702 Effective Accident Investigation

Estimating Direct and Indirect Costs

By adopting the recommended safety actions, we can save money on both direct and indirect accident costs. These savings are realized by avoiding the need to pay for these costs in the future.

To help estimate these costs, OSHA's Safety Pays Program tools can be used. These tools are valuable in calculating direct and indirect accident costs, as well as the necessary business volume to cover these costs.

Indirect and Direct Costs Ratio

The indirect costs for accidents will usually be greater than the direct costs. Indirect costs can range from 1 to 20 times greater than the direct costs, depending on the total costs of the injury. For every $1 spent in direct costs, you’ll pay an additional $1 to $6 in indirect costs. To determine the ratio between the indirect and direct costs, use the equation in the image. You can also estimate the ratio based on accident costs by visiting OSHA's Individual Injury Estimator: Background of Cost Estimates webpage.

Let's say an employee fractured his leg while working around the machinery in our scenario. If the total accident costs are $100,000 (indirect cost = $50,000 and the direct cost = $50,000), the ratio between indirect and direct costs based on the OSHA Injury Estimator of indirect to direct costs will be 1 to 1.

Total Costs to Direct Costs Ratio

This ratio is a little more dramatic than contrasting the indirect costs with direct costs. It helps emphasize the fact that direct costs are actually just the tip of the iceberg. To determine this ratio, use the following equation:

In this case, if the indirect (uninsured) cost totals $50,000 and the direct (insured) cost is $50,000, total accident costs will be $100,000. The ratio of total costs to direct costs will be $100,000/$50,000 = 2:1. This ratio can be much higher.

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