Your recent quality and performance data confirm an unacceptable trend. Last month you had damage to aircraft … and ground equipment … and people were injured. You identified the contributing factors to these three categories of challenges.
Now you must decide how to allocate resources to address the issues. And they are all important issues. How can you ensure a financial and safety return on the investments you make to fix the problems? The answer is a straightforward math problem that calculates return on investment (ROI).
This article describes new ROI software developed under an FAA human factors project. Management consultant Booz Allen Hamilton Inc. developed the software under contract to the FAA Civil Aerospace Medical Institute.
The goal is to deliver an effective, yet easy-to-use ROI tool into the hands of mid-level management. It has the potential to justify a variety of safety and efficiency interventions, including interventions related to human factors. This tool is provided at no cost to the industry.
ROI is merely comparing the money invested to the value returned. Figure 1, taken from the new FAA software, shows the data necessary to calculate ROI.
Let’s use aircraft ground damage as an example. Assume that you had 2.5 incidents of aircraft ground damage each month over the past 12 months. Counting repairs, delays, rescheduled flights, etc., the average cost per incident was $200,000. (By the way, that’s below International Air Transport Association estimates.) Once you conducted the investigations, including peer-to-peer assessments (See the September issue of Ground Support Worldwide for “Collecting ‘Predictive’ SMS Data”), you identified a number of contributing factors including:
- Poor ramp painting for clear zones,
- Inadequate maintenance of ground equipment,
- Improper adherence to company procedures, and
- Lack of availability of sufficiently trained personnel.
Correcting each of these contributing factors has an associated investment cost. Of the 30 incidents in the past year, you decide you could reasonably address 25, since five of the incidents are outside your control. From a financial perspective, the return would be $5 million ($200,000 x 25) of reduced aircraft damage. From a safety perspective, you would be targeting 25 safety threats.
To calculate the investment you must estimate the following costs:
- Repainting safety zones on ramps ($500,000).
- Refurbishing selected ground equipment ($800,000).
- Developing improved procedures and training personnel to use the new procedures ($200,000).
- Creating an incentive program to reward personnel for reduced ground damage ($500,000).
- The total investment would be about $2 million that would be spent over six quarters.
You cannot guarantee that your interventions will be 100 percent successful. Therefore, you must estimate the probability of success. The FAA software offers guidelines to help make that judgment call. Questions, based on project management, help establish the probability of success. (See Figure 2.)
For this example, we will estimate the probability of success at 80 percent. In other words, the interventions will likely prevent 20 incidents in a six-month period, and the probability of success multiplied by the return provides a net return of $4 million.
With good estimations of return, probability of success and amount of investment, you are able to calculate the ROI. The FAA software helps schedule the quarterly investment as well as forecast the timing of the expected incident reduction. Figure 3 is a partial summary of project costs, benefits and return based on assigned probability of success.
Figure 4 shows a graph representing an overview of the project. In this example, the payback is predicted within three quarters and the return on investment continues to grow. The graphs and depictions are dedicated to the financial ROI.
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