Presentation on theme: "Sikorsky Aircraft Corporation"— Presentation transcript:
1Sikorsky Aircraft Corporation The Value of Safety
2Sikorsky Aircraft Corporation AGENDABackgroundWhat is ROI?What is ROHSEI?BenefitsBusiness CaseEGPWSSMSSummaryQuestions
3Sikorsky Aircraft Corporation THE PARADIGMSikorsky Aircraft Corporation“Safety people have their hearts in the right place but seldom understand true business objectives”Safety has the high moral groundNo one can publicly disagree with what we representBut Safety people are seldom seen as true business partnersOur requests are compared with competing business objectivesWe’re never seen as balancing Safety objectives with business realityWe seldom make a credible business caseSafety is the high moral ground, but we need to make a ‘business case’ for investing in safety.
4WHAT LANGUAGE DO YOU SPEAK? Sikorsky Aircraft CorporationWHAT LANGUAGE DO YOU SPEAK?-OR-Safety managers speak in their own language, normally centered on safety risk management termsBut the financial managers speak a different language.To be successful, safety managers must present their proposals for safety investments in financial terms.
5METRICS 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
6Sikorsky Aircraft Corporation FINANCIAL METRICSThe 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.
7INFLATION AND DISCOUNTING Sikorsky Aircraft CorporationOctober 23-24, 2007INFLATION AND DISCOUNTINGAn investment can be viewed in two ways—its future value or its present value.Future ValueInflationDiscountingAn investment can be viewed in two ways – its future value or its present value.Present ValueROHSEI, Washington, DC7
8Sikorsky Aircraft Corporation U.S. JHSIT PROCESS MODELInitiate Top Level Safety Intervention Actions(e.g. promoting IHST, SMS, Infrastructure changes)Assign JHSIT Average Feasibility ValueReview JHSAT Recommendations & Assign NumberJHSAT Overall Effectiveness Value (OE)Prioritize Recommendations (OE x F)Prepare Preliminary Safety Enhancement PlanGroup Recommendations By Common ThemePrepare Detailed Safety Implementation PlanIHST ApprovalThe JHSIT process includes evaluating the “value” of the recommended intervention.Execute and Monitor Progress Of Safety Implementation PlanIHST Approval
9Sikorsky 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 required2 - Some development required, not currently in public use1 - Major technology development effort requiredFinancial 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 implement2 - Relatively medium cost to implement1 - Relatively high cost to implementOperational 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 environment2 - Modest change to operating environment1 - Major change to operating environmentSchedule 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 implementation2 - Full implementation in 2-5 years1 - Longer than 5 years to full implementationRegulatory Feasibility: Should be evaluated against current rules and certificationprocess. Could be a deterrent due to a long approval process.3 - No policy change2 - Guidance change only (orders, handbooks, policy)1 - Rule changeThe JHSIT process includes evaluating the feasibility of implementing the intervention. One of the 5 feasibility factors evaluated is the “FINANCIAL” feasibility.
10Sikorsky Aircraft Corporation MANAGEMENT SYSTEM = SAFETY SYSTEMFinancial Management SystemSafety Management SystemFinance PlanSafety PlanTargets & ObjectivesTargets & ObjectivesBudgetBudgetAccountabilitiesAccountabilitiesLevels of AuthorityLine ManagementAuthoritiesProceduresProceduresThe management tools used to manage safety are the same as the elements used to manage the business.Checks and BalancesMonitoring/Line ChecksAudit PlanAccountantsAudit PlanSafety CommitteeAuditsBalance SheetsAuditsSafety Achievement
11ROI – WHAT IS SAFETY’s PAYBACK? Sikorsky Aircraft CorporationROI – WHAT IS SAFETY’s PAYBACK?Net Present ValuePresent Value of Project CostROI =ROI =Present Value of Project Benefit – Present Value of Project CostPresent Value of Project CostTo 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!
12Sikorsky Aircraft Corporation ROHSEIOne Way To Change The Paradigm.Return on Health,Safety andEnvironmentalInvestment(ROHSEI)ROHSEI is a proven financial software tool used by safety managers to calculate the financial return on safety investments.
13Sikorsky Aircraft Corporation GENESIS OF ROHSEISikorsky Aircraft CorporationOctober 23-24, 2007In 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, DC13
14Sikorsky Aircraft Corporation October 23-24, 2007BRIDGING FINANCE & SAFETYBUSINESS TALKSAFETY TALKFinance/OperationsSafety/Industrial HygieneEarnings/EPSAccident ratesROIProperty lossPaybackInsurance premiumsPVRRFines and citationsInternal Rate of ReturnNo. of people trainedProduction ratesExposure AssessmentsROHSEIEarnings/employeeNear missesBridgesNet Present ValueBehavioral Observationsthe GapCost BenefitAudit findingsROHSEI, Washington, DC14
15WHAT ROHESI DOESROHSEI offers a standardized approach to evaluating health, safety and environmental investments.
16WHAT DOES A SAFETY GUY KNOW ABOUT FINANCE? – ROHSEI!
17THE CHALLENGING QUESTIONS Sikorsky Aircraft CorporationTHE CHALLENGING QUESTIONSWhat 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?
18ROHSEI NAVIGATION SCREEN Process – HorizontalTools – Vertical
19THE CASE FOR ENHANCED GROUND PROXIMITY WARNING SYSTEM (EGPWS)