Identify Value Drivers and Prosper

“Value drivers” are the specific values that steer the organization toward long-term health and well-being. When these drivers are adjusted, many of the projects and resources of an organization are changed to serve those values.

• Profitability is an example of a primary tangible value driver for many businesses. Other common corporate value drivers are brand name, productivity, and cost containment.
• In government agencies, a primary value driver is typically a mandated directive.
• In nonprofit organizations, a value driver is usually a formal commitment to provide resources or services to members of the community it serves.

Value drivers can interact with one another to generate changes in the organization’s operations and strategic objectives. For example, a high-profile accident at a profit-driven company can make company reputation the primary value driver for a while.

EHS performance can be a primary factor in shaping the organization’s competitive image and reputation under such circumstances.

Common business value drivers include:

• Profitability
• Market share
• Shareholder value
• Productivity
• Reputation/image/brand
• Time to market
• Cost containment
• Customer service
• Compliance risk

Besides their health hazards, corrosives are highly reactive. They can cause fires, explosions, or violent exothermic (heat-releasing) reactions (these often look like an explosion) if they come in contact with water or other chemicals or with combustible materials. Keep in mind that:

• Acids react with many metals to release hydrogen, a highly flammable gas that can ignite in air.
• Some acids are strong oxidizing agents (chemicals that support combustion by releasing oxygen) and can react violently when they come in contact with organic or other oxidizable materials.
• Alkaline chemicals can be strongly reactive. Alkali solids, in particular, react violently to contact with water; this is why sodium metal is stored in oil.

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How To

To identify and understand your organization’s value drivers:

• Get a copy of the most recent company financial report, annual report, or the budget, if possible. Look at mission statements and goals, and learn the basic terminology the organization uses to identify and express business value.
• Take a course about basic business principles for nonfinancial people, or get a book like “The 10-Day MBA.”
• Identify key people in the organization who understand or work with the financial end of the business and learn from them.

Identify Costs

EHS departments are often competing with other activities within the organization for materials, staff, and money. You can compete successfully for those resources when you clearly understand the portion of the organization’s resources used by EHS activities and link those costs directly to value drivers.

Costs of common EHS functions include:

• Safety compliance
• Training
• Correcting hazards

Once the inventory of EHS activities is completed, the total costs of EHS activities can be quantified through cost accounting methods.

Cost accounting is the systematic recording and analysis of the costs of material and labor and is related to the products, services, or other activities of an organization. There are numerous cost accounting methods used in business today, including activity-based costing, total cost accounting, life-cycle costing, and marginal costing.

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Practice Running Cost Scenarios

Find out what financial costing process and software programs are used by your organization, and learn as much as possible how those systems work. If possible, practice costing EHS programs through the organization’s system or a simpler system that uses the same basic accounting process.

Find out how your organization measures costs or resource use. They may use one or more common financial metrics, including:

• Net cash flow
• Net present value
• Internal rate of return

Find out how your company defines these terms and learn how each operates.

Link EHS Costs and Business Value

Once the costs of EHS programs have been measured, link the programs to specific business values and identify the types of metrics that will be used for each program to track performance and progress toward business value-oriented goals.

For example, EHS training can be linked to both business values of employee productivity and to environmental and/or safety compliance risk. The measure of performance for employee productivity is the productivity rate expressed as an increase or decrease in productivity. The measure of performance for compliance risk is the noncompliance incidence rate expressed as the number of incidences (e.g., spills, permit violations, citizen complaints, employee accidents, lost workday incidences) per month or year.