How to Quantify Other Economic Savings from Wellbeing Programs
In my previous blog, I explained how to calculate the productivity cost savings from a wellbeing program (in my experience, productivity savings are the largest of all savings). In this blog, I will focus on the other types of economic savings.
Let’s look at other types of economic savings
First, let´s recall what they are. The first would be the savings in turnover costs, such as training and relocation, from the reduction of employees that leave the employer due to physical and behavioral conditions.
An additional economic saving includes, for example, the reduction in accidents from mostly behavioral conditions. I realize that an accident can occur because of a sudden heart attack while driving a tractor, but accidents usually occur due to substance abuse or distractions caused by personal issues.
In several industries (such as mining) the cost of an accident is enormous, while in others, it can be minor. Finally, there are the disability cost savings.
Most US companies have a disability plan that pays the first 30, 60, or even 90 days’ salary before the employee is passed onto the disability plan. These payments of salary come out of the employer´s checking account.
In other words, there are a lot more savings to be considered beyond reductions in the health insurance premiums, and they are hardly indirect.
Understanding the basics of our ROI Calculator
Our ROI Calculator includes formulas and assumptions that calculate each type of savings, but the objective of my blogs is to shine some light on the logic of the calculations, and what types of data are considered in the calculations.
Let´s use turnover as an example as to how other savings calculations are made. As mentioned above, wellbeing programs reduce turnover.
First, we must differentiate general turnover from turnover caused by physical and behavioral conditions. Thus, one assumption that must be estimated is the turnover rate caused by each type of condition.
Once we have calculated the number of employees leaving the employer due to a condition, we must consider whether employees who leave are replaced. This depends on economic conditions.
During growth years, we generally replace them. During recessions, employers impose hiring freezes. Once we have determined the number of replacement employees, we must consider the percentage of employees that will be trained and the cost of training.
Furthermore, replacement employees are sometimes granted a relocation allowance. This depends on the function and level of a company. In a factory town, for example, replacement employees are generally not paid relocation allowances.
We need assumptions regarding the percent of replacement employees that will be paid relocation and the average relocation allowance paid. With these assumptions, simple math will generate the cost of turnover due to conditions.
To calculate the savings, we need to know the effectiveness rate of a program in reducing turnover. We use this rate to calculate the savings in turnover costs from a wellbeing program. Cost savings from reductions in accidents and disability are made in a similar fashion.
Follow my blogs to learn more about economic savings
My next blog will present a case study that includes the financial model that has been used with much success by employers worldwide to calculate the financial rate of return of a wellbeing program, so stand by.
If you find my blogs informative, please invite other benefits, HR, medical directors, procurement, and financial administrators to read my blogs or visit our website, www.wellcastroi.com.
