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The Value of Safety. 2 AGENDA Background Background What is ROI? What is ROI? What is ROHSEI? What is ROHSEI? Benefits Benefits Business Case Business.

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Presentation on theme: "The Value of Safety. 2 AGENDA Background Background What is ROI? What is ROI? What is ROHSEI? What is ROHSEI? Benefits Benefits Business Case Business."— Presentation transcript:

1 The Value of Safety

2 2 AGENDA Background Background What is ROI? What is ROI? What is ROHSEI? What is ROHSEI? Benefits Benefits Business Case Business Case EGPWSEGPWS SMSSMS Summary Summary Questions Questions

3 3 THE PARADIGM “Safety people have their hearts in the right place but seldom understand true business objectives” Safety has the high moral groundSafety has the high moral ground No one can publicly disagree with what we represent No one can publicly disagree with what we represent But Safety people are seldom seen as true business partnersBut Safety people are seldom seen as true business partners Our requests are compared with competing business objectives Our requests are compared with competing business objectives We’re never seen as balancing Safety objectives with business reality We’re never seen as balancing Safety objectives with business reality We seldom make a credible business caseWe seldom make a credible business case

4 4 WHAT LANGUAGE DO YOU SPEAK? -OR-

5 5 METRICS USED BY CFO’s Metric% Time Used Metric% Time Used Internal Rate of Return75.6% Internal Rate of Return75.6% Net Present Value74.9% Net Present Value74.9% Payback Period56.7% Payback Period56.7% Discounted Payback Period29.5% Discounted Payback Period29.5% Account Rate of Return30.3% Account Rate of Return30.3% Profitability Index11.9% Profitability Index11.9% 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 6 FINANCIAL METRICS The financial metrics are built around the concept of the: $ Time Value of Money $ $ Time Value of Money $ That is, a dollar today is worth more than a dollar tomorrow.

7 7 INFLATION AND DISCOUNTING Present Value An investment can be viewed in two ways—its future value or its present value. Future Value Inflation Discounting

8 8 Review JHSAT Recommendations & Assign Number JHSAT Overall Effectiveness Value (OE) Value Assign JHSIT Average Feasibility Value Prioritize Recommendations (OE x F) Group Recommendations By Common Theme Prepare Preliminary Safety Enhancement Plan Prepare Detailed Safety Implementation Plan Execute and Monitor Progress Of Safety Implementation Plan Initiate Top Level Safety Intervention Actions (e.g. promoting IHST, SMS, Infrastructure changes) IHST Approval U.S. JHSIT PROCESS MODEL

9 9 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

10 10 MANAGEMENT SYSTEM = SAFETY SYSTEM Safety Achievement Finance Plan Targets & Objectives Budget Accountabilities Levels of Authority Procedures Safety Plan Targets & Objectives Budget Line Management Authorities Accountabilities Procedures Financial Management SystemSafety Management System Accountants Audit Plan Checks and Balances Audits Balance Sheets Audits Monitoring/Line Checks Audit Plan Safety Committee

11 11 ROI = Net Present Value Present Value of Project Cost Present Value of Project Benefit – Present Value of Project Cost Present Value of Project Cost ROI = ROI – WHAT IS SAFETY’s PAYBACK?

12 12 ROHSEI Return on Health, Safety and EnvironmentalInvestment(ROHSEI) One Way To Change The Paradigm.

13 13 GENESIS OF ROHSEI 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? What safety investments should we make? How do we know we are doing the “right things” in the “right way” How do we know we are doing the “right things” in the “right way” To which projects should we allocate our resources? To which projects should we allocate our resources? Which EHS investments create the greatest value to the organization? Which EHS investments create the greatest value to the organization? How do we demonstrate the value of our investment decisions? How do we demonstrate the value of our investment decisions? How do we demonstrate our value and justify our existence? How do we demonstrate our value and justify our existence?

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

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

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

17 17 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 18 ROHSEI NAVIGATION SCREEN Process – Horizontal Tools – Vertical

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

20 20 DEVELOP AND DOCUMENT The Focus Of Opportunity

21 21 DETERMINE ASSUMPTIONS

22 22 DOCUMENT BENEFITS AND COSTS

23 23 EXPENSE AND CAPITAL COSTS:

24 24 ACCIDENT RATES With And Without Equipment

25 25 ACCIDENT RATES With And Without Equipment

26 26 SOFTWARE DOES THE CALCULATIONS:

27 27 PRESENT RESULTS :

28 28 THE CASE FOR SAFETY MANAGEMENT SYSTEMS (SMS)

29 29 DEVELOP AND DOCUMENT The Focus Of Opportunity - SMS

30 30 BRAINSTORM PARAMETERS

31 31 DETERMINE ASSUMPTIONS

32 32 DOCUMENT BENEFITS AND COSTS:

33 33 RELATIVE NUMBER OF INCIDENTS:

34 34 FINANCIAL COST OF AN ACCIDENT:

35 35 INCIDENT MODULE CALCULATES BENEFIT

36 36 ENTER COSTS OF IMPLEMENTATION:

37 37 HIT CALCULATIONS BUTTON:

38 38 PRESENT RESULTS:

39 39 BENEFITS ROHSEI offers a standardized approach to evaluating safety investments

40 40 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.

41 41 ADDITIONAl ROHESI INFORMATION Jo Linhard Dave Eherts


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