Counting the Cost

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Counting the Cost

• By Brian Portch
• Maintenance Human Factors Investing in
  Regulation and beyond Whats in it for us ?
• Conference at RAF Bentley Priory,
• 18 October 2006

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Contents

• Costs associated with Maintenance Human Factors
  (H.F)
• Costs of an H.F training programme
• Justifying H.F training programme costs as an
  investment
• Do cost indices exist to measure the programmes
  effectiveness ?
• Measuring Return on Investment (ROI)- example

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No Surprises..please!
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Human Factors

• The scientific study of the interaction between
  people, machines and each other.
• Implications
• - H.F maintenance errors can have a
  significant impact on the safety, business
  reputation and financial performance of an
  airline.
• - Accidents incidents are costly in terms of
  Hull loss Human life Property Flight delays
  Flight cancellations
• - Engineering Maintenance (EM) costs can
  constitute 10 14 of Airlines cost base. EM
  typically viewed as non core or a necessary
  evil.

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H.F initiatives impact the bottom line

• Fewer avoidable delays.
• Lower maintenance costs.
• More efficient use of resources.
• Increased professionalism self pride.
• Increased passenger satisfaction.
• Human centred design focus on aircraft/components,
  in conjunction with the manufacturer, should
  reduce likelihood of H.F maintenance errors.

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This photograph is reproduced with the kind
permission of Brian Portch
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This photograph is reproduced with the kind
permission of Rolls-Royce plc.
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Typical un-insured costs of an accident

• Loss of business through damage to reputation.
• Loss of spares or specialised equipment.
• Fines and citations.
• Legal fees re accident.
• Increased Insurance premiums.
• Liability claims in excess of Insurance.
• Cost of corrective action.
• Additional P.R effort.

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Typical un-insured costs of an accident

• Rental/Lease costs of replacement equipment.
• Investigation costs.
• Insurance policy exclusions.
• Loss of productivity of injured employees.
• Employee lost time overtime.
• Hiring training replacements.
• Restoration of order costs.
• Increased operational costs on remaining
  equipment.

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This scanned image is reproduced with the kind
permission of Thomas Cook Airlines Airliner
World, issue September 2006
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The costs of a Boeing 757-200 being out of
service for 24 hours are

• 3 flights operated by another carrier 180,000.
• Hotel accommodation for 235 pax 14,000.
• Meals x 3 for 235 pax 12,000.
• Engineering repair costs Labour man hours x rate
  per hour.
• Engineering repair costs Delivery of Parts.
• Engineering repair costs Parts.

This data is reproduced with the kind permission
of Thomas Cook Airlines Airliner World, issue
September 2006
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Example Engineering costs of replacement parts

• Rudder 266,655
• Engine nose cowl 100,000
• Engine fan cowl 80,000
• Elevator 77,246
• Skin damage 39,000
• Radome 30,000
• Wing tip 28,642
• Freight door 21,017
• Door damage 18,500
• Leading edge slat repair 12,500
• Antenna 3,450

This data is reproduced with the kind permission
of Thomas Cook Airlines Airliner World, issue
September 2006
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The costs of a Boeing 757-200 being out of
service for 24 hours are

• In terms of damage to Airlines reputation
• PRICELESS !

This data is reproduced with the kind permission
of Thomas Cook Airlines Airliner World, issue
September 2006
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Typical costs of implementing a Maintenance H.F
training programme.

• Pay Benefits.
• External Consultants Training fees.
• Diversionary time of attendees during training.
• Hotel, travel accommodation costs.
• Occupancy costs.
• Rewriting procedures developing training
• Less potential offset through 3rd party attendees
  income or joint venture with manufacturers etc.

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Key parts of an H.F training programme re highest
pay-off ?

• Event investigation
• Documentation
• Training
• Shift turnover
• Fatigue/Alertness
• Programme sustainment cost justification

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Potential cost savings sought after implementing
an H.F training programme

• Less employee lost time including injuries.
• Less employee overtime.
• Less equipment damage.
• Less average man hours in major Check, e.g. at
  shift changeover.
• Less asset downtime.
• Less ground towing events.
• Less ground damage incidents

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Justifying H.F training programme costs as an
investment

• Typical objective measures of investment
• Payback period.
• Return on capital/investment i.e. ROI - in its
  infancy re H.F.
• Discounted Cash Flow (DCF).

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Justifying H.F training programme costs as an
investment

• Subjective issues
• Can you afford not to? A trade off between the
  costs involved and the risks involved. How much
  will it cost the business to have an accident?
• If you think safety is expensive, you want to
  try an accident!
• Trust me
• A radical leap of faith
• H.F training initiative Do nothing or be
  reactive or be proactive ? Impacts on life cycle
  costs.

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Years
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Justifying H.F training programme costs as an
investment

• Having visibility, tracking reporting on actual
  Maintenance costs, will help to ensure that
  operators who are struggling to rationalise
  expenditure have a stronger Business Case upon
  which to justify an expected return on investment.

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Evaluating effectiveness of H.F training
programmes

• Industry concern re Lack of a definable set of
  cost indices which can be used to measure the
  effectiveness of an H.F programme.
• Rate of subsequent accidents?
• ROI approach - as per the web based document
• The Operators Manual for Human Factors in
  Aviation Maintenance.
• (Ref ROI in Human Factors by Dr. Bill Johnson
  US FAA in CAT magazine 4/2006)

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Key Performance Measures

• Numerical measures that demonstrate the
  operational and financial performance of e.g.
  Engineering Maintenance Division.
• Relative to past internal performance or external
  competitors performance. i.e.

• Is it improving?
• Standing still?
• Worsening?

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Benchmarking
A process for measuring your own performance and
processes against Best in Class companies In
order to make improvements in your own
critical business areas that will meet
and surpass the Best in Class.
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Case StudyTypical Benchmarking initiative.

• Definition of scope KPMs
• Confidentiality clarified
• KPMs quantified
• Numerical comparison of KPMs
• Establish the processes that support quantified
  KPMs
• Cost drivers of KPMs identified
• Reason for KPM gap Actions to bridge that gap.

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Steps to calculate the ROI ratio

• Annual cost of a specific event ( Cost)
• Cost to address the contributing factors ( Cost
  to fix)
• The probability that the Cost to fix will succeed
  ( Probability of Success)
• Multiply Cost x Probability of Success
• Subtract Cost to fix ( Return)
• Divide Return by Cost to fix ( ROI ratio)

This data is reproduced from Return on
Investment in Human Factors by Dr Bill Johnson
in CAT magazine Issue 4/2006
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Steps to calculate the ROI ratio

• (Cost x Probability of Success) Cost to fix
• Cost to fix
• ROI ratio The gt the net cost top line, gt ratio
• Payback is 12 months
• ROI ratio
• The gt the ROI ratio The quicker the Payback

This data is reproduced from Return on
Investment in Human Factors by Dr Bill Johnson
in CAT magazine Issue 4/2006
27
Calculation of the ROI ratio

• (260k Cost x 75 Probability of Success) 52k
• 52k Cost to fix
• 2.75 ROI ratio The gt net cost top line, gt
  ratio
• Payback is 12 months 4.3 months
• 2.75 ROI ratio
• gt ROI ratio The shorter the Payback period

This data is reproduced from Return on
Investment in Human Factors by Dr Bill Johnson
in CAT magazine Issue 4/2006
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Counting the Cost

• By Brian Portch
• Maintenance Human Factors Investing in
  Regulation and beyond Whats in it for us ?
• Conference at RAF Bentley Priory,
• 18 October 2006