brian b. bethel, cih sikorsky aircraft
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
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Brian B. Bethel, CIHSikorsky Aircraft
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Management commitment
Employee engagement• Making employees agents of change
not change responders Effective risk engineering• Recognition• Evaluation • Control
- The SCIENCE
- The ART
- The TRICK
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Decisions to move forward with EHS projects are no longer based solely on sound technical judgment
Why Are We Here?
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Our LanguageTheir Language
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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
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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
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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
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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
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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
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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
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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
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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 $
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“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”
Jeff PinoPresident, Sikorsky
Aircraft2008 AIHce - Minneapolis
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Learn how to mine cost data• Direct costs are importantBut• Indirect & hidden costs usually are the
make or break data
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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
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Medical costs • Medical Lab fees
Employee time Medical screening• Fit testing• Training
IH sampling costs • Labor (in house)• Lab
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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 fansEnergy to condition makeup and exhausted air
Labor for housekeeping
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Quality & labor improvements? – Cost or benefit• Review process with Industrial engineeringCost accountingQuality engineering
Time study data Monitor material costs Cost of Poor Quality (COPQ) data Indirect time charging (DOI)
Rework reduction (quality engineering)
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Learn how to calculate the financial metrics that are important to your organization
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Incorporate a financial person on your teams• Buy them coffee• Order them plush “ergonomic” office
chairs ….Go to the internet
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Various IH / EHS specific tools are availableROHSEI – ORC ProductAIHA Value Proposition ToolOr not!Chances are your organization has a
program or a tool to do these calculations for you
Enlist financial or IE resources
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Two hearing conservation cases
Why hearing conservation case studies??
Because hearing conservation programs don’t work!
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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)
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DO NOT UNDERESTIMATE THE CONTRIBUTION OF
COMPRESSED AIR NOISE TO THE NOISE PROFILE OF
A MACHINIST
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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
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$12K Cost Vs Value
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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??
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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?
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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
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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
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Compressed air is the single highest cost utility used in a manufacturing setting• 7 – 1 energy ratio7 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
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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)
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$12 K Initial Investment ROI – 176% DPP – 0.2 Months NPV – $429K IRR – 665%
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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
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$48K Cost Vs Value
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Hearing Testing Service Reduction • $7.5K
IH Support • $10K
Hearing Loss Awards – No Savings ? Hearing Protection Costs
Direct Cost Savings Expected - $17.5K
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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
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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)
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$48 K Initial Investment ROI – 131% DPP – 1.6 Years NPV – $327K IRR – 78%
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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
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