Research in Engineering and Aviation

Aviation Safety Management Systems—Return on Investment Study

2011

Author(s): Lercel, D., Steckel, R., Mondello, S., Carr, E., & Patankar, M.

Abstract

Safety professionals have always known that there are humanistic benefits of safety programs, but they have not been able to document the financial benefits and make a sufficiently strong business case for safety programs. The Safety Management System (SMS) is an organized approach for systemic safety improvements based on guidance from the International Civil Aviation Organization, and challenges the safety professionals to quantify the return on investment from safety programs. This concept paper attempts to illustrate the business benefits of safety programs such as an SMS program. As this research continues and grows, the Center for Aviation Safety Research (CASR) will publish subsequent findings that will produce a comprehensive document that presents models to account for various types of costs associated with safety programs, CASR will also present the ways to quantify the benefits resulting from the specific safety program.

A macro-to-micro analytical framework is used to present the business benefits of safety programs and ultimately a program-level justification is presented.

The macro-level analysis presents a sample analysis of stock value of a particular airline after a major accident. This example illustrates how the net worth of an airline can decrease by as much as 25% after an accident and not fully recovery from that loss for more than a year. Such a loss could easily render the airline in bankruptcy. Thus, at a very high level, this example illustrates the financial significance of an airline accident.

A mid level review was performed by analyzing how specific safety interventions or incidents can affect an organizations overall financial performance and lead to a macro level impact. Historically, the aviation industry has not extensively tracked the financial benefits of safety programs, so a review of three organizations from other high consequence industries was performed. Both positive and negative Return on Investment (ROI) examples are discussed because the amount of ROI harvested from a particular safety program depends whether or not the program was sufficiently targeted toward a specific behavioral change.

At the micro-level, examples illustrate how a particular safety intervention‟s cost can be calculated and the corresponding benefits tracked. These examples also illustrate that not all interventions will achieve the desired return on investment within the first year; some investments take longer and may rely on multiple factors outside the control of the safety manger.

Ultimately, a safety investment model is presented as a way to characterize SMS in terms of an investment portfolio consisting of multiple safety programs with varying rates of return, risk, and maturity terms. This allows safety professionals to present the financial case more clearly to the Chief Finance Officer, and other top executives. If this approach is accepted, it would change the perception of safety programs from “costs” to “investments,” thereby achieving implementation of procedures and savings sharing mechanisms that will align the company‟s espoused safety culture with adequately aligned financial reward systems.

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