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Construction and Contracting: Indirect and Direct Costs of Construction Accidents (Essay Sample)


Discussing the Indirect and Direct Costs of Construction Accidents


Construction and Contracting: Indirect and Direct Costs of Construction Accidents
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Indirect and Direct Costs of Construction Accidents
Accidents in construction sites always have some cost attached to it. Occupational Safety and Health Administration (OSHA) have rules that ensure employers compensate employees who are injured at the workplace. In the construction industry, accidents occur because of the high risk associated with construction sites. Some of the accidents may be due to employees’ negligence or pure misfortunate that could not be avoided by safety measures. Despite the nature of the accident, the employer must incur some cost in ensuring the employees gets medical attention and receives appropriate compensation. Construction sites insure workers against injuries, but in most cases an occurrence of an accident on the site will cost the project both direct and indirect costs. This paper examines the relation and implication between direct and direct cost of accidents in construction sites. Whereas project managers easily identify and quantify direct costs of accidents; it is not easy to establish indirect cost in totality. Some indirect costs have the greater impact to the project than the direct cost. Construction managers and accounts need to develop skills to factor in both indirect and direct cost in their financial reporting
OSHA (2007) identifies direct cost of accidents as those, which obvious to the management such as workers compensation claim, medical costs, indemnity payments and sometimes the legal fee to negotiate the compensation if there is a dispute. These direct costs are easy for the manager to include in the financial records of the project. Most construction managers concentrate on these costs at the expense of the indirect costs of an accident. OSHA (2007) points out the various possibilities of indirect costs such as costs of training replacement worker, cost of delay caused by the accident, cost of repairing damaged property, cost of lower morale, increased absenteeism, damaged customer relations and the cost of investigating the accident and implement corrective measures.
The indirect cost may vary depending on the type and magnitude of the accident. Manuele (2011) examines different researches that discuss the relation between direct cost and indirect cost of injuries. He identifies one of the oldest reach from Heinrich in 1926, which asserted that the cost of indirect cost was four times more than direct costs. The finding of the research that was published in 1931 is still in use by some constructors to date. Manuele (2011) cites a recent research by National Council on Compensation Insurance (NCCI), which indicates that the ratio of direct cost to indirect cost of accidents 0.8 to 1, which is quite different from what Heinrich found. The differences in the ratio could be attributed to the different definition of indirect costs of accidents. For example, the NCCI research defined indirect cost as the time spent because of the accident by other employees not directly involved in an accident.
The Stanford Report of 1982, which OSHA adopted in 2007 presents the ratio between direct and indirect accident cost in a flexib...
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