A Brief Overview
When spending to reduce risks, both Government and industrial companies will face the imperative that their expenditure must be justified and their actions cost-effective. Available resources will then be put to use consistently, allowing the most important risks to be identified and then reduced as far as possible. There is evidence that this has not always happened.
The J-value provides an objective assessment tool which can be applied across all industries. It is a new approach, but it is based on established economic theory.
The J-value has the considerable advantage when compared with other approaches such as conventional cost benefit analysis, that no explicit assumptions have to be made about the difficult issue of the monetary value to be attached to saving a human life. Also, unlike other approaches, the J-value allows immediate fatalities and potential loss of life in the longer term (e.g. when the hazard includes exposure to a carcinogen), to be measured on the same scale. Ways to reduce risks can then have their cost effectiveness assessed fairly.
The J-value balances safety spend against the extension of life expectancy it brings about. At the core of J-value is the concept of the life-quality index, placing a monetary value on all future years of life based on discounted income, the share of wages in the economy and the work-life balance (ratio of time spent working to time not working). The J-value is found by dividing the actual cost of the safety measure by the maximum that it is reasonable to spend. A value of less than one indicates that the spend is justified. A value greater than one suggests that spending resources may not be justified.
The objective decision is then simple. If the J-value is much more than one, the starting point for any decision is that the resources should not be committed to reducing this risk. If it is less than one, there is a strong case to be made for spending money.
Recently, the J-value approach has been extended so that it can take account of not only health and safety risks but environmental consequences also. Thus, for example, the J-value can assess how much resource might be committed cost-effectively to reducing the risk of accidents in the nuclear or chemical industries, both in terms of impact on human health and the environmental losses that might be associated with such events.
Improved Life Expectancy Versus Prevented Fatality
Improved life expectancy is a much better characterisation of the benefits to be gained from a safety system than 'lives saved'. In fact, nobody's life can ever be saved: the best that can be done is to return an individual's life expectancy back to what it was in the absence of the specific hazard being considered. This insight allows a generalisation of the assessment method to all measures where health and safety are concerned, including medical treatments.
Objectivity of Input Parameters
Input parameters to the J-value are all measurable economic and actuarial parameters: GDP per head, share of wages in GDP, work-life balance, the characteristics of the exposed population, such as initial life-expectancy, the probability of the risk occurring without the proposed safety measure, the cost of the safety measure and the residual probability of occurrence.
Making the Best Overall Use of Resources
One important feature of the J-value is that it allows a level playing field to be defined across all industries. By using the extension in life expectancy as a measure, the J-value can be applied to such areas as medical treatments, fire safety, transport safety, nuclear safety, or the safety of chemical plant.
Recent studies using the J-value have shown that some decisions have led to prima facie inappropriate use of public resources based on scientific and technical considerations. For instance, examples have been found where the resources committed to reducing radioactive discharges from nuclear installations, ultimately coming from the public purse, would have been better employed to treat life threatening diseases.
Factoring Wider Considerations into the Decision
Of course, it is accepted that both industry and Government may wish to take account of other factors when making decisions about how best to use resources to reduce risk. These might include socio-political issues and corporate considerations, such as the avoidance of negative and damaging public perception. However, the J-value allows a clear baseline to be defined. Then if other considerations have an influence on the final decision, these can be viewed in an open and transparent way against the backdrop of an objective assessment of how best to use scarce resources.