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The Value of Safety
AGENDA


Background



What is ROI?



What is ROHSEI?



Benefits



Business Case
• EGPWS
• SMS



Summary



Que...
THE PARADIGM
“Safety people have their hearts in the right
place but seldom understand true business
objectives”
• Safety ...
WHAT LANGUAGE DO YOU SPEAK?

-OR-

4
METRICS USED BY CFO’s
Metric







Internal Rate of Return
Net Present Value
Payback Period
Discounted Payback Peri...
FINANCIAL METRICS
The financial metrics are built around the
concept of the:

$ Time Value of Money $

That is, a dollar t...
INFLATION AND DISCOUNTING
An investment can be viewed in two ways
—its future value or its present value.
Inflation

Prese...
U.S. JHSIT PROCESS MODEL
Initiate Top Level Safety Intervention Actions
(e.g. promoting IHST, SMS, Infrastructure changes)...
Technical Feasibility: The ability of the project to take advantage of the current state of technology in
pursuing further...
MANAGEMENT SYSTEM = SAFETY SYSTEM
Financial Management System

Safety Management System

Finance Plan

Safety Plan

Target...
ROI – WHAT IS SAFETY’s PAYBACK?

Net Present Value
ROI =

ROI =

Present Value of Project Cost

Present Value of Project B...
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 supporti...
BRIDGING FINANCE & SAFETY
BUSINESS TALK

SAFETY TALK

Finance/Operations

Safety/Industrial Hygiene

Earnings/EPS

Acciden...
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 pr...
THE CHALLENGING QUESTIONS

What investments should we make?
Should we make the investment this year or next?
How do we com...
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 econo...
ADDITIONAl ROHESI INFORMATION

Jo Linhard
Dave Eherts
202-822-3691
linhard@orc-dc.com

203-386-8666
deherts@sikorsky.com

...
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The Value of Safety: How Safety Makes Real Financial Sense for Helicopter Operators

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There is is strong financial and business case for helicopter operators to invest in safe practices and technology.

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The Value of Safety: How Safety Makes Real Financial Sense for Helicopter Operators

  1. 1. The Value of Safety
  2. 2. AGENDA  Background  What is ROI?  What is ROHSEI?  Benefits  Business Case • EGPWS • SMS  Summary  Questions 2
  3. 3. 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
  4. 4. WHAT LANGUAGE DO YOU SPEAK? -OR- 4
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  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 9
  10. 10. 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
  11. 11. 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
  12. 12. ROHSEI One Way To Change The Paradigm. Return on Health, Safety and Environmental Investment (ROHSEI) 12
  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? 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
  14. 14. 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
  15. 15. WHAT ROHESI DOES ROHSEI offers a standardized approach to evaluating health, safety and environmental investments. 15
  16. 16. 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
  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? 17
  18. 18. ROHSEI NAVIGATION SCREEN Process – Horizontal Tools – Vertical 18
  19. 19. THE CASE FOR ENHANCED GROUND PROXIMITY WARNING SYSTEM (EGPWS) 19
  20. 20. DEVELOP AND DOCUMENT The Focus Of Opportunity 20
  21. 21. DETERMINE ASSUMPTIONS 21
  22. 22. DOCUMENT BENEFITS AND COSTS 22
  23. 23. EXPENSE AND CAPITAL COSTS: 23
  24. 24. ACCIDENT RATES With And Without Equipment 24
  25. 25. ACCIDENT RATES With And Without Equipment 25
  26. 26. SOFTWARE DOES THE CALCULATIONS: 26
  27. 27. PRESENT RESULTS : 27
  28. 28. THE CASE FOR SAFETY MANAGEMENT SYSTEMS (SMS) 28
  29. 29. DEVELOP AND DOCUMENT The Focus Of Opportunity - SMS 29
  30. 30. BRAINSTORM PARAMETERS 30
  31. 31. DETERMINE ASSUMPTIONS 31
  32. 32. DOCUMENT BENEFITS AND COSTS: 32
  33. 33. RELATIVE NUMBER OF INCIDENTS: 33
  34. 34. FINANCIAL COST OF AN ACCIDENT: 34
  35. 35. INCIDENT MODULE CALCULATES BENEFIT 35
  36. 36. ENTER COSTS OF IMPLEMENTATION: 36
  37. 37. HIT CALCULATIONS BUTTON: 37
  38. 38. PRESENT RESULTS: 38
  39. 39. BENEFITS ROHSEI offers a standardized approach to evaluating safety investments 39
  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. 40 40
  41. 41. ADDITIONAl ROHESI INFORMATION Jo Linhard Dave Eherts 202-822-3691 linhard@orc-dc.com 203-386-8666 deherts@sikorsky.com 41

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