the value of safety
DESCRIPTION
The Value of Safety. AGENDA. Background What is ROI? What is ROHSEI? Benefits Business Case EGPWS SMS Summary Questions. THE PARADIGM. “Safety people have their hearts in the right place but seldom understand true business objectives” Safety has the high moral ground - PowerPoint PPT PresentationTRANSCRIPT
The Value of Safety The Value of Safety
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AGENDA
BackgroundBackground
What is ROI?What is ROI?
What is ROHSEI?What is ROHSEI?
BenefitsBenefits
Business CaseBusiness Case
• EGPWSEGPWS
• SMSSMS
SummarySummary
QuestionsQuestions
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THE PARADIGM
““Safety people have their hearts in the right Safety people have their hearts in the right place but seldom understand true business place but seldom understand true business
objectives”objectives”
• Safety has the high moral ground Safety has the high moral ground No one can publicly disagree with what we representNo 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 objectivesOur requests are compared with competing business objectives We’re never seen as balancing Safety objectives with business We’re never seen as balancing Safety objectives with business
realityreality• We seldom make a credible business case We seldom make a credible business case
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WHAT LANGUAGE DO YOU SPEAK?WHAT LANGUAGE DO YOU SPEAK?
PROBABILITY FREQUENT PROBABLE OCCASIONAL REMOTE IMPROBABLE
SEVERITY A B C D E
I - CATASTROPHIC 1 2 4 8 12 II - CRITICAL 3 5 6 10 15 III - MARGINAL 7 9 11 14 17 IV - NEGLIGIBLE 13 16 18 19 20
-OR--OR-
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METRICS USED BY CFO’s
MetricMetric % Time Used% Time Used Internal Rate of ReturnInternal Rate of Return 75.6%75.6% Net Present ValueNet Present Value 74.9%74.9% Payback PeriodPayback Period 56.7%56.7% Discounted Payback PeriodDiscounted Payback Period 29.5%29.5% Account Rate of ReturnAccount Rate of Return 30.3%30.3% Profitability IndexProfitability Index 11.9%11.9%Source: Graham, John R. and Harvey R. Campbell, “The Theory and Practice of Corporate Source: Graham, John R. and Harvey R. Campbell, “The Theory and Practice of Corporate
Finance: Evidence from the Field”, Journal of Financial Economics 2001Finance: Evidence from the Field”, Journal of Financial Economics 2001
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FINANCIAL METRICS
The financial metrics are built around the The financial metrics are built around the concept of the:concept of the:
$ Time Value of Money $$ Time Value of Money $
That is, a dollar today is worth more than a That is, a dollar today is worth more than a dollar tomorrow.dollar tomorrow.
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INFLATION AND DISCOUNTING
Present Value
An investment can be viewed in two ways—its future value or its present value.
Future Value
Inflation
Discounting
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Review JHSAT Recommendations & Assign Number
JHSAT Overall Effectiveness
Value (OE)
Assign JHSIT Average
Feasibility
ValueValue
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
IHST Approval
U.S. JHSIT PROCESS MODEL
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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 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 implement2 - Relatively medium cost to implement1 - 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 environment2 - Modest change to operating environment1 - 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 implementation2 - Full implementation in 2-5 years1 - Longer than 5 years to full implementation
Regulatory 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 change
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MANAGEMENT SYSTEM = SAFETY SYSTEM
SafetyAchievement
Finance Plan
Targets & Objectives
Budget
Accountabilities
Levels of Authority
Procedures
Safety Plan
Targets & Objectives
Budget
Line Management Authorities
Accountabilities
Procedures
Financial Management System Safety Management System
AccountantsAuditPlan
Checks and Balances
AuditsBalanceSheets
Audits
Monitoring/Line Checks
Audit PlanSafety
Committee
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ROI = ROI = Net Present ValueNet Present Value
Present Value of Project CostPresent Value of Project Cost
Present Value of Project Benefit – Present Value of Project CostPresent Value of Project Benefit – Present Value of Project Cost
Present Value of Project CostPresent Value of Project Cost
ROI =ROI =
ROI – WHAT IS SAFETY’s PAYBACK?
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ROHSEI
Return on Health, Return on Health,
Safety and Safety and
Environmental Environmental
InvestmentInvestment
(ROHSEI)(ROHSEI)
One Way To Change The Paradigm.
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GENESIS OF ROHSEI
In 1995 a taskforce of fifteen Fortune 500 companies sponsored In 1995 a taskforce of fifteen Fortune 500 companies sponsored the development of a process and supporting tool set to the development of a process and supporting tool set to answer important questions such as: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 How do we know we are doing the “right things” in the “right
way”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 Which EHS investments create the greatest value to the
organization?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?
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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
ROHSEIBridgesthe Gap
Finance/Operations
Earnings/EPS
ROI
Payback
PVRR
Internal Rate of Return
Production rates
Earnings/employee
Net Present Value
Cost Benefit
BUSINESS TALK SAFETY TALK
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ROHSEI offers a standardized approach to ROHSEI offers a standardized approach to evaluating health, safety and environmental evaluating health, safety and environmental investments.investments.
WHAT ROHESI DOES
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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.
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WHAT DOES A SAFETY GUY KNOW ABOUT FINANCE? – ROHSEI!
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THE CHALLENGING QUESTIONS
What investments should we make?What investments should we make?
Should we make the investment this year or next?Should we make the investment this year or next?
How do we compare an operational investment decision to a How do we compare an operational investment decision to a
health and safety investment decision?health and safety investment decision?
To which projects should we allocate our human resources?To which projects should we allocate our human resources?
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ROHSEI NAVIGATION SCREEN
Process – Horizontal
Tools – Vertical
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THE CASE FOR ENHANCED GROUND PROXIMITY WARNING SYSTEM (EGPWS)
2020
DEVELOP AND DOCUMENT The Focus Of Opportunity
2121
DETERMINE ASSUMPTIONS
2222
DOCUMENT BENEFITS AND COSTS
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EXPENSE AND CAPITAL COSTS:
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ACCIDENT RATES With And Without Equipment
2525
ACCIDENT RATES With And Without Equipment
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SOFTWARE DOES THE CALCULATIONS:
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PRESENT RESULTS :
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THE CASE FOR SAFETY MANAGEMENT SYSTEMS (SMS)
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DEVELOP AND DOCUMENT The Focus Of Opportunity - SMS
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BRAINSTORM PARAMETERS
3131
DETERMINE ASSUMPTIONS
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DOCUMENT BENEFITS AND COSTS:
3333
RELATIVE NUMBER OF INCIDENTS:
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FINANCIAL COST OF AN ACCIDENT:
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INCIDENT MODULE CALCULATES BENEFIT
3636
ENTER COSTS OF IMPLEMENTATION:
3737
HIT CALCULATIONS BUTTON:
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PRESENT RESULTS:
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BENEFITS
ROHSEI offers ROHSEI offers
a a
standardized standardized
approach to approach to
evaluating evaluating
safety safety
investmentsinvestments
4040
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Work the business case…but don’t Work the business case…but don’t lose focus on what safety is all lose focus on what safety is all about.about.
Remember…there is a lot more to Remember…there is a lot more to safety than economics.safety than economics.
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ADDITIONAl ROHESI INFORMATION
Jo Linhard
202-822-3691
Dave Eherts
203-386-8666