“Counting the Cost” By Brian Portch Maintenance Human Factors: “Investing in Regulation and beyond – What’s in it for us ?” Conference at RAF Bentley Priory, 18 October 2006

Contents: 1.Costs associated with Maintenance Human Factors (H.F) 2.Costs of an H.F training programme 3.Justifying H.F training programme costs as an investment 4.Do cost indices exist to measure the programme’s effectiveness ? 5.Measuring Return on Investment (ROI)- example

“ No Surprises………..please!”

4 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 (E&M) costs can constitute 10 – 14% of Airlines cost base. E&M typically viewed as non core” or a “necessary evil.”

5 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.

6 This photograph is reproduced with the kind permission of Brian Portch

7 This photograph is reproduced with the kind permission of Rolls-Royce plc.

8 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.

9 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.

10 This scanned image is reproduced with the kind permission of Thomas Cook Airlines & Airliner World, issue September 2006

11 The costs of a Boeing 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

12 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

13 The costs of a Boeing being out of service for 24 hours are: In terms of damage to Airline’s reputation PRICELESS ! This data is reproduced with the kind permission of Thomas Cook Airlines & Airliner World, issue September 2006

14 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 3 rd party attendees income or joint venture with manufacturers etc.

15 Key parts of an H.F training programme re highest pay-off ? Event investigation Documentation Training Shift turnover Fatigue/Alertness Programme sustainment & cost justification

16 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

17 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).

18 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.

19 Years

20 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.

21 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)

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?

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”.

Case Study: Typical Benchmarking initiative. Definition of scope & KPM’s Confidentiality clarified KPM’s quantified Numerical comparison of KPM’s Establish the processes that support quantified KPM’s Cost drivers of KPM’s identified Reason for KPM gap – Actions to bridge that gap.

25 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

26 Steps to calculate the ROI ratio (Cost x Probability of Success) – Cost to fix Cost to fix = ROI ratio; The > the net cost top line, > ratio Payback is 12 months ROI ratio The > 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 > net cost top line, > ratio Payback is 12 months = 4.3 months 2.75 ROI ratio > 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

“Counting the Cost” By Brian Portch Maintenance Human Factors: “Investing in Regulation and beyond – What’s in it for us ?” Conference at RAF Bentley Priory, 18 October 2006