Is a psychosocial risk or wellbeing programme a good investment for your business? Of course it’s worth protecting and improving the wellbeing of your team - but you will likely want to understand the financial impact or return on investment (ROI) of such an initiative. And even if you aren’t too interested, your CFO definitely will be.
To answer this question properly we need to first understand the costs of the issues that poor psychosocial wellbeing leads to. These issues - absenteeism, presenteeism, accidents and injuries and worker turnover (or ‘churn’) we will explore below.
The cost of Absenteeism
Absenteeism refers to lost days of productive work due to staff being absent due to illness, injury, stress or any other reason. Many companies will be aware of their absenteeism rate, which helps to understand the financial impact of absenteeism.
Using the number of staff multiplied by productive hours per year, we get the total productive hours per year for all staff. Multiplying this figure by the absenteeism rate calculates the total productive hours lost to absence. To calculate the financial value of the lost productivity, we multiply this by the average revenue per employee per hour. For example; in an organisation of 1000 staff if the absenteeism rate is around the average of 3.5%, then 60,025 hours of productive work are lost each year. At a business with an average revenue of $80 per employee per hour, the annual cost of absenteeism is $4,800,000.
The cost of Presenteeism
Presenteeism is an umbrella term for the impact that psychosocial issues like stress, fatigue, and workplace bullying have on a worker’s productivity. The worker may be present, but due to these issues they are distracted, unmotivated or cognitively impacted, making them less effective.
Much research has been conducted looking at the financial impact of presenteeism. A thorough 2018 study from the UK’s Sainsbury Centre for Mental Health estimates the cost of presenteeism as an average per worker cost of £605 per year. (USD$755 / AUD$1135 / NZD$1212)
In our case of the 1000 person business, this represents an annual cost of presenteeism of (AUD) $1,135,000 per year.
The cost of Worker Turnover (Churn)
Worker turnover is costly across all industries, due to hiring and retraining costs as well as the impact of lost productivity. These costs do of course vary with the level of training required, and may account for significant financial commitments, particularly in industries and roles where specific training is required to bring new employees up to speed.
Research from the Chartered Institute of Personnel & Development (CIPD) published in conjunction with the European Union Health & Safety Agency (EU-OSHA) has estimated the average cost of replacing an employee at £5,800. (USD$7,240 / AUD$10,889 / NZD$11,605).
To calculate the cost we take this average cost and multiply it by the number of stress-related worker departures. This is calculated using University of Masschusetts research that shows 40% of job turnover relating to stress. So, if in our 1000 person business, we have 30 job departures during a year, we can assume 12 of these are stress related. 12 x $10,889 equals a total worker turnover cost of (AUD) $130,668.
The cost of accidents and injuries, and reputational damage
This is more difficult to measure reliably and in a consistent way in relation to psychosocial factors, because accidents and injuries generally involve a combination of factors - the intersection between stressors that are psychological in nature, as well as situational, ergonomic and biomechanical. Additionally, varying severity and external circumstances can elevate the cost of particular types of incidents. However it is fair to say that both the costs related to accidents and injuries and external reputation damage can be significant when an accident, injury or issue with psychosocial factors at a workplace cause serious harm.
While we don’t attempt to place number values on accidents, injuries or reputational damage in our calculations of ROI for clients; we do recommend that your organisation considers this as an additional risk in your evaluation of whether to adopt preventive measures in the psychosocial wellbeing space.
How to generate a Return on Investment (ROI)
In our example business of 1000 staff we have established that, using average assumptions across absenteeism, presenteeism and worker turnover, there is an annual cost to the business of (AUD) $6,065,668 from these issues.
Generating a return on investment by targeting psychosocial hazards and wellbeing relies on investing in measures that solve the actual challenges present.
SaferMe’s Safety Snap tool solves this problem by helping businesses to identify the psychosocial factors that are present in their workplace, and quantifying them. In less than one minute per week, Safety Snap collects data using an evidence based method, so business leadership have simple, clear data about the psychosocial hazards that are at elevated levels and need to be addressed.
By helping businesses to focus on which issues need attention, and where in the business they need fixing, Safety Snap makes the job of improve workplace experience much easier, and prevents wasted investment.
Our approach is to target modest and achievable improvements across absenteeism, presenteeism and turnover. In the example of our 1000 person business, which is experiencing costs of $6,065,668 per year, we will target:
- A 2.5% improvement in absenteeism costs
- A 7.5% improvement in presenteeism costs
- A 5% improvement in turnover costs
More: Book a free 30 minute demo of Safety Snap.
How to calculate the Return on Investment (ROI) of psychosocial wellbeing initiatives
Now we know the costs of absenteeism, presenteeism and turnover, and have conservative estimates on the gains we can achieve by addressing the issues behind them - we can calculate the return on investment of the initiative.
In our example business of 1000 staff, the modest targets listed above will deliver the business a saving of $211,658.40 per year.
We then subtract the cost of the programme to calculate our ROI. In this case an estimated $60,000 Safety Snap programme cost for a business of this size - and Safety Snap has helped to generate a $150,000 per year return on their investment in the programme.
Would you like help calculating an ROI for your business?
Book a Zoom session with one of our Safety Snap solution experts and we’ll use our evidence-based model to help calculate the return on investment your business can realise, based on real numbers from your organisation.
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