Article

What are 'soft cost' dollars?

Learn how you're losing money on claims, lost productivity and job interruptions.

What are ‘soft dollar costs’?

From natural disasters to basic human error, the agricultural world and its related businesses are subject to just about every kind of risk and eventuality life has to offer. Recently, the industry has experienced significant headwinds that could threaten even the most established ag operations across the nation. Margins are slim and everyone is looking at costs and expenses in an effort to shrink them – we’re all focused on the bottom line.

‘Soft dollar costs’ are one bottom line opportunity some companies may not be addressing. Simply put, soft dollar costs are comprised of employee time spent on claims, lost productivity and interruptions to normal job duties. Hard costs are relatively easy to measure since they involve tangible dollars and cents and can easily be tracked. Soft costs on the other hand are invisible, but nevertheless very real.

Calculating soft costs

Nationwide works hard to develop ways to help our insureds become safer and more profitable. Using anonymous data from several accounts, we’ve developed a soft cost calculator for workers’ compensation and agronomy.

By gathering this information, any agribusiness can calculate soft costs and measure themselves against the benchmark for similar agribusinesses. We plan to offer this soft cost calculator to our insureds and believe this tool to be one more way we can partner with our members to help them understand soft costs and improve profitability.

The cost of employee distractions

According to Gloria Mark, who studies human reactions to distractions at the University of California, Irvine, it takes an individual, on average, 23 minutes to return to the original task after an interruption.

Try this soft cost exercise:

To calculate soft costs for your business, estimate the amount of time your claims employees are distracted when handling claims during their workday. Add that time spent to the average 23 minutes per interruption. That’s how much focused productivity is lost each day. 

Multiple studies confirm that distractions don’t just eat up time during the event, they also derail mental progress for almost half an hour afterward. So, if you spend 30 minutes dealing with a claim, you can almost double that to an hour of potential time lost for the interruption. This equates to lost productivity and ultimately, compromises the efficiency of your operation.

What are the most common types of claims?

Some very common yet preventable causes of claims and losses include agronomy misapplications and workplace injuries. Workplace injuries, for example, often result in workers’ compensation claims. These claims can be costly; over the course of a year, several claims can put a dent in even the most robust bottom line.

Workers’ compensation claims

Among the soft costs you may incur with any workers’ compensation claim are lost time and productivity for:

  • HR administrators
  • supervisors
  • safety directors
  • claims handlers
  • and for hiring and training contractors/replacement workers

One way to lower the cost of workers’ compensation costs down the road is to reduce the frequency and severity of claims your company reports within a given year. The soft dollars you pay and the additional premiums resulting from an increase in your experience modification factor (“MOD”) is why it is important to be proactive in your safety efforts.

Agronomy misapplication claims

On the other hand, the soft costs you may pay for agronomy misapplications include time spent by key company staff, such as applicators, agronomists, risk managers and general managers, while they communicate with:

  • growers
  • agents
  • claims agronomists
  • chemical representatives
  • state agencies and 
  • your company Board of Directors

This lengthy communication only prolongs the claims process and can tie-up your resources even further. Additionally, this may also involve stressful spending on overtime and additional personnel to quickly coordinate and execute a replant to help mitigate crop loss.

We can help identify opportunities to reduce frequency and severity of claims

Nationwide  has a unique perspective that allows us to see issues from the lens of our members. We stand ready to help your business recognize and improve on the frequency and severity of your claims, which will ultimately affect your bottom line profitability. In these lean times of agriculture, who among us can afford not to ensure we are doing everything possible to achieve better and safer results?

For more information on helpful resources, please contact your risk management consultant.