MARCOEM WEBINAR SERIES

RETURN ON INVESTMENT FOR HEALTH AND SAFETY PROGRAMS

MAY 16, 2019

David Eherts PhD CIH

Vice President Global EHSPh: +1 862 261 7495 david.eherts@allergan.com 1

COURSE LEARNING OBJECTIVES

> Understand basic financial management concepts and tools.

> Understand the Macro and Micro Business Case for Safety.

> Learn how (and when) to present the benefits and costs of health and safety investments.

> Evaluate existing models for analyzing safety and health investment strategies.

> Understand how make a business case to justify health and safety investments.

> Introduce students to the Return on Health, Safety and Environmental Management (ROHSEI) software.

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Peter Drucker:“Economic performance is the first responsibility of business. (Without economic performance) a business cannot discharge any other responsibilities, cannot be a good employer, a good citizen, a good neighbor.”

Finance is the language of business

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From Michael Muckian

“The Complete Idiot’s Guide to Finance & Accounting”

It doesn’t matter what your professional responsibilities are, your management responsibilities contribute directly to

your company’s profitability.

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Areas where leaders felt that the health and safety professionals performance fell below expectations:

Business And Strategy

– We don’t always plan and react strategically

– We don’t transform data/insights into practical solutions

– We don’t develop methods that integrate safety performance into business productivity

– We don’t align EHS project plans with overall business strategy

– We don’t understand financial related terms and information

– We don’t know how to evaluate proposed investments against their projected payoff

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KEY INSIGHTS ASSE VALUE OF THE PROFESSION STUDY

SAFETY AND HEALTH DRIVERS

1970’s – OSHA Compliance

1980’s – Injury Prevention

1990’s – Cost Reduction

2000’s – Business Value

2010’s – The New View

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RETURN ON INVESTMENT (ROI)

Definition:

The amount of benefit received for a given amount of resource invested.

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THE QUALITATIVE VALUE OF SAFETY

This document contains no technical data subject to EAR or ITAR.

Ability to teach New View Concepts to HR, Quality and OpEx

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SYSTEM 1 INFLUENCES SYSTEM 2 AND BENEFITS:

1. CRITICAL SAFETY TASKS AND 2. GOOD OBSERVATIONS

90%

10%

Credit Dr. Susan L. Koen

SUMMARY: WHY GOOD OBSERVATIONS ARE SO EFFECTIVE

When we appeal to System 1

> When we encourage the submission of Good Observations

> And respond to them consistently

> This changes the way employees feel about their management and the company

> They feel understood

> They feel emotionally supported

> Because of this “Unconditional Positive Regard”, they are more easily triggered into their logical frontal lobe

> They see safety as a collaborative process and start to put their fellow employees’ and the company’s interests foremost

> Their decisions and the way they work dramatically improve

> We’re all safer

System 2 thinking changes

THE FINANCIAL VALUE OF SAFETY

This document contains no technical data subject to EAR or ITAR.

Strategic (Macro)

Sales

Stock Price

Market Cap

Right-to-Operate

Tactical (Micro)

Cost-Benefit Analysis

ROI, NPV or DPP…

The best business cases involve both

Allergan

We continue to maintain our place amongst the most environmentally sustainable and socially responsible

companies in the world

While continuing to be amongst the safest companies in the world

13

7 years in a row

Improved from #24 in the

world in 2017 to #20 in 2018

2018 EHS PERFORMANCE HIGHLIGHTS

Investors obviously seek out

companies with superior

leadership who maximize

operating profitability. Our

analysis suggests that climate

change leadership is another

strong reflection of superior

management quality; thus, we

observe strong correlations

with our financial measures.

REAL VALUETHE MACRO BUSINESS CASE

Sikorsky

Revenues ($ billions)

Paul SimpsonChief Executive Officer, CDP

TEACHING LEADERSHIP“The two most important things in this company are that

our products are safe and that our employees are safe.”

Brent Saunders at Elizabeth Site

August 2014

“The two most important things in this company are that our products are safe and that our employees are safe.”

Brent Saunders at Elizabeth Site

August 2014

TEACHING LEADERSHIP

ROHSEI

Making the Tactical Business Case

Return on Health, Safety and Environmental Investment

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Bridging Financial and EHS Measures

Safety/Industrial Hygiene

nLost Work Day injury rates

nProperty loss

nWorker’s compensation

nFines and citations

nNo. of people trained

nExposure Assessments

nNear misses

nBehavioral Observations

nAudit findings

ROHSEIBridges

the Gap

Finance/Operations

nEarnings/EPS

nROI

nPayback

nPVRR

nInternal Rate of Return

nProduction rates

nEarnings/employee

nNet Present Value

nCost Benefit

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EXAMPLES OF ROHSEI PROJECTS

1. Sprinkler Protection2. Onsite Primary Healthcare3. Disability (STD/LTD) Mgmt4. Disposable Coverall Recycling5. Soil Remediation6. HSE Websites7. Behavior Based Safety Programs8. Primary Healthcare in Europe9. Epidemiology Studies and Software10. PPE vs Engineering Controls11. Ergonomics Programs (Lower back)12. Ergonomics Programs (Work Station)13. Fleet Safety Programs14. Electronic MSDS Systems15. PSM16. Integrated Health and Wellness17. IH for the FDA18. Spin-off or Lay-off19. EGPWS20. SMS21-40. Ergonomics

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EXAMPLES OF ROHSEI PROJECTS

1. Sprinkler Protection2. Onsite Primary Healthcare3. Disability (STD/LTD) Mgmt4. Disposable Coverall Recycling5. Soil Remediation6. HSE Websites7. Behavior Based Safety Programs8. Primary Healthcare in Europe9. Epidemiology Studies and Software10. PPE vs Engineering Controls11. Ergonomics Programs (Lower back)12. Ergonomics Programs (Work Station)13. Fleet Safety Programs14. Electronic MSDS Systems15. PSM16. Integrated Health and Wellness17. IH for the FDA18. Spin-off or Lay-off19. EGPWS20. SMS21-40. Ergonomics

What the hell do you know about finance?Return on Investment (ROI): This is calculated by dividing the net present value by the present

value of the project costs. The net present value is calculated by subtracting the present value of

project costs from the present value of project benefits. The model calculates ROI based on

costs, benefits, and the discount rate that are entered by the user.

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IT DRAWS UNSUSPECTING MANAGEMENT ENTHUSIASTICALLY INTO AN EHS DISCUSSION:

The Behavior-Based Safety Initiative

Project Metrics REPORTS

(click b elow for definitions) BBS Corporate Consultant Self

NPV $311,294 $482,326 $412,279 $474,374

IRR 83% 4,370% 2,001% 382% n/a Note 2

ROI 72% 135% 122% 170% n/a Note 3

Payback Period 2.2 years. 0.1 years. 0.1 years. 0.4 years. No Data Yet.

Production Equivent Units 1556.5 2411.6 2061.4 2371.9

Impact on Unit Cost ($0.17) ($0.27) ($0.23) ($0.26)

% Impact on Unit Cost -0.20% -0.32% -0.27% -0.31%

Print the calculations.You may print the data you entered for each scenario by clicking on the following buttons.

Net Present Value (NPV)

Interna l Rate of Return (IRR)

Return on Investment (ROI)

Discounted Payback Period

Production Equiva lent Units

Impact on Unit Cost

% Impact on Unit Cost

Go to Reports Return to Navigation Screen

Comparative Metrics

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

BBS Corporate Consultant Self 0

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500%

1,000%

1,500%

2,000%

2,500%

3,000%

3,500%

4,000%

4,500%

5,000%

IRR

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I

NPV

IRR

ROI

To modify the labels "Scenario 1", "Scenario 2", etc. on the above graph, move your cursor to row 3 and type over these

labels with a one or two word description of each scenario.

IT CAN GET YOU THE NECESSARY RESOURCES:

INTEGRATED HEALTH AND WELLNESS

SURVIVING A DOWNSIZING

WHAT HAPPENED?

> Kept all our headcount

> Increased our budget

• Integrated Health

• Process Safety

• Fleet Safety

> Gained more respect

> Improved quality of life

SummaryBeing able to complete credible financial analysis changes the EHS paradigm:

– helps you decide which initiatives to bring forward– helps you finesse management into an EHS discussion– gives you business credibility

Financial analysis resolves the manager’s paradox– they can do the right thing– and defend it to the shareholders

Bottom lineyou get the investment and soonerand there’s no buyer’s remorse

Being able to complete credible financial analysis changes the EHS paradigm:

IT ENSURES FULL EMPLOYMENT FOR EHS

Summary