Jim Green gives a good answer, I'm just going to elaborate a bit more. Basically, there were two opposing forces with regard to Santiago. On the one hand, he clearly was not cut out to be a Marine. In almost any other organisation, he would have been shown the door (or in his case, probably given a dishonorable discharge) as soon as he was seen not to be what the platoon needed. On the other hand, Jessup was not one to admit failure. Letting someone just walk off after he had been part of his marine corps would have been a failure in his eyes, since he wasn't able to mold Santiago into being a proper fighting machine. So this explains why Santiago wasn't allowed to just leave, as well as Jessup's mindset with Santiago.
Having said all that, in Jessup's mind, Santiago was a risk. If the Cubans ever tried to attack, Jessup would have had to put Santiago out there with the rest of the crew, and at best he would have been killed quickly (at worst, the Cubans would capture him and torture him to get info on how to get past the Marine defences). Think a minute to the movie 300. Leonidas meets Ephialtes, who like Santiago wants to fight but is incapable of doing so. As Leonidas explains to him, if Ephialtes were to be part of their group, he would compromise their phalanx form, not only putting himself in harm's way but also someone else. Jessup and Leonidas, as leaders of men about to fight an enemy, had to think of their whole group. One weak link, and the whole group would suffer. So yes, in Jessup's mind, Santiago's death "while tragic, probably saved lives" because of his inherent risk to the whole group.