The results of a cost estimation have little meaning without the context. Sometimes, the figures need no explanation, but often the interpretation deserves some attention. At company level,
the use of economic indicators can help in deciding which investments are financially attractive.
Furthermore, it is very useful to have some information about the reliability and accuracy of an
assessment. This section briefly discusses the most relevant issues in this respect.
There are several economic indicators that can be used as a decision-making aid. Simple and
easy to use are the ‘payback period (PP)’ and the ‘cost–benefit ratio (C/B)’. The payback period is the amount of time before the initial investments are earned back. A payback period of two to three years is usually acceptable in industry. The cost–benefit ratio is the ratio between the sum of all costs and the sum of all benefits. The smaller the ratio, the better. In more advanced analyses, it is possible to calculate indications like the return on investment in which depreciation is accounted for.
At society level, the time horizon is long (20 years or more). In order to deal with these periods,depreciation of money is important. It is conventional practice to use net present values in
calculating cost–benefit ratios. At society level, a discount rate of 3 or 5 % is usually applied to
account for the time preference for money (it is preferable to have money now rather than in the future). At company level, much higher discount rates are common. In general, the discount rate should be the sum of the inflation rate, the no-risk interest rates for lending money to a bank and the compensation for risk taking. Practical discount rates at company level are as high as 10 to 15 % but higher values are not uncommon.
Decision-making at company level about investments often includes comparison of multiple
alternatives in which the ‘do nothing’ alternative is always included. In fact, most cost–benefit
analyses of OSH activities are based on the difference between the results of prevention and an
estimation of costs when no prevention takes place.