1. Sikorsky Aircraft Corporation
The Value of Safety

2. Sikorsky Aircraft Corporation
AGENDA
Background
What is ROI?
What is ROHSEI?
Benefits
Business Case
EGPWS
SMS
Summary
Questions

3. Sikorsky Aircraft Corporation
THE PARADIGM
Sikorsky Aircraft Corporation
“Safety people have their hearts in the right place but seldom understand true business objectives”
Safety has the high moral ground
No one can publicly disagree with what we represent
But Safety people are seldom seen as true business partners
Our requests are compared with competing business objectives
We’re never seen as balancing Safety objectives with business reality
We seldom make a credible business case
Safety is the high moral ground, but we need to make a ‘business case’ for investing in safety.

4. WHAT LANGUAGE DO YOU SPEAK?
Sikorsky Aircraft Corporation
WHAT LANGUAGE DO YOU SPEAK?
-OR-
Safety managers speak in their own language, normally centered on safety risk management terms
But the financial managers speak a different language.
To be successful, safety managers must present their proposals for safety investments in financial terms.

5. METRICS USED BY CFO’s Metric % Time Used Internal Rate of Return 75.6%
Net Present Value %
Payback Period %
Discounted Payback Period 29.5%
Account Rate of Return %
Profitability Index %
Source: Graham, John R. and Harvey R. Campbell, “The Theory and Practice of Corporate Finance: Evidence from the Field”, Journal of Financial Economics 2001

6. Sikorsky Aircraft Corporation
FINANCIAL METRICS
The financial metrics are built around the concept of the:
$ Time Value of Money $
That is, a dollar today is worth more than a dollar tomorrow.
The worth of a dollar today is different than the worth of a dollar in the future.

7. INFLATION AND DISCOUNTING
Sikorsky Aircraft Corporation
October 23-24, 2007
INFLATION AND DISCOUNTING
An investment can be viewed in two ways—its future value or its present value.
Future Value
Inflation
Discounting
An investment can be viewed in two ways – its future value or its present value.
Present Value
ROHSEI, Washington, DC 7

8. Sikorsky Aircraft Corporation
U.S. JHSIT PROCESS MODEL
Initiate Top Level Safety Intervention Actions
(e.g. promoting IHST, SMS, Infrastructure changes)
Assign JHSIT Average Feasibility Value
Review JHSAT Recommendations & Assign Number
JHSAT Overall Effectiveness Value (OE)
Prioritize Recommendations (OE x F)
Prepare Preliminary Safety Enhancement Plan
Group Recommendations By Common Theme
Prepare Detailed Safety Implementation Plan
IHST Approval
The JHSIT process includes evaluating the “value” of the recommended intervention.
Execute and Monitor Progress Of Safety Implementation Plan
IHST Approval

9. Sikorsky Aircraft Corporation
Technical Feasibility: The ability of the project to take advantage of the current state of technology in pursuing further development.
3 - Off-the-shelf technology, no development required
2 - Some development required, not currently in public use
1 - Major technology development effort required
Financial Feasibility: Should consider the total cost of the implementation, including the planning process. Financial feasibility also involves the capability of the participating organizations (FAA, Manufacturers, and Airlines and Operators) to provide the appropriate funding needed to implement the project.
3 - Relatively low cost to implement
2 - Relatively medium cost to implement
1 - Relatively high cost to implement
Operational Feasibility: Involves the “practicality” of the project within the context of the operating environment, including NAS, ground operations, maintenance, inspection, etc. Considers which organizations within the aviation system are impacted.
3 - Minimal change to entities within the operating environment
2 - Modest change to operating environment
1 - Major change to operating environment
Schedule Feasibility: Can the project to contribute to achieving the goal in a selected timeframe? Must consider implementation schedule by project.
3 - Less than 2 years to full implementation
2 - Full implementation in 2-5 years
1 - Longer than 5 years to full implementation
Regulatory Feasibility: Should be evaluated against current rules and certification
process. Could be a deterrent due to a long approval process.
3 - No policy change
2 - Guidance change only (orders, handbooks, policy)
1 - Rule change
The JHSIT process includes evaluating the feasibility of implementing the intervention. One of the 5 feasibility factors evaluated is the “FINANCIAL” feasibility.

10. Sikorsky Aircraft Corporation
MANAGEMENT SYSTEM = SAFETY SYSTEM
Financial Management System
Safety Management System
Finance Plan
Safety Plan
Targets & Objectives
Targets & Objectives
Budget
Budget
Accountabilities
Accountabilities
Levels of Authority
Line Management
Authorities
Procedures
Procedures
The management tools used to manage safety are the same as the elements used to manage the business.
Checks and Balances
Monitoring/Line Checks
Audit Plan
Accountants
Audit Plan
Safety Committee
Audits
Balance Sheets
Audits
Safety Achievement

11. ROI – WHAT IS SAFETY’s PAYBACK?
Sikorsky Aircraft Corporation
ROI – WHAT IS SAFETY’s PAYBACK?
Net Present Value
Present Value of Project Cost
ROI =
ROI =
Present Value of Project Benefit – Present Value of Project Cost
Present Value of Project Cost
To be successful, safety managers must be able to show the financial benefits of proposed safety investments! There has to be a financial return on the investment if you want the financial community to support it!

12. Sikorsky Aircraft Corporation
ROHSEI
One Way To Change The Paradigm.
Return on Health,
Safety and
Environmental
Investment
(ROHSEI)
ROHSEI is a proven financial software tool used by safety managers to calculate the financial return on safety investments.

13. Sikorsky Aircraft Corporation
GENESIS OF ROHSEI
Sikorsky Aircraft Corporation
October 23-24, 2007
In 1995 a taskforce of fifteen Fortune 500 companies sponsored the development of a process and supporting tool set to answer important questions such as:
What safety investments should we make?
How do we know we are doing the “right things” in the “right way”
To which projects should we allocate our resources?
Which EHS investments create the greatest value to the organization?
How do we demonstrate the value of our investment decisions?
How do we demonstrate our value and justify our existence?
ROHSEI, Washington, DC 13

14. Sikorsky Aircraft Corporation
October 23-24, 2007
BRIDGING FINANCE & SAFETY
BUSINESS TALK
SAFETY TALK
Finance/Operations
Safety/Industrial Hygiene
Earnings/EPS
Accident rates
ROI
Property loss
Payback
Insurance premiums
PVRR
Fines and citations
Internal Rate of Return
No. of people trained
Production rates
Exposure Assessments
ROHSEI
Earnings/employee
Near misses
Bridges
Net Present Value
Behavioral Observations
the Gap
Cost Benefit
Audit findings
ROHSEI, Washington, DC 14

15. WHAT ROHESI DOES
ROHSEI offers a standardized approach to evaluating health, safety and environmental investments.

16. WHAT DOES A SAFETY GUY KNOW ABOUT FINANCE? – ROHSEI!

17. THE CHALLENGING QUESTIONS
Sikorsky Aircraft Corporation
THE CHALLENGING QUESTIONS
What investments should we make?
Should we make the investment this year or next?
How do we compare an operational investment decision to a health and safety investment decision?
To which projects should we allocate our human resources?

18. ROHSEI NAVIGATION SCREEN
Process – Horizontal
Tools – Vertical

19. THE CASE FOR ENHANCED GROUND PROXIMITY WARNING SYSTEM (EGPWS)

20. DEVELOP AND DOCUMENT
The Focus Of Opportunity

21. DETERMINE ASSUMPTIONS

22. DOCUMENT BENEFITS AND COSTS

23. EXPENSE AND CAPITAL COSTS:

24. ACCIDENT RATES
With And Without Equipment

25. ACCIDENT RATES
With And Without Equipment

26. SOFTWARE DOES THE CALCULATIONS:

27. PRESENT RESULTS :

28. THE CASE FOR SAFETY MANAGEMENT SYSTEMS (SMS)

29. DEVELOP AND DOCUMENT
The Focus Of Opportunity - SMS

30. BRAINSTORM PARAMETERS

31. DETERMINE ASSUMPTIONS

32. DOCUMENT BENEFITS AND COSTS:

33. RELATIVE NUMBER OF INCIDENTS:

34. FINANCIAL COST OF AN ACCIDENT:

35. INCIDENT MODULE CALCULATES BENEFIT

36. ENTER COSTS OF IMPLEMENTATION:

37. HIT CALCULATIONS BUTTON:

38. PRESENT RESULTS:

39. Sikorsky Aircraft Corporation
BENEFITS
ROHSEI offers a standardized approach to evaluating safety investments

40. Remember…there is a lot more to safety than economics.
Work the business case…but don’t lose focus on what safety is all about.
Remember…there is a lot more to safety than economics. 40

41. ADDITIONAl ROHESI INFORMATION
Sikorsky Aircraft Corporation
ADDITIONAl ROHESI INFORMATION
Dave Eherts
Jo Linhard