The iceberg is big and imposing – and outdated
In health and safety, we love symbols and shapes. One favorite is pyramids which I have dealt with in previous writings, and the other is the iceberg.
The iceberg is big and imposing. Parts are hidden, mysterious, and arcane. More art than science.
If that sounds like a myth, we are well on the way to a good exploration of the iceberg. We owe the iceberg to Frank Bird and George Germain, pioneers in health and safety.
Most are familiar with the iceberg that appears in the 1985 Practical Loss Control Leadership, but the roots are found in Damage Control, published in 1966.
The concept is quite simple. For every dollar of direct incident costs, such as medical or compensation costs, we would experience $5 to $50 and other costs. We would also incur $1 to $3 in miscellaneous costs.
A revolutionary idea in 1985, if a misguided one. Health and safety practitioners take some satisfaction in bringing this underlying cost to employers to show that the health and safety efforts are saving money, and incidents are costly.
There are two problems with this. First of all, it is not the job of the health and safety department to really save money. The function of the health and safety department is more like an insurance policy where you have a department that provides advice and tries to minimize loss or mitigate loss for the employer. The accounting department does the very same thing, as the legal department.
Saying a $1000 injury claim has cost the company $50,000 can be a powerful argument, but it is sure to damage the credibility of the person making it. The costs that are tagged as being underlying or uninsured costs are the issue.
There is a term called "sunk costs" in the accounting world. Sunk costs are costs that the company would incur no matter what it did, and the sunk costs basically ignore random events such as incidents to a large extent.
For example, a company vehicle gets into a motor vehicle accident. The company's insurance would cover the cost for the other involved parties. Company insurance would likely not cover the company vehicle. The company's employees would be covered by worker's compensation (direct costs). That becomes a little more complicated when it comes to the company's vehicle.
For example, the vehicle could be written off. The vehicle's value then becomes the issue, and vehicles depreciate at a rate of about 40 per cent per year. So a 10-year-old vehicle is certainly not worth what you think it might be worth on the open market.
All that is interesting but let's get back to sunk costs. If the company needs to repair that vehicle, then you would say. Aha! There are the costs of the incident. Maybe not so much.
If the vehicle is owned by a company that has a lot of vehicles, and the company had some kind of maintenance facility, they would have some capacity available to repair the vehicle. The iceberg tells us that all the wages paid for the mechanic to fix the vehicle or the body person to fix the vehicle are costs related to the incident.
That simply is not the case. The mechanic or the auto body person would be working at the company's facility whether the vehicle got into an accident or not. The company simply manages the risk knowing that there would be a requirement for repairs to their vehicles and body repairs to their vehicles and so has that capacity available because that is more cost-effective or efficient for the company.
The same argument can be extended to health and safety practitioners. Their time spent investigating the incident is a sunk cost. Whether there was an incident or not, the practitioner would still be working at the company and still being paid, so their time is not a cost attributed to that incident.
When we are talking about time, we say that may be the lost time of the employee involved in the incident can be an incident cost. Not really. The actual cost would be the amount that the company's compensation premiums are affected by that claim. Bird and Germain tag medical and compensation costs as direct costs. That may be true in the USA, but Canadians have a different system.
Certainly, there in intangible costs, as the company may have to report a lost-time injury on some prequalification databases, and reputational costs are much more difficult to calculate. But from pure dollars of direct cost, only the differential in the compensation/insurance premiums would be the cost attributable to the incident.
As a health and safety practitioner, I have never really been fond of accounting. However, since I do have a Master's degree in business and extensive senior management experience, I understand accounting and sunk costs. I can tell you that whenever a senior manager hears a health and safety person talking about the "iceberg" and the hidden costs of incidents, those same senior managers, who tend to know a fair bit about accounting, see that person losing credibility.
Now I'm not saying that you should dismiss the work of Bird and Germain as their most iconic book continues to be the basis for most safety programs we see today. Like any concept or theory, our understanding of these concepts evolves over time.
This is just another example of something being written in a book that is not necessarily correct. It is one of the many traps in health and safety theory. I say theory because a theory is an idea that is not proven in fact.
As with Heinrich's pyramid, the iceberg has been seized upon as "correct." The fact is that it is a very simple representation of the complex process.
It is correct to question theories – like the incident cost iceberg. That is how we learn. Sunk costs have been around just as long, and now the two have met.