Implementing SMS

Cost management

As any other industry and all business-oriented organisations, aviation is a highly cost sensitive environment. As much as safety is paramount, financial stability is equally important to prevent bankruptcy. As such, sooner or later the cost implications of safety will come under investigation. It is therefore important to be able to understand and differentiate the various costs related to safety. The cost of an accident, the cost of preventing an accident, the cost of producing a safety case, the cost of maintaining an effective SMS, are only a few of the cost expressions we can come across.

The cost of an accident comprises only the direct cost of the event. These would be the equipment lost, the cost of emergency response team, the cleaning, containment and protection of the accident site, as well as any penalties, fines, insurance premiums or claims. The cost of preventing an accident does not represent an actual cost incurred, as we cannot assess an accident that has not yet happened.; but rather a cost-benefit value. Therefore, it is better described as a value and should take into consideration of the lost production, social responsibilities and liabilities, reputation recovery etc. As having a SMS does not guarantee the absence of accidents, it should NOT be considered an accident prevention cost.

For the initial design of a safety case it is sometimes better to summarise all the cost together into a Cost of Safety value, which would include both the direct and indirect costs. As an indicative cost by CASA, for a small operator, SMS set-up should not need more than $25,000 with an annual cost of $2,000. For a maintenance organisation or a service provider this cost is significantly lower.

A cost-benefit analysis is an effective tool to clarify the concerns of the typical management dilemma, that is production versus protection. Cost-benefit analysis should consider the direct cost of a safety case but also the indirect costs of time and resources allocation. It is not rare to see the perceived benefits underweight the financial negatives.

A really great benefit which is almost impossible to measure, is the increase in productivity, reduction in absence and sick leave and the increased loyalty of the staff when working is a safe environment. Modern software are inexpensive and can save a lot of man-hours and resources. Cost usually involves training the required personnel and the lost productivity time. But benefits will outweigh this cost. For big organisations, cost analysis is better performed at a departmental level rather than company level, or on a project-based level.

An indication of the Return on Investment of an SMS would include the following annual costs: safety personnel salaries and training, software and hardware, safety tools, office material and equipment. However the saving would include much more, like: reduced insurance premiums, compensations, absentees-sickness reduction, fines, damages, equipment downtime and disruptions.