Making The Economic Case
For an SMS





By: James Lara
Gray Stone Advisors






Once you complete your Safety Management System (SMS) gap analysis and establish the need for an SMS, you must justify your plan to management. Not only must you present a plan and timeline for implementation, but you must request funding. This can be a challenging step in your SMS process. Let’s explore how to gain the support of those who ultimately decide whether or not to invest in your SMS proposal.

Whether you are a Corporate Aviation Manager, Aircraft Management Company or Charter Operator, you face more programs, initiatives, improvements and day-to-day operating expenditures than your budget will support. You can’t fund everything and it seems that there is a never–ending stream of new “stuff” that you are expected to absorb. If there ever was a time when you are expected to do more with less, this is the time!

Now, here comes another initiative that receives significant industry attention and makes lots of sense – a Safety Management System. If you are flying to International destinations, you know that you may soon need to have an SMS incorporated into your SOP’s. If you are IS-BAO registered, an SMS is already part of your operating system. But if you aren’t flying internationally or IS-BAO Registered, you may wonder, “Is an SMS worth the time and investment to develop, implement and sustain?” And you might ask yourself, “How will I justify an SMS to Corporate, the owner of the aircraft or the charter firm’s executive team, when profit margins are so slim?”

Just how SHOULD you approach the justification for an SMS? As professionals in Business Aviation, we know that there’s nothing more important than Safety. But how do we successfully make the case to win the financial support from key stakeholders? Here’s an idea - View it from their perspective. Simply answer this question - “What’s the Economic Case for an SMS?”

Business leaders and aircraft owners make decisions on investment alternatives that balance the value of the expenditure versus the anticipated return. They have many tools to help them in the decision-making process, one tool is ‘Return On Investment’ calculation. This tool involves estimating, then measuring, the Return generated On each new program or Investment. It’s a relatively simple concept. ROI is the annual amount of money that will be returned to the business by each investment, measured as a percentage of the original investment amount.

To download an easy to use ROI calculator, click here.

Along with ROI, most firms establish a “Hurdle Rate”. This 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 the Corporation, aircraft owner or charter firm will give the ‘Green Light’ 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.

Using Hurdle Rate and ROI, how would the aircraft owner or your firm’s executive team evaluate the justification for a Business Aviation SMS? View it through their eyes.

Express the SMS investment in business terms. Your SMS justification must:

  • Identify the hazards and categorize the risks;
  • Develop and deploy risk mitigation practices;
  • Estimate the likelihood of their success; Track and measure the cost savings.

Sounds like the same process used by business executives to evaluate any new opportunity, doesn’t it? The key is to be really clear on the “Return” generated by the investment in the SMS. Examples of the “Return” from an SMS investment include:

  • Reduction in Employee Lost Time Injuries due to safe practices in the hangar;
  • Avoidance of asset damage through careful aircraft marshaling practices;
  • Avoidance of hull losses and fatalities through conservative operating practices;
  • Reductions in maintenance costs resulting from operating below limiting temperatures, pressures and airspeeds.

A robust SMS that becomes part of your Aviation Operation’s culture is absolutely ‘Smart Business’. ROI Hurdle Rates normally run between 15% - 20%. So, if your SMS requires a ‘First Year’ investment of $20,000, you should demonstrate an annual savings of $3,000 to $4,000 directly related to the safety program. Given the operating budgets of the turbine aircraft we operate, that’s should be easy to do!

Once you gain the financial support from your company’s leadership, it’s time to implement your SMS. You may consider a number of options, including doing it yourself (time), outsourcing with an implementation support company (expensive but takes less time) or some combination of the two.

If you don’t have your SMS implemented yet, get moving! It’s “Smart Business” that will improve profitability across the board, for every kind of aviation operation.