Cost Justification for Implementing Ergonomics Intervention - Fundamentals and Assessment Tools for Occupational Ergonomics - page 53

4.2.3 What Do We Need to Measure?
We need to measure any changes to the enterprise's production costs or the value of physical assets that
will reflect the impact of the ergonomics intervention. Any factors that do not change as a result of the
intervention will measure the same before and after, and so do not affect the cost-benefit calculation;
hence they are not included in the calculation.
It is assumed within economic modeling that the enterprise will be in compliance with all pertinent
regulations, including OHS regulations. If this is not the case then the costs and benefits of becoming
compliant with regulations should also be included.

4.2.3.1 Production Costs
Production costs are the costs for an enterprise to produce a product or service ready to sell and they are
typically grouped into three categories: labor, raw material costs and capital (equipment, machinery,
computer systems, etc.). For each area of production costs consider if that factor will change in value
as a result of the project and estimate the size of that change.
The costs that most directly reflect the benefits of projects that have an impact on people are labor
costs. The costs of labor that may need to be included are:

. Wages costs and on-costs
. Overtime
. Turnover costs, which include recruitment, training and any extra supervision of workers as they
are learning
. Training
. Injury costs (workers' compensation)
. Absenteeism costs
.

Supervision

Raw material costs may be influenced through projects that impact on the quality of the finished
product. If there is less waste during the production process, then raw materials may be reduced and
this saving should be included in the cost-benefit analysis.
The capital costs of production (equipment, machinery, computer systems, etc.) are usually replaced
only periodically. It is assumed in economics that enterprises will monitor the efficiency of their pro-
duction processes and use the cheapest and most efficient means of production available to produce
their products and services. However, often enterprises continue using old and less efficient machinery
or systems, for a variety of reasons, and they may choose not to replace old equipment or systems. This
may lead to increased production costs that are not accounted for. Ergonomists and human resource
managers are then called upon to assist in making these older production systems safer and more pro-
ductive, for example, through improved work practices or training.
A full cost-benefit analysis may show that updated equipment or technology is cheaper in the long run
and safer for the workers. The cost-benefit analysis should compare the costs of the short-term solution,
for example, training program, plus the costs of the inefficiencies in the system against the cost of the
replacement machinery or system. The following inefficiency factors may need to be included in one's
cost-benefit analysis:

. Efficiency of equipment reflected in breakdown costs
. Maintenance of equipment
. Warranty or product defect costs
. Delays in supply

4.2.3.2 Changes in Product or Service Sales
The argument that investing in workers adds to production costs and pushes up the price of products and
services is often given as the reason that training and ergonomics interventions are not funded.