Brian B. Bethel, CIH Sikorsky Aircraft Using Business Metrics To Engage Leadership Connecticut Valley Chapter – ASSE NAOSH PDC May 8, 2013 Brian B. Bethel, CIH Sikorsky Aircraft

Key Success Factors Unchanged Over The Years Management commitment Employee engagement Making employees agents of change not change responders Effective risk engineering Recognition Evaluation Control - The TRICK - The ART - The SCIENCE In order for an ergonomic program to be successful, I feel there are 3 key success factors Management commitment Employee engagement Risk mitigation

Is This The Commitment Your Used To???

The Times They Are A Changing Why Are We Here? Decisions to move forward with EHS projects are no longer based solely on sound technical judgment

Lets Build Some Commitment Their Language Our Language To gain leadership commitment And maybe more importantly To maintain the commitment of your leadership team

The Times They Are A Changing Decisions to move forward with EHS projects are no longer based solely on sound technical judgment What do we need to Change? It is time to start thinking more like businessmen and less like scientists

Lets Build Some Commitment Bridging EHS & Business To gain leadership commitment And maybe more importantly To maintain the commitment of your leadership team

Generically What does Return On Investment Mean? A measure used to describe the efficiency of an investment over a set period of time Often 7 or 10 years In may corporations the time frame is 3 years A tool used to compare the relative efficiency of investment choices

Building Management Commitment Every organization emphasized their own set of financial metrics Learn which financial metrics are important in your corporation Common financial metrics include: Return on Investment Net Present Value Internal Rate of Return (Discounted) Payback Period Meet with Finance / Cost Accounting / IE

Return On Investment ROI Ratio of money gained to money invested An ROI of 100% would mean you recovered all the money you invested  An ROI >100% would mean you gained MORE than you spent

Payback Period (Simple Payback) Measures how long something takes to "pay for itself" For example a $1000 investment which returned $500 per year would have a two year payback period The time value of money is not taken into account Payback period is widely used because of its ease of use despite recognized limitations

Discounted Payback Period DPP Similar to payback period in that it measures how long something takes to "pay for itself“… BUT: Takes into account: The time value of money (inflation) The cost to borrow the money to make the investment The loss of income you would have had if you invested in a very secure security (Think T bills) DPP is a VERY common financial metric

Internal Rate Of Return IRR IRR is an indicator of the efficiency, quality and yield of an investment Used to measure and compare the profitability of investments An IRR of 100% would mean you recovered all the money you invested  An ROI >100% would mean you gained MORE than you spent IRR is a VERY common financial metric

Net Present Value NPV NPV compares the value of a dollar today to the value of the same dollar in the future Takes into account inflation and the increased revenue gained through the investment Reduced by the financial benefit gained by investing that same money in a stable investment (like T Bills) Reported in $

Using Financial Data To Your Advantage Make It About Value Not Cost “Does your boss know those numbers” “Which one of us wouldn’t invest in a 90% payback” “That’s the case you have to make” At the 2009 conference in Minneapolis.. Our President Jeff Pino repeated a common mantra of his Only two things matter at Sikorsky... The first is that every aircraft lands where and when the pilot wants and the second is that our employees go home in the same condition their families sent them to us… We are better at the first than the second We need to be perfect at both He went on to add that the rest is corporate WHO HA Jeff Pino President, Sikorsky Aircraft 2008 AIHce - Minneapolis

Using Financial Data To Your Advantage Make It About Value Not Cost Learn how to mine cost data Direct costs are important But Indirect & hidden costs usually are the make or break data

Mining Cost Data Direct Costs Cost that are easily identified Injury costs (work comp loss data) PPE Costs (Procurement) Cost to purchase and install controls Consultant fees On and on

Mining Cost Data Indirect Costs Medical costs Medical Lab fees Employee time Medical screening Fit testing Training IH sampling costs Labor (in house) Lab

Mining Cost Data Hidden Costs Time to administer a program Time to administer a medical program Time for supervisors to schedule medical monitoring / training / fit testing Time of employee covering when employee is undergoing medical screening Often at overtime rates - Hidden costs in spades!!! Cost to operate local exhaust ventilation costs Power to run the fans Energy to condition makeup and exhausted air Labor for housekeeping

Other Hidden Costs Quality & labor improvements? – Cost or benefit Review process with Industrial engineering Cost accounting Quality engineering Time study data Monitor material costs Cost of Poor Quality (COPQ) data Indirect time charging (DOI) Rework reduction (quality engineering)

Using Financial Data To Your Advantage Make It About Value Not Cost Learn how to calculate the financial metrics that are important to your organization

Calculating Financial Metrics Isn’t There A Better Way? Incorporate a financial person on your teams Buy them coffee Order them plush “ergonomic” office chairs ….Go to the internet

Using Financial Data To Your Advantage Make It About Value Not Cost Various IH / EHS specific tools are available ROHSEI – ORC Product AIHA Value Proposition Tool Or not! Chances are your organization has a program or a tool to do these calculations for you Enlist financial or IE resources

Case Studies Two hearing conservation cases Why hearing conservation case studies?? Because hearing conservation programs don’t work!

Some Of The Reasons Hearing Conservation Doesn’t Work

Some Other Reasons Hearing Conservation Doesn’t Work

The Change In Social Noise Exposure Is Very Far Reaching

Case Study 1 Machine Shop Noise Control Machine shop environment Dosimetery Indicates That Exposures Ranged From 84 – 87 dB(A) For A Majority Of The Employees As A Result, This HEP Was Enrolled In The Hearing Conservation Program Sound Mapping Indicated That Most Point Noise Sources Were < 83 dB(A)

Typical Sound Map DO NOT UNDERESTIMATE THE CONTRIBUTION OF COMPRESSED AIR NOISE TO THE NOISE PROFILE OF A MACHINIST

Control Hierarchy – Substitution Substitute low noise air nozzles where possible Reductions ranged from 8 – 15 dB(A) Average machinist used compressed air for 8 – 12 min a day Expect to remove 75 employees from the HCP Expect an initial investment of $12K for nozzles

Cost - Value $12K Cost Vs Value

Mine Direct Cost Data Hearing testing service reduction $1,200 Hearing loss awards At risk of 2 cases @ $25K Direct cost savings expected - $1.2K Cost avoidance - $50K Total savings expected ≈ 52.2K ?? Why no hearing protection costs savings??

Mine Indirect Cost Data Program administration annual costs savings HCP Program Admin (IH) – 40 Hrs Medical Admin (Medical) – 20 Hrs Supervisors Time – 75 Hrs (1 Hr per employee ) Employee Time – 131.25 Hrs (1.75 Hrs for exam) STS Retests Labor – 9 Hrs How do we convert hours saved into Dollars??? Simple… multiply by the labor rate… Right?

Burdened Labor Rate One Of The Hidden Costs Hourly Rate That Includes Overhead Costs  Burdened Rate Equals Employee Salary Cost Of Employee Benefits Paid Time Off Insurance Costs Taxes On Labor Employees Share Of The Infrastructure Costs Obtain From Your IE Or Cost Accounting Organization Not Uncommon That The Burdened Rate Is 3X Wage

Other Hidden Costs Unique To Each Situation Program administration annual costs savings HCP Program Admin (IH) – 40 Hrs Medical Admin (Medical) – 20 Hrs Supervisors Time – 75 Hrs (1 Hr per employee ) Employee Time – 131.25 Hrs (1.75 Hrs for exam) STS Retests Labor – 9 Hrs Energy Savings ≈ $7600 Indirect Cost Savings Expected ≈ $40 K

Industrial Economics 101 Compressed air is the single highest cost utility used in a manufacturing setting 7 – 1 energy ratio 7 HP of electrical power to produce 1 HP of compressed air “work” Reducing compressed air use will result in Lower noise levels Lower energy costs Use this as part of your value justification for noise control engineering NOTES

Savings & Cost Avoidance Annual saving $41.2 K - HCP ($1,200 Direct & 40,000 Indirect) $549 Per employee Expected cost avoidance $50K - Hearing loss awards $666 Per employee Total savings expected - $91.2K ($1,216 Per employee)

Value of Compressed Air Nozzle Substitution $12 K Initial Investment ROI – 176% DPP – 0.2 Months NPV – $429K IRR – 665%

Control Hierarchy – Enclosure Use Two Different Noise Abatement Techniques To Dampen Sound Engineering And Installation Expected To Be $47,970 Expect To Remove 150 Employees From The HCP

Cost - Value $48K Cost Vs Value

Mine Direct Cost Data Hearing Testing Service Reduction $7.5K IH Support $10K Hearing Loss Awards – No Savings ? Hearing Protection Costs Direct Cost Savings Expected - $17.5K

Mine Indirect Cost Data Program Administration Costs Savings HCP Program Admin & Training (EHS) – 120 Hrs Training Admin (EHS) – 40 Hrs Supervisors Time – 150 Hrs Employee Time – Testing 225 Hrs Employee Time – Training 75 Hrs STS Retests Labor – 9 Hrs Indirect Cost Savings Expected - $62.9K

Savings & Cost Avoidance Annual Saving $70.5K - HCP & Supporting IH Costs $470 Per Employee Expected Cost Avoidance $0 - Hearing Loss Awards Total Savings Expected - $70.5K ($470 Per Employee)

Value of Noise Enclosure Project $48 K Initial Investment ROI – 131% DPP – 1.6 Years NPV – $327K IRR – 78%

Engaging Leadership Works Two Different Scenarios High Capital – Low Expense (Enclosure) Lower Burdened Rate No History Of Hearing Loss Claims Low Capital – High Expense (Nozzles) Higher Burdened Rate Moderate Hearing Loss Claim Potential

Why We Do What We Do

Brian B. Bethel, CIH Sikorsky Aircraft brian.bethel@sikorsky.com