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I am new to the manufacturing business. My boss has asked me to find out how much money we lose each month due to injuries and lost time on the job. If I replace the worker with another (sometimes untrained) worker, do I still count it as a loss?

Measuring indirect costs of injury or illness is often difficult. How do we put a dollar number to the possible production lost? How do you account for the first day a worker returns to the job if he or she isn't working up to full capacity yet?

There are several accounting methods used to make these calculations. The first is the Human Capital Approach. This method gives a dollar value to the knowledge, experience, and wisdom of workers. This method may overestimate the actual loss because substitutes are used to replace the missing employee.

Another method is called the Friction Costs Approach. This was first used in 1993 and assumes that losses occur only when the work isn't being done. This takes into account both the time needed to replace the absent worker and/or to reorganize the way the job is done (if that's needed). You'll probably want to use this method. (For more details, see: Koopmanschap MA, Rutten FF. Indirect costs in economic studies: confronting the confusion. Pharmaco Econ 1993;4:446–54.)

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