Sunday, April 9, 2017

The Value of Safety

The last blog touched the value of safety and ROI on safety. There are several safety articles written about the return on investment of a Safety Management System with a return between 100 % and 600 %. All these ROIs are based on future predictions of a reduction in major accidents, operational incidents and hazards by applying the SMS tool. When applying an estimate of lack of future losses, the ROI does not represent the true value of safety, but a virtual value of safety. Virtual cash or virtual ROI is not an actual return based on facts or data, but an opinion and projection of a planned SMS. The value of safety is not the lack of accidents or incidents, but the total revenue generated by operations. SMS is a businesslike approach to safety and the value of safety should be applied in that manner.

Process Applications Are Limited To Technical Capability.
An investment in an airline or airport is the total cash invested in the operations. The return on this investment is based on several factors which at the end produces a profit or loss. A safety management system is neutral in producing profit of loss since it’s a system that does not produce or consume events and occurrences. A functional SMS is the financial comptroller of safety and a quality assurance program. In business, a comptroller is a management level position responsible for supervising the quality of accounting and financial reporting of an organization. As a businesslike approach to safety, SMS is responsible for supervising the quality of safety.  A financial commitment or investment affects all aspects of the organization. An investment in an aircraft or new runway affects other areas such as maintenance, customer service and training. Depending on how this single investment is promoted, marketed and managed may increase the overall ROI of the organization, or may incur a major loss. An aircraft or runway in itself is profit or loss neutral. It is the management of operations that generate a profit of loss. SMS is in this same manner accident or incident neutral, but affects outcomes based on how the SMS tool is applied. It is the application of SMS as a tool to manage and lead operations which generate the profit, losses, incidents or accidents.

Return on Investment of SMS is not the savings by a reduction of accidents or incidents, but the return of cash revenue generated by in-control processes and organizational based safety investment decisions. When purchasing an aircraft, the operator is basing their judgement on what safety-nets the manufacturer has implemented. When building a new runway the airport is basing their judgement on safety-nets applied by the construction company.  When customers decide to purchase a ticket, or an airline decide to operate out of a specific airport, their decision to purchase is based on what safety-nets and assurance, or process controls of these safety-nets the airline or airport have in place. Safety management, or leadership in process management, is the overarching tool in decision making and therefore the only profit generator in an organization.

Comfort on an airplane is important, but if there is an apparent lack of safety then other carriers are chosen. This is the same with an airport; if the runway is marginal short for operations then the airlines chose other less convenient airports of operations. Safety is therefore the only profit generator and when applied in a businesslike approach to safety the ROI is the cash returned in operations, and not the absence of accidents.

ROI projections may apply the cost of accidents, but it is not the true ROI. The true ROI is the SMS decisions that went into the process of purchasing a new aircraft, or extending a runway which contributed to the ROI and is the ROI of safety. As an ROI projection the value of safety may be applied as $1.00 per second of time spent on task as the investment, and the actual $1.00 per second spent on task as revenue. Since both airplanes and runways are ROI neutral, it’s the Safety Management System decisions that produced the ROI, or the profit of loss result. There is no single operation within aviation that does not assess for safety and the impact safety has on profit. Not as an impact of reduction in incidents or accidents, but on customer confidence level of operations.

SPCforExcel   Out of Control Tests.
Without SMS there is zero confidence level of operational safety. Operators without an SMS may believe that they have a 100% confidence level of safety. However, when mathematically calculated their confidence level of safety is 0% since there is zero data to justify their statement. With an SMS in place the operational confidence level of safety is at least 95% even if wishful thinking is for safety to be 100%. The other unaccountable 5% of confidence levels are so remote that times between intervals of one occurrence is imaginary, theoretical, virtual, or fictional.

A Safety Management System is the Constitution of an organization and the tool for operations within a just culture and accountability where the ROI is the fraction of out of control testes. Processes within the Safety Management System are analyzed in a Statistical Process Control (SPC) system with multiple test for out of control processes. Each one of these tests are assigned a weight and applied to the ROI. Without data the value of safety and ROI is just an assessment of opinions.