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Cost Benefit Analysis (CBA) checklist

This is a summary of HSE’s view of what should and should not be considered in a duty holder’s CBA for health and safety ALARP determinations.

A CBA can help a duty holder make judgements on whether further risk reduction measures are reasonably practicable.

Something is reasonably practicable unless its costs are grossly disproportionate to the benefits. Put simply if;

costs divided by benefits are greater than the disproportion factor

where DF is the ‘disproportion factor’ then the measure can be considered not worth doing for the risk reduction achieved. DFs that may be considered gross vary from upwards of 1 depending on a number of factors including the magnitude of the consequences and the frequency of realising those consequences, i.e. the greater the risk, the greater the DF. For further detail on this see: Principles and guidelines to assist HSE in its judgements that duty-holders have reduced risk as low as reasonably practicable.

General points for a CBA presented as part of an ALARP demonstration:

Costs

HSE’s main interest in assessing CBAs is to ensure that all the appropriate costs have been included and to challenge where costs appear extraneous or excessive.

Benefits

HSE’s main interest is to ensure that all benefits of implementing a health and safety improvement measure are included and that the benefits associated with the measure are not underestimated in any way.

    Values (2003 Q3) [1]
FATALITY   £1,336,800 (times 2 for cancer)
INJURY    
Permanently incapacitating injury Moderate to severe pain for 1-4 weeks. Thereafter some pain gradually reducing but may recur when taking part in some activities. Some permanent restrictions to leisure and possibly some work activities. £207,2000
Serious Slight to moderate pain for 2-7 days. Thereafter some pain/discomfort for several weeks. Some restrictions to work and/or leisure activities for several weeks/months. After 3-4 monthsreturn to normal health with no permanent disability. £20,500
Slight Injury involving minor cuts and bruises with a quick and complete recovery. £300
ILLNESS    
Permanently incapacitating illness Same as for injury. £193,100
Other cases of ill health Over one week absence. No permanent health consequences. £2,300 + £180 per day of absence
Minor Up to one-week absence. No permanent health consequences. £530

Analysis features

There are a number of features within an analysis that can have influence on the outcome. The following points should be considered when assessing the suitability of a CBA.

Although these issues are not ones that HSE would require a duty holder to consider they can often play a significant part of any judgement on whether to invest in new and safer technology.

Example

A simple method for coarse screening of measures is presented below. This puts the costs and benefits into a common format of ‘£s per year’ for the lifetime of a plant.

Consider a chemical plant with a process that if it were to explode could lead to:

The rate of this explosion happening has been analysed to be about 1 x 10-5 per year, which is 1 in 100,000 per year. The plant has an estimated lifetime of 25 years.

How much could the company reasonably spend to eliminate (reduce to zero) the risk from the explosion?

If the risk of explosion were to be eliminated the benefits can be assessed to be:

Fatalities: 20 x 1,336,800 x 1 x 10-5 x 25 yrs =6684
Permanent injuries: 40 x 207,200 x 1 x 10-5 x 25 yrs = 2072
Serious injuries: 100 x 20,500 x 1 x 10-5 x 25 yrs = 512
Slight Injuries: 200 x 300 x 1 x 10-5 x 25 yrs = 15
Total benefits         = £9,283

The sum of £9,283 is the estimated benefit of eliminating the major accident explosion at the plant on the basis of avoidance of casualties. (This method does not include discounting or take account of inflation.)

For a measure to be deemed not reasonably practicable, the cost has to be grossly disproportionate to the benefits. This is taken into account by the disproportion factor (DF). In this case, the DF will reflect that the consequences of such explosions are high. A DF of more than 10 is unlikely.

Therefore it might be reasonably practicable to spend up to somewhere in the region of £93,000 (£9300 x 10) to eliminate the risk of an explosion. The duty holder would have to justify use of a smaller DF.

This type of simple analysis can be used to eliminate or include some measures by costing various alternative methods of eliminating or reducing risks.


Footnotes

  1. Values based on data from “The costs to Britain of workplace accidents and work-related ill health in 1995/96”, HSE; “Highways Economic Note no. 1 2002”, DfT; and J. Hopkin and H. Simpson, (1995), “Valuation of road accidents”, Transport Research Laboratory Report 163, DfT. All values are average figures and include human cost, lost output and medical costs. The difference between the figures for a permanently incapacitating injury and a permanently incapacitating illness accounts for the larger human cost attributed to injuries due to their short-term effect.

Updated 2014-09-01