The Value of Safety for Helicopters
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The Value of Safety for Helicopters

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Safety as part of your helicopter operation can save you money.

Safety as part of your helicopter operation can save you money.

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  • Safety is the high moral ground, but we need to make a ‘business case’ for investing in safety. <br />
  • Safety managers speak in their own language, normally centered on safety risk management terms <br /> But the financial managers speak a different language. <br /> To be successful, safety managers must present their proposals for safety investments in financial terms. <br />
  • The worth of a dollar today is different than the worth of a dollar in the future. <br />
  • An investment can be viewed in two ways – its future value or its present value. <br />
  • The JHSIT process includes evaluating the “value” of the recommended intervention. <br />
  • The JHSIT process includes evaluating the feasibility of implementing the intervention. One of the 5 feasibility factors evaluated is the “FINANCIAL” feasibility. <br />
  • The management tools used to manage safety are the same as the elements used to manage the business. <br />
  • 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! <br />
  • ROHSEI is a proven financial software tool used by safety managers to calculate the financial return on safety investments. <br />

The Value of Safety for Helicopters The Value of Safety for Helicopters Presentation Transcript

  • The Value of Safety
  • AGENDA  Background  What is ROI?  What is ROHSEI?  Benefits  Business Case • EGPWS • SMS  Summary  Questions 2
  • THE PARADIGM “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 3
  • WHAT LANGUAGE DO YOU SPEAK? -OR- 4
  • METRICS USED BY CFO’s Metric       Internal Rate of Return Net Present Value Payback Period Discounted Payback Period Account Rate of Return Profitability Index % Time Used 75.6% 74.9% 56.7% 29.5% 30.3% 11.9% Source: Graham, John R. and Harvey R. Campbell, “The Theory and Practice of Corporate Finance: Evidence from the Field”, Journal of Financial Economics 2001 5
  • 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. 6
  • INFLATION AND DISCOUNTING An investment can be viewed in two ways —its future value or its present value. Inflation Present Value Discounting Future Value 7
  • U.S. JHSIT PROCESS MODEL Initiate Top Level Safety Intervention Actions (e.g. promoting IHST, SMS, Infrastructure changes) Review JHSAT Recommendations & Assign Number Group Recommendations By Common Theme IHST Approval JHSAT Overall Effectiveness Value (OE) Prepare Preliminary Safety Enhancement Plan Assign JHSIT Average Feasibility Value IHST Approval Prioritize Recommendations (OE x F) Prepare Detailed Safety Implementation Plan Execute and Monitor Progress Of Safety Implementation Plan 8
  • 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 9
  • 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 Checks and Balances Monitoring/Line Checks Audit Plan Accountants Audit Plan Safety Committee Audits Balance Sheets Audits Safety Achievement 10
  • ROI – WHAT IS SAFETY’s PAYBACK? Net Present Value ROI = ROI = Present Value of Project Cost Present Value of Project Benefit – Present Value of Project Cost Present Value of Project Cost 11
  • ROHSEI One Way To Change The Paradigm. Return on Health, Safety and Environmental Investment (ROHSEI) 12
  • 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? 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? 13
  • 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 Earnings/employee Net Present Value Cost Benefit ROHSEI Bridges the Gap Near misses Behavioral Observations Audit findings 14
  • WHAT ROHESI DOES ROHSEI offers a standardized approach to evaluating health, safety and environmental investments. 15
  • WHAT DOES A SAFETY GUY KNOW ABOUT FINANCE? – ROHSEI! Return on Investment (ROI): This is calculated by dividing the net present value by the present value of the project costs. The net present value is calculated by subtracting the present value of project costs from the present value of project benefits. The model calculates ROI based on costs, benefits, and the discount rate that are entered by the user.  ( B − C ) ( 1 + n) i  i  i  i   (1 + r ) i =1   ROI = = i t  C ( 1 + n)  i  i i =1  (1 + r )    t ∑ ∑  B ( 1 + n) i  t  C ( 1 + n) i   i −  i  i i i =1  (1 + r )  i =1  (1 + r )      i t  Ci ( 1 + n)    i i =1  (1 + r )    t ∑ ∑ ∑ 16
  • 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? 17
  • ROHSEI NAVIGATION SCREEN Process – Horizontal Tools – Vertical 18
  • THE CASE FOR ENHANCED GROUND PROXIMITY WARNING SYSTEM (EGPWS) 19
  • DEVELOP AND DOCUMENT The Focus Of Opportunity 20
  • DETERMINE ASSUMPTIONS 21
  • DOCUMENT BENEFITS AND COSTS 22
  • EXPENSE AND CAPITAL COSTS: 23
  • ACCIDENT RATES With And Without Equipment 24
  • ACCIDENT RATES With And Without Equipment 25
  • SOFTWARE DOES THE CALCULATIONS: 26
  • PRESENT RESULTS : 27
  • THE CASE FOR SAFETY MANAGEMENT SYSTEMS (SMS) 28
  • DEVELOP AND DOCUMENT The Focus Of Opportunity - SMS 29
  • BRAINSTORM PARAMETERS 30
  • DETERMINE ASSUMPTIONS 31
  • DOCUMENT BENEFITS AND COSTS: 32
  • RELATIVE NUMBER OF INCIDENTS: 33
  • FINANCIAL COST OF AN ACCIDENT: 34
  • INCIDENT MODULE CALCULATES BENEFIT 35
  • ENTER COSTS OF IMPLEMENTATION: 36
  • HIT CALCULATIONS BUTTON: 37
  • PRESENT RESULTS: 38
  • BENEFITS ROHSEI offers a standardized approach to evaluating safety investments 39
  • 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 40
  • ADDITIONAl ROHESI INFORMATION Jo Linhard Dave Eherts 202-822-3691 linhard@orc-dc.com 203-386-8666 deherts@sikorsky.com 41