How much does safety cost?
Thread Starter
Joined: Jul 2005
Posts: 139
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From: Sydney
Regarding 'if you think aviation is expensive, try an accident'...
if you just do a few back of the envelope calculations like economists do and use a statistical value of human life of $3 million each, you get well over $300million for this one accident, not counting all the other direct and indirect costs ( loss of hull, loss of company and industry reputation, worker's compensation insurance, carrier's liability payments, accident investigation, airforce costs, site clean up etc etc etc.....)
And then add an unquantifiable amount for immense grief and suffering for the precious lives lost...
This accident will have cost the industry well over $500million.
Once the facts are established and the remedies devised, it is very hard to see how any aircraft modifications to prevent such an accident ever occurring again would not be cost beneficial!
if you just do a few back of the envelope calculations like economists do and use a statistical value of human life of $3 million each, you get well over $300million for this one accident, not counting all the other direct and indirect costs ( loss of hull, loss of company and industry reputation, worker's compensation insurance, carrier's liability payments, accident investigation, airforce costs, site clean up etc etc etc.....)
And then add an unquantifiable amount for immense grief and suffering for the precious lives lost...
This accident will have cost the industry well over $500million.
Once the facts are established and the remedies devised, it is very hard to see how any aircraft modifications to prevent such an accident ever occurring again would not be cost beneficial!
Joined: Mar 2002
Posts: 4,569
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From: Florida
Tacan400
You sure simplified that financial model to support your conclusion.
Now go back and cite the real costs of increased safety by
1. defining exactly what the perfect 100% success really is to support your words of ever again
2. Now add up the costs for
a) design/development
b) certification
c) implementation including
.@ downtime
@ resources (man hours)
@ training
You can probably forget about product costs to manufacture because the manufacturers often eat this when it comes to safety enhancement
Oh, just in case it really isn't perfect, then factor in the deaths that it actually causes so that we can see what the net gain really is.
if you just do a few back of the envelope calculations like economists do and use a statistical value of human life of $3 million each, you get well over $300million for this one accident, not counting all the other direct and indirect costs ( loss of hull, loss of company and industry reputation, worker's compensation insurance, carrier's liability payments, accident investigation, airforce costs, site clean up etc etc etc.....)
And then add an unquantifiable amount for immense grief and suffering for the precious lives lost...
This accident will have cost the industry well over $500million.
Once the facts are established and the remedies devised, it is very hard to see how any aircraft modifications to prevent such an accident ever occurring again would not be cost beneficial!
And then add an unquantifiable amount for immense grief and suffering for the precious lives lost...
This accident will have cost the industry well over $500million.
Once the facts are established and the remedies devised, it is very hard to see how any aircraft modifications to prevent such an accident ever occurring again would not be cost beneficial!
Now go back and cite the real costs of increased safety by
1. defining exactly what the perfect 100% success really is to support your words of ever again
2. Now add up the costs for
a) design/development
b) certification
c) implementation including
.@ downtime
@ resources (man hours)
@ training
You can probably forget about product costs to manufacture because the manufacturers often eat this when it comes to safety enhancement
Oh, just in case it really isn't perfect, then factor in the deaths that it actually causes so that we can see what the net gain really is.
Thread Starter
Joined: Jul 2005
Posts: 139
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From: Sydney
I never claimed my financial model was perfect but was just illustrating how much accidents really cost in economic terms, hey but I'm not an economist!
Assuming that this terrible accident was not caused by foul play but some kind of aircraft design deficiency or malfunction ( and we'll just have to see what the investigation comes up with ), the regulators and the manufacturer will be looking at the PREVENTION COST =(cost of the various suggested 'remedies' times the number of aircraft to be equipped/redesigned times the effectiveness of the remedy) versus the potential BENEFITS (the likelihood of the accident occurring times the magnitude of the consequences i.e. the risk). Then throw in a liberal dose of politics to protect the airline industry and HEY PRESTO you get a government DECISION to regulate the industry. And it will cost a lot of money for sure.
My point is that passenger airline accidents are hugely costly in human and economic terms and spending well-targetted money to prevent them is therefore money well spent.
Assuming that this terrible accident was not caused by foul play but some kind of aircraft design deficiency or malfunction ( and we'll just have to see what the investigation comes up with ), the regulators and the manufacturer will be looking at the PREVENTION COST =(cost of the various suggested 'remedies' times the number of aircraft to be equipped/redesigned times the effectiveness of the remedy) versus the potential BENEFITS (the likelihood of the accident occurring times the magnitude of the consequences i.e. the risk). Then throw in a liberal dose of politics to protect the airline industry and HEY PRESTO you get a government DECISION to regulate the industry. And it will cost a lot of money for sure.
My point is that passenger airline accidents are hugely costly in human and economic terms and spending well-targetted money to prevent them is therefore money well spent.
Not available in stores.
Joined: Dec 2004
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From: Eye of the Storm
Point taken, Tekan. Let's just remember in our economics studies that Ford Motor Company once calculated the cost of modifying the known defective vulnerability of the Pinto fuel tank (circa early 70s, for the youngsters) to be more than the resultant liabilty that might result from deaths and other casualties from the defect; a low mark in corporate ethics, to be sure, but was it truly the lowest?
Sure, we'd all like to say, "yeah, that was the 70s, now we've got ISO 9001..." and whatever. But have things really changed?
Sure, we'd all like to say, "yeah, that was the 70s, now we've got ISO 9001..." and whatever. But have things really changed?
Joined: Aug 2004
Posts: 3,557
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From: moon
Tacan, you missed one point. The money that you can put into rectifying something you think might happen is the potential cost of the accident multiplied by the PROBABILITY of the accident.
So its not "Lets spend $500 million to fix this" Lets say the probability (for example only) of the crew needing oxygen on a given flight is 0.001 (one tenth of one percent) and the probability of the oxygen not working is also 0.001. Your industry wide "fix" figure maximum cost is now $500. Maybe change the checklists or put up a placard.
You simply cannot guard against all stupidities, although I guess by the end of today some American lawyer will be sueing Boeing for"Reckless and carelessly designing the aircraft"
So its not "Lets spend $500 million to fix this" Lets say the probability (for example only) of the crew needing oxygen on a given flight is 0.001 (one tenth of one percent) and the probability of the oxygen not working is also 0.001. Your industry wide "fix" figure maximum cost is now $500. Maybe change the checklists or put up a placard.
You simply cannot guard against all stupidities, although I guess by the end of today some American lawyer will be sueing Boeing for"Reckless and carelessly designing the aircraft"
Thread Starter
Joined: Jul 2005
Posts: 139
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From: Sydney
Actually, I did have the probability (likelihood) of the accident occurring in my basic formula. And if it was 1 in 1000 chances per flight of the malfunction or whatever occurring, then you would then have to multiply it by the number of flights expected by the type of aircraft in question per annum. Then you'd be up around the $500mil again!...My point was that an airline accident with multiple fatalities costs society far more than most care/dare to think.
Joined: Oct 2004
Posts: 59
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From: UK
I believe that in Europe there is EC legislation for the minimum level of insurance required for passenger and 3rd party liability. The numbers make interesting reading as it infers that the insurance payout should cover the kind of liability Tacan400 was trying to calculate. So, here we go with what are known as the ECAC 25-1 numbers:
B737/A320 Euro70m
B747/A340 Euro130m
HOWEVER, there is draft EC legislation to update the numbers, which uses the following:
B737/A320 Euro425m
B747/A340 Euro700m
So, this would suggest that Tacan400 was along the right lines (assuming that the draft legislation is based on the current facts).
Now, if someone is found negligent, then that would perhaps give the insurance company a 'get out'. Anyone know more about this?
B737/A320 Euro70m
B747/A340 Euro130m
HOWEVER, there is draft EC legislation to update the numbers, which uses the following:
B737/A320 Euro425m
B747/A340 Euro700m
So, this would suggest that Tacan400 was along the right lines (assuming that the draft legislation is based on the current facts).
Now, if someone is found negligent, then that would perhaps give the insurance company a 'get out'. Anyone know more about this?
Joined: Aug 2005
Posts: 89
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From: england
Why spend millions putting right a minor fault when a major fault can be put right by spending a comparitively small amount? It's called disproportionality. Everyone is fund limited, so we spend the money where it will make the most difference and not disproportionate.
Guest
Posts: n/a
From an internal cost justification angle....
Philip Crosby, the Quality Assurance guru, once said that "quality is free", because the internal (rework/redesign) and external (customer) costs were generally much higher than doing the job right int he first place.
Safety is a subset of quality (albeit a pretty important subset) and I would hypothesise that Crosb's rule of thumb is valid in this respect also.
Also, I'd argue that in the calculations in the previous thread, the impact of accidents on brand value has not been taken into account, a la Valujet.
It's one thing to despatch aircraft without catering (which will damage BAs brand), quite another to end up with pictures of a smoking wreck on global TV. In the latter respect, AF398 was a lucky escape (for the souls on board too.)
Philip Crosby, the Quality Assurance guru, once said that "quality is free", because the internal (rework/redesign) and external (customer) costs were generally much higher than doing the job right int he first place.
Safety is a subset of quality (albeit a pretty important subset) and I would hypothesise that Crosb's rule of thumb is valid in this respect also.
Also, I'd argue that in the calculations in the previous thread, the impact of accidents on brand value has not been taken into account, a la Valujet.
It's one thing to despatch aircraft without catering (which will damage BAs brand), quite another to end up with pictures of a smoking wreck on global TV. In the latter respect, AF398 was a lucky escape (for the souls on board too.)
Thread Starter
Joined: Jul 2005
Posts: 139
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From: Sydney
Thanks for the information regarding ECAC 25 1.
IATA has put out the following fax to members which explains the new Euro regulations regarding insurance:
http://www.iata.org/WHIP/_Files/WgId_0216/GOVAF856.pdf
Back to my back of the envelope calculations.
IATA has put out the following fax to members which explains the new Euro regulations regarding insurance:
http://www.iata.org/WHIP/_Files/WgId_0216/GOVAF856.pdf
Back to my back of the envelope calculations.
