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The Economics of an SMS

Return on Investment Calculator to Evaluate an SMS Investment

Overview
Safety is the most important aspect of any aviation organization. Safe operations are always the less costly option, but the economics are tough to measure. Industry recognized safe operating practices are now embodied in the form of Safety Management Systems (SMS). Leading Aviation organizations are now investing in SMS systems, which pay dividends year after year for themselves and their host organizations. Gray Stone Advisors and Baldwin Aviation have developed this SMS ROI Calculator to help you quantify the benefits of safe operation through the establishment of an SMS System. We stand ready to help you with the business justification and implementation of your SMS System.
 
This tool will help you take a quantified look at the financial justification for developing, implementing and maintaining a Business Aviation SMS.
 
Step 1 - Gather the Cost of Implementing the SMS
A. Estimate, to the best of your ability, the cost of developing the SMS for your Department:
a. Software and/or SMS Programs, if any $ Estimate - $18,000
b. External labor i. External audit costs, out-of-pocket consultants, pilots/Mx to replace those developing SMS. Don't include payroll or other costs that would be paid even if you were not installing an SMS. I.E., don't "allocate costs". Just focus upon extra expenses incurred as a result of installing an SMS. $
c. FDA/FDM (FOQA) Hardware, Services $
B. Here's the total implemented cost $ 0
 
Step 2 - Gather the Costs of Maintaining the SMS in Subsequent Years
A. Estimate, to the best of your ability, the ongoing annual costs of maintaining the SMS:
a. License cost of software, if any $ Estimate - $12,000
b. Cost of external labor
(Similar to Step 1 above)		 $
c. FDA/FDM (FOQA) Services $
d. Annual SMS Maintenance Cost $ 0
 
Step 3 - What is the minimum "Investment Return" expected by your Company or Owner, expressed as a percentage?
Please input the Hurdle Rate % A hurdle rate, established by the company, is the minimum amount of annual monetary return, measured as a percentage of the original investment, that has to be generated by a proposed project or investment before approval is given to proceed. The greater the probability that the proposed project will significantly exceed the "Hurdle Rate", the higher up the priority list the proposed project will rank. %
Step 4 - Estimate the Monetary Savings & Probability of Achieving the Savings directly associated with SMS Operating Practices:
Note: Use past history as a good indicator of what the future might bring. Along with the estimate of the expense that will be avoided once an SMS has been implemented, include your estimate of the probability that the expense will be avoided. For example, if there was $30,000 in "Hangar Rash" expense last year and you believe, without a doubt, it can be reduced to $15,000 this year, enter $15,000 in the '1st Year' box and 100 on the probability line. Here are the expense categories where the greatest reductions are experienced after an SMS is implemented:
 
Expense Categories Expense Category descriptions are flexible. If you prefer other categories, you may replace the pre-populated descriptors below. 1st Year % 2nd Year %
 
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