COMPLIANCE SECTION

Environmental and Safety
Compliance Return on Investment

Every business owner and management team accepts that their firm must abide by a wide range of local, state and federal environmental and health & safety (H&S) regulations or risk potential legal and/or financial consequences. In addition, they understand that third parties, such as customers, lenders, and shareholders, have varying levels of interest in their corporation’s compliance record. These managers know the importance of environmental and H&S compliance. However, during the annual budgeting process, the return on investment comparison between a new press or paint booth and compliance is difficult. Managers are never certain how much money to budget for compliance.

The question becomes, “What is the value of environmental and H&S compliance?”

This question has many potential answers. It could be the value of workplace safety or discharge permit violation fines. It could be the judgment awarded by a jury to an injured employee. It could be the escrow account or sales price reduction demanded by a future buyer. It could be the bad public relations generated by an environmental or H&S incident. But, all of these returns are still somewhat probable. What may be more helpful is to compare the cost of an environmental compliance program to an accepted cost of doing business.

Every firm insures itself against low probability risks, such as fire, product and general liability, worker’s compensation, to name just a few. Why? Because the cost of a single incident, if it ever occurs, more than offsets the cost of the periodic premiums.

Environmental regulations require periodic monitoring of workplace conditions, updating of plans, discharge reports, or similar routine tasks. The cost of these can be compared to insurance premiums. The theft of your company’s trade secrets or the loss of business due to a fire could be compared to the cost of a fine imposed by an OSHA, Clean Air, or Clean Water inspector who finds numerous, repeated violations of environmental or health & safety regulations.

So, when your management team considers the importance of environmental compliance, they should not focus on cost. They should consider value and realize the cost of compliance would be most properly considered as spread over the three, five, or ten years of a work product’s usefulness. For example, an Environmental Emergency Contingency Plan may cost several thousand dollars, but it is applicable for several years, and many more years after each periodic update (at a lesser cost). Periodic sampling, analysis, and reporting in accordance with an air, water, storm water, or hazardous waste permit are small payments (i.e. premiums) intended to avoid catastrophic fines or the revocation of a permit, which in most will put a business out of business.

While the annual budgeting process at each corporation or facility is unique, comparing compliance to insurance will help your management team realize the value of compliance is much greater than the increase in production those same dollars could buy.

SUMMARY
The cost of compliance is more certain but much, much less than the risk of non-compliance. The Payne Firm has developed novel and creative cost-effective partnering programs for our clients to reduce the impact on cash flow. For more information, please contact Tony Domanico, Emily Rynders, or Mike Saul at (513) 489-2255, or by e-mail at aid@paynefirm.com, ear@paynefirm.com or mts@paynefirm.com. We also invite you to visit our web site at www.paynefirm.com.