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A Process to Prove the Payback on Safety Interventions

Federal Aviation Administration. A Process to Prove the Payback on Safety Interventions. Dr. Bill Johnson Chief Scientific and Technical Advisor Maintenance Human Factors bill-dr.johnson@faa.gov +1.770.500.8217. Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient

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A Process to Prove the Payback on Safety Interventions

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  1. Federal Aviation Administration A Process to Prove the Payback on Safety Interventions Dr. Bill Johnson Chief Scientific and Technical Advisor Maintenance Human Factors bill-dr.johnson@faa.gov +1.770.500.8217 Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  2. Finance and Safety ROI Challenges - Solutions Calculating ROI (A detailed example) Other Examples Cautions Q&A Presentation Plan Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  3. Why care about ROI Investment in Safety Continuing/ Improving Safety and/or Expense Reduction and/or Revenue Increase

  4. Why care about ROI? “If you want to implement/revise safety programs you must show the payoff.”

  5. Challenges to ROI of Safety Intangible Cause and Effect Integration-Combination Time Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  6. ROI Solutions SMS Data Emphasis Voluntary Reporting Acceptance

  7. Finance and Safety ROI Challenges - Solutions Calculating ROI (A detailed example) Other Examples Cautions Q&A Presentation Plan Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  8. ROI: Any Questions Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  9. ROI: From Words to Numbers

  10. Example: Fatigue Awareness Training at MRO Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  11. A Few More Challenges to ROI Financial personnel assume ROI responsibility Executives do not demand ROI Corporate culture and ROI Perceived value of ROI Fix problems rather than assign costs Focus on costs Focus on production and schedules Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  12. Example ROI Summary Investment Fatigue Awareness Training to 2,500 @ 2 hours each Cost was $205 K during 2011 Benefit Forecast* Reduction in A/C damage: $935K (10% of 2010) Reduction in OSHA injury: $119K (10% of 2010) Financial ROI: 312% Probability of success: .8 +/- .1 Actual* Reduction in A/C damage: $3M (30% reduction) Reduction in OSHA injury: $184K (15% reduction) * Does not include a 1% system-wide efficiency improvement of $900K

  13. ROI: Fill in the Boxes

  14. The ROI Menu

  15. Investment Questions How many personnel trained? How long is training in hours?  What is the average hourly rate for trainees? Were there missed opportunity costs during training time?  Count time for management and support ? Rate? Cost of special hardware? Amortize? Costs for training development & facilities? Amortize? Schedule for training over time?

  16. The Investment Investment to deliver training $204,500.00 Investment to deliver training $204,500.00

  17. Expected Return Questions What are the safety benefits? How many current safety incidents? How many safety incidents can be reduced? What are the metrics to measure these changes? (e.g., aircraft damage, rework, delivery delay, OSHA injuries,…) Costs associated with each metric? How much will personnel efficiency be improved?

  18. The Return - Benefits Aircraft Damage OSHA Reportables $ 934,500 $ 119,202 10% Investment Benefits $1,053,702

  19. The Directions to ROI

  20. Project Summary (1 of 2) Break Even Point $204.5K $638,461/$204.500 = 3.12

  21. Project Summary (2 of 2)

  22. Recent ROI Findings Investment Fatigue Awareness Training to 2,500 @ 2 hours each Cost was $205 K during 2011 Benefit Forecast* Reduction in A/C damage: $935K (10% of 2010) Reduction in OSHA injury: $119K (10% of 2010) Financial ROI: 312% Probability of success: .8 +/- .1 Actual* Reduction in A/C damage: $3M (30% reduction) Reduction in OSHA injury: $184K (15% reduction) * Does not include a 1% efficiency improvement of $900K

  23. Finance and Safety ROI Challenges - Solutions Calculating ROI (A detailed example) Other Examples Cautions Q&A Presentation Plan Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  24. Need More Examples?

  25. Cautions Real world vs. Controlled laboratory Diligence on estimates Be conservative Expect surprises

  26. What you can do next Your SMS provides the data Try the formula ROI considerations will increase Knowledge equals power Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  27. Finance and Safety ROI Challenges - Solutions Calculating ROI (A detailed example) Other Examples Cautions Q&A Presentation Summary Shell Aircraft Safety Seminar 2012 Human Factors –Safety’s Vital Ingredient The Hague, Netherlands 11-12 October 2012

  28. Why care about ROI? “…safety and profitability are the mutually inclusive #1 priority for most industries especially transportation…” B. Johnson, Paragraph 1 of this conference paper.

  29. Questions - Discussion

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