Operational Safety Economics

Chapter 6Cost-effectiveness Analysis

6.1 An Introduction to Cost-effectiveness Analysis

Although the previous chapter on cost-benefit analyses stated that if the so-called net present value (NPV) is positive, a company should implement the new safety investment, it is not always realistic to assume that companies are able to implement all the safety investments with positive NPV, as they will face budget limitations. Safety managers looking for efficient safety investments but facing constraints that prevent them from implementing all recommendations stemming from cost-benefit analyses may find cost-effectiveness analyses very useful. Essentially, the approach gives an idea of whether an investment is “affordable” or not.

But the question arises as to what “affordable” means with respect to safety. If the budget available for safety were infinite, it would be possible to invest so much in safety that almost all occupational and transport incidents and accidents would be eliminated. There would be no tension at all between productivity and safety, and organizations would follow the high-reliability principles at all time. Industry could be much more automated with respect to the “risky” jobs, further avoiding and reducing incidents and accidents. However, regretfully, reality tells a different story: the budgets are not infinite, not for governments and not for private organizations. A lot of safety measures are very expensive and cannot be purchased by many companies. Or, at ...