,000 - $200,000 = $1,800,000
How Investing in Safety Helps
Spending $10,000 on safety (like training or equipment) can stop accidents from happening. If that $10,000 stops even one accident, the company saves $200,000.
Return on Investment (ROI) Calculation:
ROI = (Money Saved ÷ Money Spent) × 100%
ROI = ($200,000 ÷ $10,000) × 100% = 2,000%
This means the company gets 20 times more value than what it spent. If more accidents are prevented, the savings and ROI are even higher.
Extra Profit Needed Without Safety Investment
If the company does not invest in safety and has another accident, it must make extra profit to cover the $200,000 loss.
Needed Profit = $200,000 ÷ 0.08 = $2,500,000
At an 8% profit margin, the company would need to sell:
Needed Sales = $2,500,000 ÷ 0.08 = $31,250,000
So, to make up for the $200,000 lost from an accident, the company must make over $31 million more in sales. Investing in safety now can prevent this loss later.
Workplace Accident ROI Calculator
You can use this simple calculator to determine the financial impact of a workplace accident and the return on investment (ROI) for preventing it.
Results:
Knowledge Check Choose the best answer for the question.
7-7. To determine how much money a company will ultimately save by investing in safety improvements, you would estimate the _____.
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