This document discusses return on investment (ROI) and return on health, safety, and environmental investment (ROHSEI) as tools for evaluating safety investments from a business perspective. It introduces ROHSEI as a standardized approach to evaluate safety investments using the same financial metrics as other business investments. Two case studies are presented using ROHSEI to analyze the business case for investing in enhanced ground proximity warning systems and safety management systems. The document argues that using ROHSEI allows safety professionals to demonstrate the value of safety to business objectives and priorities.

1. The Value of Safety

2. AGENDA

Background

What is ROI?

What is ROHSEI?

Benefits

Business Case
• EGPWS
• SMS

Summary

Questions
2

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. WHAT LANGUAGE DO YOU SPEAK?
-OR-
4

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. 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. 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. 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
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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. 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. 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. ROHSEI
One Way To Change The Paradigm.
Return on Health,
Safety and
Environmental
Investment
(ROHSEI)
12

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. 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
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15. WHAT ROHESI DOES
ROHSEI offers a standardized approach to
evaluating health, safety and environmental
investments.
15

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. 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. ROHSEI NAVIGATION SCREEN
Process – Horizontal
Tools – Vertical
18

19. THE CASE FOR ENHANCED GROUND
PROXIMITY WARNING SYSTEM (EGPWS)
19

20. DEVELOP AND DOCUMENT
The Focus Of Opportunity
20

21. DETERMINE ASSUMPTIONS
21

22. DOCUMENT BENEFITS AND COSTS
22

23. EXPENSE AND CAPITAL COSTS:
23

24. ACCIDENT RATES
With And Without Equipment
24

25. ACCIDENT RATES
With And Without Equipment
25

26. SOFTWARE DOES THE CALCULATIONS:
26

27. PRESENT RESULTS :
27

28. THE CASE FOR SAFETY MANAGEMENT
SYSTEMS (SMS)
28

29. DEVELOP AND DOCUMENT
The Focus Of Opportunity - SMS
29

30. BRAINSTORM PARAMETERS
30

31. DETERMINE ASSUMPTIONS
31

32. DOCUMENT BENEFITS AND COSTS:
32

33. RELATIVE NUMBER OF INCIDENTS:
33

34. FINANCIAL COST OF AN ACCIDENT:
34

35. INCIDENT MODULE CALCULATES BENEFIT
35

36. ENTER COSTS OF IMPLEMENTATION:
36

37. HIT CALCULATIONS BUTTON:
37

38. PRESENT RESULTS:
38

39. BENEFITS
ROHSEI offers
a
standardized
approach to
evaluating
safety
investments
39

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.
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40

41. ADDITIONAl ROHESI INFORMATION
Jo Linhard
Dave Eherts
202-822-3691
linhard@orc-dc.com
203-386-8666
deherts@sikorsky.com
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