Putting a Price Tag on Accidents that Don't Happen
Once the total, fully loaded costs of collisions, beyond the direct and most obvious costs, have been identified, fleets must shape a clear message about the impact of such expenses on the company.
Traditionally, it's been difficult to effectively communicate the true costs of fleet accidents and the value of new programs to prevent them. Not only does this determination take effort to quantify, but it can be difficult to do so in a way that is meaningful and palatable at different levels within an organization.
Vincent Brigidi, director of commercial operations at The CEI Group, Inc., offers thoughts on how to demonstrate the true costs of collisions, which may help fleet managers succeed in the mission to drive down costs while increasing productivity and maybe even saving a life.
Direct and 'Hidden' Costs of Accidents
The first step is to identify the total, fully loaded costs of collisions beyond the direct and most obvious costs - "bent metal." In fact, "bent metal" represents only the tip of the iceberg of the true cost of collisions. Other costs are "hidden" and can include Workers' Compensation and third-party liability costs, legal and administrative expenses, lost revenue, and reduced productivity due both to time lost during the claims process and injury-related absences.
As studies I have participated in have shown, these costs vary from one organization to the next. However, all have demonstrated that the true cost of accidents, when hidden costs are included, is anywhere from two to 10 times direct costs. That means the real cost of a collision involving $2,500 in repairs and replacement rentals could be $5,000-$25,000.
Costs in Relation to Lost Profits
After establishing what fleet collisions truly cost, the next step is to shape a clear message about the impact of these expenses on the company and why efforts should be made to avoid them.
In many cases, decisions on new programs involve senior sales and executive management, in addition to representatives from fleet, risk management, and environment, health & safety.
For upper-level management, an effective approach can be to translate accident costs into lost profits. While not the first time this approach has been recommended - OSHA now covers this concept on its Web site - it can be a powerful, high-level message from fleet, acceptable to a wide-ranging audience within the organization.
The basics are simple: take the fully loaded expenses associated with fleet accidents and divide by the company's operating profit margin. The result is the total additional sales revenue the company must generate to replace lost profits due to fleet accidents.
Here's an example: Take a company with an operating profit margin of 10 percent and annual accident-related expenses of $500,000. An additional $5 million in sales revenue is required just to replace the $500,000 in lost profits.
A new fleet safety program with the potential to reduce accidents by 20 percent means preserving $100,000 in profits or the equivalent of $1 million in additional sales. That is a powerful message at all levels of the organization and one that may assist in efforts to improve fleet's driving performance and help drivers return home safely to their families each night.