What's In It For Me - What's the real cost of an accident?

How I arrived at the numbers...

Situation & assumptions:

  • Framing contractor (SIC 1751)
  • Risk class 0510
  • Experience Factor of 1.0 (industry baseline for Industrial Insurance premiums)
  • 12 employees
    • Carpenters paid $20/hour
      • Multiplied by 130% (for overhead) = $26/hour
    • Site supervisor - $30/hour
      • Multiplied by 130% = $39/hour
    • Clerical - $12.50/hour
      • Multiplied by 130% = 16.25/hour
  • Mishap involved tip-over of rough-terrain forklift
    • Damage to forklift was covered by insurance
    • Injury to operator caused 5 days time-loss (average for SIC 1751)
    • Some materials being lifted required replacement.
    • Labor was required to repair damage to structure under construction.

Direct costs in the year the accident took place (costs that can be measured)

Damage to forklift:

  • Wrecker to recover forklift
  • Service call by rental agency
  • Parts and labor to repair forklift
  • Rental while forklift in for repair

Amount covered by insurance













Increase in Trade Contractor insurance premium


Time spent on reacting to/cleaning up from mishap

  • 3 hours of supervisor time
  • 3 hours each for 2 employees
  • 4 hours for injured employee balance of day









Replace materials damaged in mishap

  • 1 hour of employee time





Repair damage to structure

  • 4 hours each for 2 employees




Clerical work on claim forms, insurance paperwork, etc

  • 4 hours for one clerical


Train back-up forklift driver

  • 8 hour day
  • Course fee







Total “Direct Costs"



Costs that are inferred -- “Indirect" costs and “Hidden" costs:

In this case, includes both costs categorized as “Indirect" and “Hidden." Indirect costs are such things as:

  • “Ripple effect" on the construction schedule
    • Possible “non-completion clause" or “performance penalty"
  • Administrative paperwork
  • Reduced efficiency of crew with one person missing
  • Hiring and training a replacement worker
  • Reduced productivity of the worker upon return

Hidden costs can be such things as your company's reputation for reliability or on-time completion, the morale and loyalty of employees, etc. I didn't factor these into the figures in this example.

Depending on who is doing the measuring, and on what industry they're analyzing, the total of indirect costs averages between 1.2 and 4.5 times measurable costs. I used the lowest multiplier: 1.2

Total Indirect Costs



Total “out of pocket" costs in the year it happened



The amount of gross revenue needed to produce the additional $6,807 for that year at a 7% profit margin: $97,240.

Costs that are “over the horizon"

The increase in Industrial Insurance premiums.

The effect of a time-loss claim is predictable:

  • The Experience Factor -- where a business stands in relation to the others in its risk class -- increases
  • Industrial Insurance premiums are based on a company's risk class, Experience Factor, and number of employees
  • Therefore, as the Experience Factor goes up, the company's premiums go up.
  • A time-loss claim will affect the company's rates for three years.

(Since it is difficult to predict the exact amount rates of a particular risk class will be in any future year, the figures in this example were based on rates announced for 2006.)

In this example the company with 12 employees and an Experience Factor of 1.0 would have paid an annual Industrial Insurance premium of $60,724

After experiencing a time-loss of only five days, it's Experience Factor would have gone up to 1.05, and its Industrial Insurance premium to $63,902

That's an increase of $3,196 each year for three consecutive years.

The total cost of the accident in this case:


Year Cost Revenue needed
(7% profit margin)
Accident $6,807 $97,240
Year 2 3,196 45,657
Year 3 3,196 45,657
Year 4 3,196 45,657
Total $16,395 $234,211

In business it's true that “Time Is Money." What this “math exercise" tries to demonstrate is that an investment of your time and effort into safety can have a very large payoff in money.

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