EHS Financial Principles Fundamentals: A Case Study

Recently, there has been a resurgence of discussions within the EHS community regarding the evaluation of safety improvements using common financial principles, along with a corresponding desire to become proficient in their application. These financial principles are well covered in the BCSP’s ASP Domain 1 and CSP Domain 2: “Budgeting, finance, and economic analysis techniques and principles (e.g., timelines, budget development, milestones, resourcing, financing risk management options, return on investment, cost/benefit analysis, and the OSH professional’s role in procurement process)”. Therefore, the BCSP Best Practice Committee developed an example to illustrate concepts and provide guidance. Each example is shared using a Committee-developed interactive Excel-based tool that includes the referenced BCSP Domains.

One example is Case Study – Substitution. This first example presents the simplified application of several financial principles often used in the safety profession to highlight the financial benefits of safety improvement projects.

We understand that different industries and organizations will have varying requirements for analysis methods and criteria for proposal acceptance. Even these may vary based on the nature of the issues being evaluated (e.g., “compliance” versus non-compliance, “improvements” versus “simple” versus “complex”). However, even though organizations may have preferences for techniques (e.g., requiring the use of one metric over another or utilizing specified time frames for evaluation), the fundamental principles are either the same or similar.

The environment in which OSH staff work may also significantly influence the analysis and communication methods chosen. For instance, in small or medium-sized companies, some EHS professionals may report to someone wearing multiple hats, including that of the Chief Financial Officer (CFO). On the other hand, you may be working for a larger company that has its own finance team with very focused specialty areas. The data needs and decision framework for each of those two cases could be significantly different.

Some analysis methods and tools may also be affected by budget cycles, the categorization of funding types and sources of funds, budget types (such as management budgets versus operating budgets), and other factors. There are a few key differences in how one may analyze expenses incurred in one type of budget versus another.

1. There are big differences between capital expenses and operating expenses. Obtaining capital funds can be challenging, and operational expenses are important but not critical. Therefore, trying to sell an EHS project solely on Return on Investment (ROI) rarely works if it involves capital expenses. It would be great if all EHS projects improved productivity and saved operating costs. Simple ROI is important, but not the sole decision-making factor.
2. Capital budgets are fixed in advance (usually a year in advance) and can absolutely shrink during economic downturns to the point where there is no justification for any capital expenditure. Sometimes, there are periods when the ROI or payback period must be less than a year for new projects. Many companies operate on a 2- to 5-year payback period, depending on the nature of the investment, the type of issue being improved, and strategic objectives. Some examples are provided.
3. Some but not all OSH improvement projects require capital spending, which is typically defined by the dollar value of investment in capital improvements. In cases requiring capital expenditures, there are typically general expectations for financial return and payback period requirements or goals. The time an organization expects to recoup its investments can vary and may sometimes require very short payback periods. Sometimes, those payback periods can be acceptable, even if it takes multiple years to achieve a direct financial return, provided they are part of a strategic initiative and tied to organizational values. In other cases, improvements that clearly need to achieve regulatory compliance or value-based improvements in the EHS realm may not require traditional financial analysis and justification. Again, this can depend upon the organization. Even with this variation, it can be beneficial for many of us to be able to apply financial tools or provide input to financial staff in an appropriate manner.

Let’s face it, not all of us have studied engineering economics, but all of us have to justify investment in EHS improvements. It can be helpful and valued by the organization for OSH professionals to show a reasonable understanding of various financial principles and business considerations. This necessitates an understanding of some basic financial terms, budget types, budgets, and principles of analysis.

Bottom line: It is important to understand the economics of operations, but not to “sell” projects simply on a financial basis. We’re starting to hear more about speaking in financial terms once again. We believe there is growing interest in providing some form of analysis and communication in those terms, even if we are not financial experts.

Consider the 2025 Interagency Report published in the BCSP’s The HUB:

Driving Business Growth and Profitability Through Modern Occupational Environmental, Health, and Safety Practices outlines principles to enhance business practices, including incorporating standards and prioritizing worker well-being, as well as investing in safety, health, and overall well-being. Inherent in that key principle is the ability to describe the financial and non-financial benefits that can result.

In this first installment of the financial principles best practice, we would like to present a very simple financial analysis of an EHS improvement project. Let’s take a look at a simple example to demonstrate the fundamental financial principles. In this case study, an organization decided to substitute toluene for benzene in silicone wires, print ink extenders, and solvents.

Watch the short video below. This is a straightforward case study that illustrates an understanding of the financial principles outlined in BCSP’s ASP and CSP Blueprints. Remember, we have to keep it simple.

An Excel file is also available for download and practice, with various options attached. It is an interactive tool that allows you to input different values and practice with it.

We hope you’ll find this best practice case study interesting and be able to use the Excel-based tool.

SHIFT would like to offer a special thanks to our Best Practice Guide editorial team.