Q. What is Return on Investment (ROI)?
A. ROI is the
ratio of money gained or lost relative to the money invested
Q. Why do I need to know how to do a ROI?
A. ROI is an important skill
for anyone to know how to use who works in a major organization. ROI
demonstrates financial benefits versus the cost of an intervention, and it gains
management support and/or project approval. Communicating economic benefits of anything that costs your company money is an important part of gaining
management support and/or program approval. Your Commander/Manager/Director/etc. all speak project management, and ROI is a critical part of project management. To fund your ergonomic intervention you are
going to have to speak their language.
Q. What else is there about ROI?
A. ROI is used to compare the returns on investments where the money gained or lost
versus the money invested, when it is not easily compared using simple monetary value. For example, widget X might cost more than widget Y, but if widget X gives you a better ROI it might be worth it to buy over the cheaper widget Y.
Q. Are there different parts to ROI?
A. Yes. One way to
picture ROI costs is to imagine an
iceberg. Everything floating above the water are Direct costs, which can be easily
measured and are easy to see, like the top of an iceberg. Below the water are the Indirect costs, which can be harder to
quantify and more difficult to see their full impact. Indirect costs can have a much greater impact
on the bottom line than direct costs, like the bottom of an iceberg. Indirect costs include the following:
- Inefficiency or decreased productivity of
- Administrative costs associated with accident
investigation and record keeping
- Hiring and training replacement
- Overtime to other employees because of injury
- Loss of good will and lower moral.
According to the Liberty Mutual Safety Index of 2002, for every $1 expended on Direct Costs an additional $2 to $5 is expended on Indirect Costs. It’s
important you communicate both parts of ROI to management.
Q. How does ROI relate to ergonomics?
A. The Liberty Mutual Workplace Safety
Index in 2009 reported direct costs of serious work-related injuries were $38.7
- Overexertion injuries (excessive
lifting, pushing, pulling, holding, carrying, or throwing) were $9.8 billion
- Repetitive motion injuries were $2.3
The scope of work-related injury costs is a growing problem for the US economy as well as the DoD. According to the Navy's Ergonomics website ergonomics (Work Related Musculoskeletal injuries) currently represents the single largest source of civilian claims and costs, and the second largest for active duty. Specifically for the DoD agencies Air Force, Army and Navy, the total chargeback costs have grown from $586 million dollars in 1997 to $617 million dollars in 2006, even with an increasing focus on ergonomics and injury prevention.
Costs include a significant loss of workdays or limited duty and in some cases may continue to be incurred through the individual's lifetime.
The impact of work-related injuries on the US armed forces is significant. In calendar year 2004, an estimated total of 690,662 injury-related musculoskeletal conditions resulted in over 12 million days of limited duty.
Limited duty days, also called AWP – Alternative Production Workdays, may continue to be incurred through an injured individual's lifetime.