This study seeks to consider the positive impact of correlation between lost time accidents and corporations’ annual profit share margin in the Ohio manufacturing industry.
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The methodology that has been used seeks to interview heads of 50 main manufacturing industries in Ohio, and their opinions about this issue and how it could be suitably dealt with.
Although the impact of Workers’ Compensation Act and robust legislation in the form of OSHA are very much in vogue, it is seen that the rate of accidents is on the rise, mainly due to negligence of the workmen, or due to ignorance or lack of proper training.
It is believed that with right training and incentives in place, the incidence of such accidents is believed to become less in future, and both employers and employees would be benefited.
The research topic of this case study is whether there exists direct correlation between lost time accidents and corporation’s annual profit share margin in the Ohio manufacturing industry. Through this research, it is aimed to produce the result on number of lost time accidents in the small manufacturing environment versus the large corporate environment. The number of accidents resulting from the lost time of injured employees and its impact on the corporate profit is also discussed in this study. It is perceived that the number of lost time accidents in small manufacturing companies is larger than in large corporations because of the amount of additional training the workmen in large corporations receive through established safety programmes.
There is a positive impact of lost time accident rates on profit margins of manufacturers in Ohio.
In the context of the manufacturing industry, it is believed that there exists a direct correlation between the profit share margin and the number of lost time accidents in the manufacturing environments in Ohio. Comparison of large manufacturing companies with small manufacturing companies in Ohio in terms of the number of lost time accidents and their profit margin would help to derive valid conclusions regarding the correlation between lost time accidents and corporations’ annual profit share margin.
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The research is also aimed at establishing credibility of safety training and how, if this is done correctly, it would reduce lost time accidents from the workforce, increasing productivity and profit share margin. The final objective of this research is to provide recommendations for reduction of lost time accidents in the workplace and to eliminate anguish and distress arising out of lost wages for incapacitated employees.
Lost time accidents are major constraints that badly affect the production cost and profitability of the manufacturing industry badly. Lost time accident can be defined as “An incident which causes one or more days off work (consecutive or not) after, but not including, the day of an occupational injury or illness.” (Lost time accident (LTA), 2008).
Factors contributing to lost time accidents are lack of safety precautions from the part of workers, and lack of proper safety management in the operations environment. Lack of proper training to the staff by the company is the greatest contributing factor of the lost time accidents. Adoption of safety measures is essential for reducing the occurrence of lost time accidents. A sound safety programme is necessary for successful operation of an organization. OSHA had stressed for implementing better safety measures for avoiding the accidents. (Tom, 2001).
The US Occupational Safety and Health Administration scrutinises all of the safety incentive programmes for ensuring its effectiveness in improving the construction safety performance. US construction industry suffers enormously due to an exceptionally higher number of fatalities. Due to this reason, safety is of paramount concern in the US construction industry. Companies employing safety incentive programmes have only lower lost time accidents rates than that of without safety incentive programmes. Safety incentive programmes such as behaviour modification have long term effect on performance of companies in relation to construction safety. (Gangwar & Goodrum, 2005, p.851-859). The cost requirements for installing safety measures will be returned from the increased profit resulting from improved efficiency of workforce. The money, time and cost requirements will be paid off from direct and indirect profit. High quality products resulting from improved working environment and avoiding lost time accidents are the indirect way of profit. Production slow down or stoppage from accidents should not affect in a safety assured working environment. Loss of man-hours in manufacturing firms will seriously affect the operations. Self preservation practices of workforce will highly reduce the lost time accidents. To get better production and better product at less cost per unit, adequate safety features should be maintained with the production system. (Metz, 2002, p.1).
Organizational safety is a contributing factor to the value of manufacturing firms. Establishing fundamental requirements for ensuring safety such as health and occupation safety systems will provide motivation to the workforce and improve efficiency. In large scale manufacturing firms, safety and health regulations of authorities are clearly followed unlike in small scale firms. As a result of this, the lost time accident rate in large scale firms is much lower than small scale firms. Large scale manufacturing companies are insisting on meeting minimum government standards. Safety of the workforce is regarded as a core value in large scale manufacturing companies. Advanced production system and innovative production process in large scale firms ensure maximum safety to its operating personnel. Most of the large scale firms aim at zero injuries in the operation process. As a result of these steps, the lost time accidents in large scale firms are much lower than small scale firms. Improved safety in manufacturing plant will be improving the financial performance of manufacturing companies. (Smith, 2004). When comparing the health status between the small scale and large scale industries, it can be seen that small scale firms are lower grade in meeting the safety requirements in plants. The cost of implementation of safety system is much higher and small scale firms are not considering the lost time accident as a restrictive factor for their performance. As a result, the rates of occupational injuries in small scale firms are much higher than large scale firms. Poor working environments and limitation with regard to resources for implementing safety measures lead to higher rate of lost time accident in small scale industries. It is also considered that the hazardous situations in small scale industries are higher than large scale industries. (Poster Session II Papers (327-359, 390, 391, 393), 1997).
Health hazards in the manufacturing industry will increase the cost of production because of lost time injuries and related cost and time requirements. Uncontrolled disclosure to health hazards cause reduction in productivity of employees resulting from illness and injuries. In order to control and reduce the safety risks in manufacturing organization, support from authority by way of training and assistance is available for all manufacturing firms in Ohio. The conceptual conclusion on safety system in Ohio shows that the utilization of assistance and support from government is not better utilized by small scale firms. The Ohio Bureau of Workers’ Compensation (OBWC), Division of Safety and Hygiene (DSH) provide workers’ compensation insurance coverage to all the employers in Ohio. Health and safety consulting services are provided by DSH to the employers. The analysis of the recorded data of OBWC shows that the frequencies of utilization of services of DSH by small scale employers are lower than other employers. The average duration of service provided by DSH for small employers is also lower. The lower utilization of safety measures by small scale industry reduces their productive efficiency compared to large scale firms. (Poster Session II Papers (327-359, 390, 391, 393), 1997).
In USA, it is estimated that the cost of work-related accidents and diseases highly fluctuate the production cost requirements in manufacturing companies. The estimation of National Safety Council in USA shows that the total work-injury costs in the manufacturing industry was over $112 billion in 1995. The lost time accidents and illness of workers affect the operations badly by way of ineffective working time, missed work days and medical expenses. The cost related to accidents in the work place and work related ill health of employees result in financial loss to the employers by way of loss of man-hours and compensation cost for affected employees. (Jacobson, David., & Motiar, 1997).
Fund requirements for providing compensation to workers as a result of the lost time accidents and illhealth by small manufacturing companies is a greater percentage of their annual return. When taking the case of large scale manufacturing companies the percentage of workers compensation is a lower percentage of their annual return. This is because of the lower accident rate and the larger economy in production. Thus the impact of lost time accident on the profit of smaller firms is higher than that of large scale firms.
Lost time accidents have to be reduced for improving productivity of workforce and this will help to improve companies’ profit. Proper safety training and mentoring of the workforce is necessary for reducing the rate of lost time accidents in work environment. Incentives for reducing or avoiding the accident rates for a predefined period is helpful for keeping the accident rate under control. Safety performance of firms can be measured form the frequency in occurring accidents in the organization.
It is proposed to delve into the facet of research to verify that lost time due to accidents has a direct correlation in corporations and their profit sharing margins. For this purpose the methodology that has been adopted is to make a study of around 25 major industries in the Ohio region (12 large industries and 13 small industries) in order to ascertain the potential impact that lost time due to accidents had on the companies and the ways and means by which these kinds of accidents could be averted in future.
It became necessary to seek prior appointment with the chief executive officers (CEO’s) or managers in order to ascertain their views on this subject. The methodology that was followed was personal interviews along with questionnaires that were answered by the respondents and returned to the market research team. The managers were assured that all the information provided by them would be dealt with extreme confidentiality and would not be disclosed to outsiders. The place and time of the research would be the Board Rooms of the respective companies at the time set between 09.00 AM to 10.30 AM, which was a time convenient for most of the respondents.
Considering the financial implications of such a study and the fact that a small sample would not be sufficient to arrive at a plausible result on the issue, it was decided to interview and question a minimum of 25 respondents drawn from a cross section of industries in manufacturing, like minerals, housing and construction, coal, etc. The time frame that was allotted for this research would be spread over 30 days and the budget was fixed at £5000, considering the fact that documentation, traveling and other expenses need to be envisaged for a project of this kind and a minimum of 20 market research personnel would be needed to gather, assimilate and analyse data and provide valid results.
It is seen that machine time is a very important constituent of the manufacturing process. There could be two types of accident time – one that is considered quite normal in any manufacturing process, especially of mass production items, for instance, a lathe machine that produces around 12,000 bolts per day, may have accidents of say 0.1- 0.2 % of its total production; therefore, it is quite possible that normal accidents may take place, as is taken as normal risks in any manufacturing process. However, if one has to consider abnormal accidents, like machine breakdown or failure, the aspect of profits has to be considered.
It is seen that in Ohio context, a lot of machinery manufacturing companies are present. These cater to the asset needs of many manufacturing companies like textiles, heavy machineries and components, etc. Abnormal accidents or breakdowns due to human or machine error could be a major source of lowered profit margins, especially in the Ohio context, since the markets are extremely competitive and volatile.
The interviews with the respondents threw open new vistas of knowledge and learning and the fact that advanced training and safe practices could lead to lower incidence of lost time accidents.
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The main causes for lost time accidents, according to the respondents were:
- Lack of knowledge or skill about the work to be performed.
- Lowered degree of care manifested during carrying on the operations.
- Breakages or damages to products during transit, especially during movements in trolleys, fork lift machines or other lifting equipments, including cranes.
- Not being adequately trained or made aware on how to deal with emergencies or unusual situations, as a result of which losses or damages occur, which could have been prevented by a more experienced or trained operator.
- A large part of the study could not ascertain whether accidents occur due to human, or machine errors, since malfunctioning of machines could occur due to non-human reasons. For instance, mechanical or electrical failure or malfunctioning could occur if machines are not regularly serviced and its worn out parts replaced. This is all the more important for machines that run continuously for long hours, without proper breaks or rest to machines.
It is therefore necessary that the company tries to “ensure that our companies provide a healthy and safe workplace for all employees and contractors, and take due care of all customers and visitors at our locations.” (Health and safety: Policy, 2005, p.2.).
The results of interviews with respondents also clarified that the main endangerment due to work related accidents occurred mainly in small or medium manufacturing industries, since large manufacturers have robust training systems and employees are sent through rigorous training and orientations programmes before being formally inducted into the job. Moreover, large companies have the expertise of consultants and prime manufacturers at their disposal, because of which the probability of major accidents is lesser than that prevalent in small companies who do not have access to well-organised and expensive training programmes.
According to the respondents, it is often seen that serious accidents to employees or contractual workforce, is not an uncommon phenomenon in modern work places, especially in construction industry, which are exposed to a number of risks and perils. These accidents occur not because of unsafe working environments, on the contrary it could occur due to carelessness, or lack of critical awareness of workmen, despite the fact that the Federal and State statutes demand that “employers adhere to a wide variety of safety measures designed to protect employees from work related injuries.” (Law resources from a Hamilton country, Ohio, work related lawyer, n.d).
According to the respondents, it is seen that the Ohio Bureau of Workers’ Compensation pays death benefits to next kin of workmen who die due to work related injuries or diseases. It could also be seen that in case private employers wish to pay insurance premiums of their workmen, the “payroll reports and payments must be received – not postmarked –by the deadline. If they are not, coverage lapses on March 1 and September 1.“ (Taft & Conrad, n.d).
This aspect is important since if any employee covered is injured during the period of lapse in coverage, the employers would be held responsible and would have to pay fines and penalties determined by the appropriate authority. Further, the employer would also be held liable for any claims and outstanding premiums.
Interactions with the respondent companies also included whether they were using any safety performance systems or incentive schemes, what could ensure, at least theoretically, adherence to safe operating practices. Further, the surveyors also collected data about the number of lost time and the total number of employee hours during the period of 2007-2008.
In the United States the aspect of treatment costs of injured or diseased worker is a major issue that haunts individuals and the state. According to the respondents, health care is an individual responsibility and not a state liability, and yet employers need to bear the brunt in the event of an accident that occurs due to the negligence of the said employee, present or otherwise. Further, it would not also be in the best interests of the employers to go in for litigation or suit, not only because of the cost involved but the fact that the carefully made reputation of the company may also be compromised.
The analysis of the data in this study could be seen
- The independent variable is the number of accidents recorded.
- The dependent variable is the amount of production that is effected.
Again, in the present case, it would be necessary to consider OSHA (Occupational Safety and Health Administration) with regard to nature of work related injuries sustained.
There are three categories prescribed under OSHA, and they are:
- OSHA documented, which are cases when workers, having sustained injuries/illness during work, have taken appropriate medical care and this is documented under OSHA norms.
- In the case of lost-time workday cases, the impact of injuries/illness has rendered the worker unable to attend to his work, and is termed as” lost time workday cases.” (Gangwar & Goodrum, 2005, p.854).
- The workload on the ailing or injured workman has been restricted in view of his present condition.
It is the second instance that is of main concern in the present study since the injury, accident or illness has rendered the workman unfit for work, and therefore losses are sustained by both the employee and the employer. In the event the losses are covered by insurance it is fine, but otherwise, the losses would have to be borne by the employers, since the accident was work related. According to the respondents, the employees, if covered under Workmen’s Compensation Act would stand to gain. This is precisely the reason why the Workmen’s Compensation Act had been introduced to protect the interests of the injured employees. According to the Act, it is mandatory for employers to register the workers who are drawing wage of more than $ 160 in a calendar quarter. (Larson, 2003).
The respondents believed that the benefits derivable by the employee would be in terms of the fact that the first time, he would be entitled to exercise choice over the doctor for examination. However, after a mandatory period of 90 days, the said employee would be assessed by the officials of the Bureau of Workers Compensation Medical Section in order to determine whether the eligibility would need to be continued and to pass an opinion regarding the suitability of the medical treatment meted to the employee.
It has been observed that under the WCA, there are basically three types of amounts paid out.
The first is with regard to the temporary total disability, which is calculated as a proportion of the wage bill of the worker, but is subject to a weekly cap. These payments are to be continued to be paid to the injured employee during the course of his disability. In case the said employee is also covered under Social Security Schemes, the required adjustments need to be made, especially in case the employee is at preset in non-occupational benefit plan. The main idea is that the employee should not draw benefits for the same sickness under various plans and thus burden the state with surplus payments.
The next type, as pointed out by the interviewees, was in the form of permanent or total disability, which is a lifelong payment since the workman is not capable of carrying out any worthwhile occupation due to sustenance of injury or onset of illness. This is also calculated as a proportion of his wage, subject to a maximum cap. As in the case of temporary total disability, it is seen that Social Security Costs, if any, need to be adjusted from the payment.
The next type of payments would be in the form of total partial disability, which is dependent upon the type of injuries sustained by the employee. The law states that the compensation for uncharted injuries would be based as 1/3 of the state’s average weekly wage, for a period of 200 weeks. (Larson, 2003).
This payment would be made during the entire course of the disability. Thus it is seen that the kinds of compensations payable for injuries or illnesses to workmen are quite substantial and may be a financial burden on employers if suitable insurance coverage is not carried out by them to compensate for such kind of injuries or illnesses.
As per the above discussions, and according to the results of survey carried out, it has been determined that there is a significant impact of correlation between loss of man-hours due to injury, or illness to workers and the financial impact of such charges on the firm. Since there is a positive correlation between the two variables, production and loss of man-hours due to accidents, it has now become necessary to seek interventionists’ method on how this issue could be controlled and how the levels of accidents could be brought down in the near future.
It is also necessary to study the impact of any safety incentive programmes that could be initiated in order to explain the cumulative effects of accidents that are preventable and non-recurring in the context of worker health, safety and security.
Thus it is necessary to follow the guidelines enunciated by OSHA. While the objective of OSHA is to protect the rights and privileges of the working class, it need not be seen as a privilege for all times. While safety and security and its protective enforcement is, no doubt, within the ambit and responsibility of employers, they could hardly be held responsible for the actions and results arising out of lowered degree of care on the part of the employees.
No Court of law could seek to recompensate wilful negligence on the part of errant employees, irrespective of the degree of injury, or illness caused. Thus, as pointed out by the employers of the companies, who belong to a cross section of Ohio’s industrial and manufacturing units, the onus of proving costs would rest squarely on the potential beneficiary of aid or coverage. In the event the employee wished to gain monetary advantage under the WCA, he would have to prove beyond reasonable doubt that the injury or illness occurred due to factors beyond his control, and even if it were in his control, he was unprepared to take stock of the eventuality. The covenant binding the employers and employees enforces certain duties and responsibilities on both parties and it is for each of them to take care of their respective positions. If the accident or injury occurred due to negligence on the part of the employee, wilful mistake, ignorance or oversight in attending to an emergent, or unusual circumstances, it would be obligatory on his part to prove beyond reasonable doubt that the circumstances were such that even after exercising caution and prudence, which a man of ordinary intelligence, would have undertaken under such circumstances, the accident did occur. On the part of the employers, it is to be proved that negligence was present, whether expressed or implied.
Interpretations of study
It is seen that incentives would have only restrictive applications in control of accidents and injuries in the work place. This has been highlighted in some research studies.
“The findings suggest that safety incentive programs do affect safety performances of companies, but these effects change over time. The findings suggest that as safety incentive programs grow older, companies’ accident rates increase over time as well. This confirms what others have found in separate research efforts using different methods.” (Gangwar & Goodrum, 2005, p.858).
It may thus be concluded that it would take some time before the full impact of the OSHA document and lost time analysis could be felt. However, during the interim period it is necessary that all possible precautions are taken by both the employees and employers to ensure that best industry practices are maintained both in terms of safety and control over costs and also, in cases of small units who may not be able to benefit from the fullest use of mandatory provisions, at least the maximum coverage that is allowable under the circumstances may be allotted for the health, security and safety provisions of the workforce.
It is also necessary that study of this kind needs to take into account the various monetary and non-monetary impacts of accidents, also in terms of the ethical and moral impacts that accidents could cause to the afflicted victims and his/her carers.
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