1. 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

3. 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

4. Is This The Commitment Your Used To???

5. 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

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

7. 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

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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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 $

16. 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

17. 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

18. 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

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

20. 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

21. 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)

22. 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

23. 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

24. 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

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

26. Some Of The Reasons Hearing Conservation Doesn’t Work

27. Some Other Reasons Hearing Conservation Doesn’t Work

28. The Change In Social Noise Exposure Is Very Far Reaching

29. 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)

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

31. 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

32. Cost - Value
$12K Cost Vs
Value

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

34. 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 – 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?

35. 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

36. 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 – Hrs (1.75 Hrs for exam)
STS Retests Labor – 9 Hrs
Energy Savings ≈ $7600
Indirect Cost Savings Expected ≈ $40 K

37. 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

38. 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)

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

40. 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

41. Cost - Value
$48K Cost Vs
Value

42. 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

43. 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

44. 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)

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

46. 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

47. Why We Do What We Do

48. Brian B. Bethel, CIH
Sikorsky Aircraft