How accountancy is transforming health and safety in Australia
Australian academic, Dr Sharron O’Neill, is turning the Occupational Health & Safety (OHS) world on its head by taking a management accounting perspective on a seriously flawed system.
Most businesses have traditionally ‘measured’ occupational health and safety (now better known in Australia as work health and safety, or WHS) by looking at ‘lost time’.
In other words, focusing on injuries and illnesses viewed as a unit of production and measured by indicators of lost productive capacity.
The most widely used indicators measure how many injuries resulted in absence from work, relative to hours worked; i.e. a lost time injury frequency rate (LTIFR). Some businesses also measure the total number of days lost.
There are serious problems with relying on these measures, as one academic has discovered, and the business world is taking notice of her findings.
Categorisation of data is key
“Reporting injuries and illnesses in management or annual reports is voluntary and companies can choose how they want to categorise the data,” explained Dr Sharron O’Neill, from the University of NSW, Canberra.
“Many organisations have simply adopted LTIFR from operational reports and transferred it to accounting reports, such as balanced scorecards, as a ‘safety measure’. It has become entrenched.
“No-one seems to have questioned what it actually measures. Instead, the assumption seems to have been that it was a valid and reliable indicator of OHS. In reality, it’s neither.”
The assumption seems to have been that [LTIFR] was a valid and reliable indicator of OHS. In reality, it’s neither.
Starting with seed funding from the Institute of Chartered Accountants of Australia (ICAA), (now CAANZ), Dr O’Neill worked with forensic safety engineer and consultant, the late Geoff McDonald, to demonstrate how lost time injury rates could fall even though the number and rate of non-fatal but high-consequence (permanently disabling) injuries and illness was actually rising.
“Lost time injuries span a very broad range of consequences but are most correlated with the kinds of minor injuries that occur most frequently. As a result, LTI data is a very blunt metric that provides little insight into the true impact of injury and illness – and in some cases, can actually be quite misleading.
“Added to this, LTI data are easily manipulated, making the data highly unreliable at the best of times.”
The Key Performance Indicators offering real value
What businesses fail to do is recognise the importance of injury severity. Analysts who examine the impairment of the person, rather than focusing on the impairment of the workplace, see a far greater correlation between injury outcomes and cost – the financial cost, the human cost and, to a large extent, the reputational cost.
“These are driven by the damage to the injured person, not whether the injury impacted workplace productivity,” said Dr O’Neill.
Why don’t we have this information already? Because you’ve been asking for something different.
Taking a management accounting approach, rather than a production focus, has enabled Dr O’Neill to identify performance indicators that are offering greater value for guiding OHS decisions.
For injury and illness measures, this has meant dissecting recordable injuries into those that result in permanent impairment versus temporary incapacity, rather than into those resulting in lost time versus medical treatment.
When these alternative injury KPIs are presented to CFOs, directors, and investors, many have asked, “Why don’t we have this information already?” O’Neill’s response, quite simply, has been, “Because you’ve been asking for something different.”
Management accountants could save the day
Dr O’Neill encourages business leaders and safety professionals to actively collaborate with their management accountants to develop meaningful KPIs for their organisation.
“Many accountants don't really understand what the OHS KPIs in their existing Board reports or balanced scorecards are really telling them, and they don't engage with their safety people to help identify robust leading OHS KPIs that could better support business decisions,” she said.
The business world is listening intently to Dr O’Neill’s advice. She has already had requests for briefings from insurance companies, superannuation funds, fund managers and institutional investment fund managers.
Businesses today should be looking at injury severity, not lost time, as KPIs for health and safety outcomes - but that alone is not enough.
Importantly, Dr O’Neill has been invited to Chair a working group for the Global Reporting Initiative, aimed at revising guidance on WHS reporting in sustainability and annual reports.
“Businesses today should be looking at injury severity, not lost time, as KPIs for health and safety outcomes - but that alone is not enough. If you’re focused only on injuries then you’re missing the bigger picture,” Dr O’Neill said.
“Businesses need leading KPIs that can inform their understanding of an organisation’s OHS risk picture and the effectiveness of their risk control efforts.
“That way they can have a positive business impact.”