Showing the Business Value of OEHS Initiatives

By David Downs

Managers of Occupational Environmental Health and Safety (OEHS) programs are finding that getting support for their initiatives is becoming more challenging.  The days when the only requirement for making the case for a proposed risk reduction project was “It’s required by OSHA/EPA” have been gone for some time now.  Business managers are asking tough questions:

“We haven’t been inspected by OSHA/EPA in over five years!”

“What are the options?   Can we do it a different way for less cost?”

“We have five other projects going on right now that will increase production.”

“Can it wait until next year?”

Most of us in the OEHS profession did not get very much if any education on the financial metrics used by most businesses to make decisions about the allocation of fiscal resources.  However, many of us are being put into the position of competing with others in our organizations for those very resources.  Kind of like going into an old west shootout with a pop gun…

As OEHS managers, we bring a variety of skills to our jobs, such as technical knowledge, regulatory understanding, and personal skills, among others.  We need to add the ability to build and communicate the business case to that tool kit.

I have been presenting a two-day workshop entitled, “Creation, Measurement and Communication of EHS Business Value for over 12 years at the ASSE and AIHA national meetings, as well as at Local Sections and other venues.  What follows is an outline of the key components of that workshop.

CREATING VALUE

When we talk about creating value for our organizations, the first step is to understand the established business objectives of the organization (note that we use the term “organization”, not “company”; non-profits and governmental entities also have business objectives).   We encourage OEHS managers to actively seek to identify and understand the organization’s business objectives, because if we are not perceived as supporting those objectives, we will likely be marginalized.  While some organizations clearly and actively communicate their business objectives, others do not, and it may take some investigation and discussion with the business managers to get a clear understanding.

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Once we have the business objectives identified, it is also important to know the hierarchy or priority of business objectives.  In most organizations, some business objectives are considered more important than others.   We use a tool called a “Forced-Pairs Comparison” to learn about the priority of business objectives.  We convene a meeting of top managers in the organization, and have them compare each business objective to each of the others, on a one-to-one basis.  Using a scoring process for the comparisons, we can generate a numerical ranking of the objectives.  Just knowing this information can be helpful to OEHS managers in making their business case.

We take that information to the next step by using the ranking to create a “Business Objective Weighted Risk Assessment”.  We start with the familiar process of conducting risk assessments of the key OEHS risks in our organization (note that this can be done at any level in the organization – site, division, total organization).  Then we weight the risk assessment score based on the degree of impact that risk has on each of the identified business objectives.  For example, let’s assume that a high safety risk is injuries due to repetitive assembly tasks.  If one of our business objectives is “Minimize operating expenses”, we could determine that there is a high relationship between the safety risk and meeting that business objective.  We do the same weighting of each identified risk against each business objective.  The result is a weighted score that identifies those OEHS risks that can have the most impact on meeting our business objectives.  That is powerful information that can be used to relate our proposals to helping achieve the organization’s business objectives.

MEASURING VALUE

Identifying one or more OEHS initiatives is just the first step in building the business case.  We now need to further define the issue in a “Problem Statement” that describes in clear terms what is wrong and why it is bad; where the problem occurs, specifically; how the magnitude of the problem is defined (a metric); and, why it is a business problem (business impact).

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Using that information, we then need to define one or more specific objectives that, if achieved, will reduce the identified risk.  This step usually leads us to identifying alternative approaches for further analysis.

Working with the other “stakeholders” in the organization, we then develop a plan of action to achieve the stated objectives.  By “stakeholder”, we mean those inside and outside our organization that will have a “stake” or role in accomplishing the objective.  In the case of reducing repetitive motion injuries, that would normally include production design, supervisors, engineering, and facilities, among others.  The steps needed to accomplish the top-level objective are defined, which also gives us insight to the costs associated with those steps.

Now we are ready to do some financial assessment of our initiative.  The first step is to create a cash flow table that identifies the costs associated with our proposed project, over the time period that it will be executed.  All but the most basic of projects will usually run over several years.  In addition to the costs, we also need to estimate the benefits.  These can be cost reductions related to reduced injury costs or worker’s compensation costs.  We have found, however, that the most significant benefit “buckets” can be from improved productivity, throughput and quality.  For example, if our initiative includes automation of some of the manual assembly tasks, that can have a major benefit in terms of productivity.

While a discussion of the specific financial metrics (such as Net Present Value (NPV), Payback Period, Return on Investment, and Internal Rate of Return) is beyond the scope of this paper, the best approach is to get to know the financial managers in your organization and work with them to develop the metrics typically used to help make financial decisions.

In addition to the financial assessment of your project, it is important to understand and analyze the “non-financial” aspects.  Non-financial aspects can include factors that are important to an organization, but which are difficult to define in financial terms.  Examples include:  employee morale; organization reputation; community relations; attracting and retaining the best employees; reducing regulatory impact.  In some cases, it may be the identified non-financial benefits of your project that are the most important part of the business case.

COMMUNICATING VALUE

Finally, once we have built the business case, we need to be skilled at “selling” the proposal.  That means packaging all the information we have gathered into a presentation to the management team.  Often, organizations have very specific approaches to this process; make sure you use whatever approach is typically used in your organization.

For many organizations, presenting the business case for an OEHS initiative may be unusual or unexpected.   Many business managers look at OEHS as one-dimensional – it is only a “cost” and there is no real pay-back.  The effort to make the OEHS business case is not easy – it is not one of the skills that most of us have developed.  But the benefits of your making the business case can be far-reaching, beyond the current proposal.  It can give you the credibility of being a manager who really understands the business and how OEHS supports the organization’s business objectives.

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David Downs is President of EHS Management Partners, LLC, located in Shorewood, MN.  He is vice-chair of the AIHA Management Committee, which is dedicated to helping improve the business management skills of OEHS professionals.  Current projects include:  development of a Management Certificate program; defining the skill sets needed for making OEHS business cases; Metrics Manual.  The committee also sponsors several PDC’s, Roundtables and Podium Presentations related to management skills at the AIHCE.  Anyone is welcome to join or visit our committee meetings.

 

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