SECTION III Service Systems
9.4 The Influence of Corporate Culture on Cost Benefit Analysis
The influence of an organization’s inherent culture or personality will greatly affect how the cost benefit analysis financial tool can or should be used. “Costs and benefits can only be defined in the context of each organization’s unique culture.” Can this statement be true? Clearly one could successfully argue that the simple direct costs of repetitive strain injuries, back injuries, and other “ergonomically related” injuries are not culturally dependent. While this is most likely true, the culture comes into the cost benefit analysis consideration when other soft and hidden costs and benefits are likely to be perceived by management as credible and value adding. Because of this it is important to view the total set of costs and benefits as closely related to what the organizational value system is. The quantification of costs and benefits is especially sensitive to those organizational values. It becomes especially important when the costs and benefits are less tangible and often indirect.
The concept of “value-focused thinking”7 has been presented in the literature as a different way to approach decision making. When faced with making a decision, such as “should we conduct this ergo- nomic intervention in the workplace to reduce cumulative trauma injuries?’ the traditional approach is to consider the problem from the perspective of the alternatives and then considering objectives or criteria to evaluate each alternative (cost/benefit ratio). With value-focused thinking, the values that are important to the organization become the principal measure against which alternatives and their consequences are evaluated. Ralph L. Keeney, professor of systems management at the University of Southern California, states in his article, “It is these values that are fundamentally important in any decision situation, more fundamental than alternatives, and they should be the driving force for our decision making. Alternatives are relevant only because they are means to achieve values.”7
Organizational Culture and Values
Culture is defined as the set of key values, guiding beliefs and understandings that are shared by most members of an organization. The culture defines the basic organizational values. It helps to communicate
and establish standards of achievement within the organization.”9
• “Shared values. What the company stands for — stated and implied, good and bad. What a company is proud of or would like to be proud of.”10
Tom Peters and Bob Waterman stated that their “one all purpose bit of advice for management” was to “figure out your value system” as they pursued excellence.11 Those companies with excellent manage- ment have one thing in common: a shared understanding of what their organizational value system is and what their companies stand for. Values influence individual behavior and decision making. They can shape how management will define those variables that they are willing to use for an ergonomic cost benefit analysis. To understand how to quantify costs and benefits, the ergonomist must first determine the variables and values that the organization considers credible and will allow in the calculation. The so-called soft costs or savings, although recognized as real, may not be allowed by some organizations in the cost benefit analysis.
Performance-related values define the orientation of the organization toward issues involving finance, productivity, quality, and health, and safety. Organizations that do not have a balanced set of values that place the well-being of their employees on the same level as the fiscal values for increasing stockholder wealth and productivity will create a value of conflict when considering ergonomic benefits to the organizations. It is crucial that the corporate ergonomist or consultant determine the value set of the organization prior to making his or her business case for the recommended improvements. One way to determine that value set is to look at examples of other business cases that were successfully presented to and accepted by management. A business case that does not mention safety and health or quality may be an indication that you are dealing with a very fiscally based value system. Knowing this you would want to build your business case primarily on those hard, direct tangible benefits that might be expected from the ergonomics intervention.
Demonstrating and Communicating Safety and Health Values
The existence of shared safety and health values and norms that clearly indicate the importance of safety as a function of good business is essential. These values must be clear so employees will understand what choices to make if conflicts between safety and other business priorities arise. The following are bench- mark values that are common among companies with excellent safety records.
• Nearly all work-related injuries and illnesses are preventable.
• Management is responsible for creating a safe work environment.
• All employees are accountable for following established safety procedures.
• All workplace safety and health exposures can be controlled.
• Safety training is essential
• Safety is an integral part of the business plan
Many U.S. corporations do not have documented statements that communicate their corporate values, let alone their safety and health values. Lacking these statements people create their own perceptions or
9-12 Occupational Ergonomics: Design and Management of Work Systems
interpretations of what they think the safety values of the company are. For example, faced with making a decision to get help, use a mechanical lifting aid, just say that the object is too heavy to lift, or take a chance that he can handle the lift alone, a worker may choose the latter based on the perception that speed takes precedence over safety. He or she may suffer a serious back injury as a result of this decision.
When questioned, management would likely state that they do not tell people to place themselves at risk to save a few minutes. However, the reality is that risk-taking behavior has been condoned (although maybe indirectly by the lack of verbal or visible management action when risk-taking behavior has been observed in the past) while getting the job done quickly has been rewarded. Therefore, speed over safety has become a value that is supported in the organization and in the minds of the employees.
Advances in Economic Analysis
Professors John K. Shank and Vijay Govindarajan12 present a case for a new method of looking at the benefit of technological investments, which they call “Strategic Cost Analysis.” “A project-level net present value (NPV) framework, it is argued, places such a premium on short-term financial results, and so little emphasis on difficult-to-quantify issues, such as quality enhancement or manufacturing flexibility, that major manufacturing breakthroughs do not pass the NPV test.”13 The Strategic Cost Analysis (SCM) perspective may have more widespread applicability to the issues facing corporate ergonomists in trying to quantify the benefits of ergonomic interventions and improvements. SCM is a blend of three approaches to cost analysis:
• Value chain analysis
• Cost driver analysis
• Competitive advantage analysis Value Chain Analysis
Value chain analysis is a more holistic approach that would take into consideration the impact of the ergonomic improvement throughout the value chain of its goods and services. Rather than asking what value would be added in this department or this job by the intervention, value chain analysis would ask what impact will this change have on the consumers of the goods and services, on the company’s suppliers, on other employees in different departments, and on the rest of the organization.
Cost Driver Analysis
Cost driver analysis looks at what Shank and Govindarajan refer to as “structural drivers” and “executional drivers.” Structural drivers are a function of the:
• Scope of the ergonomic improvement (one workstation or one thousand workstation upgrades)
• Complexity of the new technology that may be employed (redesign of an automated material handling system)
• Other factors such as experience of the designers and installers
On the other hand, executional drivers would force organizations to look at issues such as how will this strategy be implemented in a TQM or traditional business environment, how can employee and management participation and acceptance be enhanced, and are the necessary resources to execute the strategy effectively available and committed?
Competitive Advantage Analysis
Finally, the competitive advantage analysis would address the issues of whether the ergonomic improve- ment will enhance the ability of the organization to compete based on cost or some other means of
table is a summary matrix of some of the cost drivers and benefits. These are easily quantifiable and typically associated with an ergonomics intervention, and therefore, should be considered in the cost benefit discussion.
Summary and Conclusion
In today’s globally and locally competitive marketplace it is natural and logical that senior management will ask the question “What’s in it for us?” when faced with a request to commit resources to ergonomic improvements. Traditional methods of defining cost benefit in terms of expected return on investment in the shortest possible time period are still important principles that the ergonomist should know about.
The ability to understand and effectively communicate the financial ramifications of ergonomically related workers’ compensation losses or losses that are put in against a company’s group insurance program are critical skills that the corporate ergonomist must have. As insurance programs and risk financing methods become more complex, being able to talk one on one with risk managers and financial
TABLE 9.6 Summary of Potential Cost Benefit Variables
Potential Cost Variables Actual Costs Potential Benefit Variable Actual Benefits Employee training Reduced injury costs (medical, claim, expense)
Outside consultant fees Increased potential for reduced WC experience modifier Capital equipment purchases Reduction in nonvalue added material handling tasks Facilities design changes Improved job cycle time
Procedural changes cost Improved productivity by hourly workers New equipment installation costs Improved productivity by administrative workers Future equipment maint. costs Reduced scrap rates
Other costs: Improved product and service quality
Reduced employee turnover
Reduced training costs resulting from accidents Reduction in overtime charges to replace injured
worker production
Reduced potential for regulatory fines and related productivity loss
Improved employee morale Enhanced customer service capability
Enhanced product and service differentiation potential
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managers about direct and indirect costs that they understand will go a long way toward securing buy- in for ergonomic interventions.
A new twist to the cost benefit puzzle that needs to be explored and incorporated in more benefit presentations is the “values based” approach. Whether we like to admit it or not, corporate values have a very powerful influence on what gets done or does not get done in organizations. Without a clear understanding of what those internal value systems are, both organizationally as well as individually, the ergonomist may find himself or herself with what appears to be a fiscally sound intervention proposal that goes nowhere. The ability to appeal to values when the more traditional approaches to salesmanship have failed is what will differentiate the ergonomist of the future.