Making the Business Case for Positive Change. Agenda

Transcription

1 Making the Business Case for Positive Change David E. Downs, CIH, CSP, QEP, CPEA President, EHS Management Partners, LLC Agenda Using Creative Dissatisfaction Self-Assessment Process Developing SMART Objectives Developing an an EHS Strategy Map Introduction to to Financial Analysis Making the Business Case for Positive Change 2 1

2 Highly successful people and organizations are never satisfied with the status quo. Pavarotti performer Tiger Woods - golfer Andy Grove - Intel Jack Welch - GE Making the Business Case for Positive Change 3 To create positive change, you need to understand the elements of motivation and resistance to change C = (D * M * P) R, Where, C = Change you want D = Dissatisfaction with the Current State M = Model of the Future (vision) P = Process to get there (clarity and logic) R = Resistance to change (includes inertia and cost/pain of changing) Corollary: Benefits >> Pain of changing Making the Business Case for Positive Change 4 2

3 Dissatisfaction is essential in going from good to great According to Jim Collins from Good to Great : Good is the enemy of great. We don t have great results because we have good results. We don t have great schools because we have good schools. We don t have great government because we have good government. Complacency is the enemy. Dissatisfaction is the enemy of complacency -Dave Making the Business Case for Positive Change 5 Self-assessments are a powerful tool to create constructive dissatisfaction There are many types of self-assessment Based on management systems standards Best Practices Custom developed for a particular industry or organization Participants are guided by a workbook of questions Interactive discussion and consensus decision-making Encourage critical self-examination and commitment to continuous improvement 3

4 What are the elements of a good self-assessment? 1. Develop a set of questions that describe your desired safety program reflecting a complete management system Risk assessment Action plans Implementation Processes Tracking and Corrective Action Management involvement 2. Convene a group of Organizational Leaders 3. Facilitate the group in finding consensus 4. Summarize the results as an Action Plan Assess Prioritize Plan Mgmt. Review Policy, Procedures Implement Check Measure Making the Business Case for Positive Change Audit 7 Self-assessment question structure Generic Question: How well is this aspect addressed now? 1 - No significant action, status not evaluated 2 - Evidence of minimal action; just starting to implement; a few aspects addressed 3 - Most aspects addressed 4 - All aspects addressed including communications and required documentation 5 - Systematic approach insures best in class performance, fully integrated with business operations, broad participation Making the Business Case for Positive Change 8 4

5 Performing the self assessment Divide into groups Read and consider each question Keep the 5 implementation levels in mind Discuss rationale and any dissenting opinions Work quickly to reach a consensus Your group s assessment of implementation level Record your assessment Move to the next question Take no more than 5 minutes per question We ll reconvene and discuss your assessments as a whole group Making the Business Case for Positive Change 9 How well are the EHS aspects of student events managed? 1. None - EHS aspects of student events are not addressed. 2. Some EHS aspects are addressed, but not consistently 3. Most EHS aspects are addressed, but not all or the higher risk issues 4. All EHS aspects are well managed. 5. Best The institution has a best in class process for addressing EHS aspects of student events. Making the Business Case for Positive Change 10 5

6 How well are the EHS aspects of changes (facility, equipment, hazard, people) managed? 1. None There are no specific management of change procedures 2. Some aspects of change management are implemented, but some significant risks exist 3. Most aspects of management of change are addressed, with some areas of poor implementation 4. All significant issues related to management of change are effectively managed 5. A particularly effective process for management of change has been implemented Making the Business Case for Positive Change 11 How well does the current EHS staffing level relate to the EHS risk issues and program requirements? 1. None The current staffing level is completely inadequate for the requirements 2. Some Current staffing allows for coverage of some EHS issues, but there are significant areas that are not adequately addressed 3. Most Staff is able to adequately address most significant EHS issues, with some gaps 4. All significant EHS risk areas and programs are adequately covered by existing staff 5. Staffing level allows for best-in-class management of EHS risks and excellent program implementation Making the Business Case for Positive Change 12 6

7 How effectively are EHS risk issues and program requirements communicated to staff and students? 1. None There are no specific communication programs aimed at communicating EHS risk and requirements 2. Some EHS are routinely communicated, but other key areas are not 3. Most EHS risk issues and programs are well communicated, but some areas have not been addressed 4. All EHS risk issues and program requirements are routinely communicated to staff and students in an effective manner 5. The EHS communication process is particularly effective and there is broad understanding of EHS risks and programs, reflected by active involvement Making the Business Case for Positive Change 13 How well are EHS roles and responsibilities understood at all levels of institution management? 1. Poorly Little understanding of EHS responsibility outside of the EHS staff 2. Some parts of the organization have a good understanding of their role, but other key participants do not 3. Most levels of the organization have a good understanding of their responsibilities for EHS performance; some key players are not on board 4. All levels in the organization have at least a basic understanding of their role and responsibility for EHS performance 5. All levels in the organization have a clear understanding of their role and responsibility for EHS performance and are active participants Making the Business Case for Positive Change 14 7

8 How well are EHS risks integrated into the overall enterprise risk management process? 1. None There is no integration of EHS into enterprise risk management 2. Some aspects of EHS are integrated into the enterprise risk management program 3. Most aspects of EHS are integrated into the enterprise risk management program 4. All relevant aspects of EHS are integrated into the enterprise risk management program 5. The enterprise risk management program has fully embraced the EHS risk area and very effectively managed these risks Making the Business Case for Positive Change 15 The outcome of a good self-assessment is a good problem statement What is it that you don t like about how it is today? What opportunities are being missed? In what specific way are you failing to meet expectations or running at risk? Example: Over the last three years, there has been an average of 1.5 EHS incidents recorded per student event. EHS Incident Injury requiring medical attention, police response, or environmental remediation Student event Event planned and sponsored by a University organization Making the Business Case for Positive Change 16 8

9 Creating a Model of the Future C = (D * M * P) R, Where, C = Change you want D = Dissatisfaction with the Current State M = Model of the Future (vision) P = Process to get there (clarity and logic) R = Resistance to change (includes inertia and cost/pain of changing) The Model of the Future is an Objective that appropriately addresses the problem statement. If the problem statement is: Over the last three years, there has been an average of 1.5 EHS incidents recorded per student event. Then, the Objective would be to resolve or improve this problem, in other words, what would success look like? Reduce EHS Incident Rate to an average of 1.0 incident per year by the close of FY Making the Business Case for Positive Change 18 9

10 A SMART Objective to resolve or improve the problem should meet these criteria: Specific Linked to a rate, number, %, frequency a metric Measurable System, method or procedure exists Achievable Likelihood of success with reasonable effort Relevant Achievement will be meaningful Time-Based Start and finish time defined Making the Business Case for Positive Change 19 Exercise Creating a SMART Objective for your selected Safety Initiative Making the Business Case for Positive Change 20 10

11 The Process to get there The plan C = (D * M * P) R, Where, C = Change you want D = Dissatisfaction with the Current State M = Model of the Future (vision) P = Process to get there (clarity and logic) R = Resistance to change (includes inertia and cost/pain of changing) The Balanced Scorecard Developed by Kaplan and Norton in early 1990 s Retains traditional financial measures (lagging) Adds measures of drivers of future performance Derived from the organization s vision and strategy Making the Business Case for Positive Change 22 11

12 The Balanced Scorecard Financial Model Vision and Strategy Financial Customer Business Processes Learning & Growth Making the Business Case for Positive Change 23 The Balanced Scorecard -Cause and Effect Relationship Vision Financial Customer Business Processes Learning & Growth If this, then this. Making the Business Case for Positive Change 24 12

13 Building an EHS Strategy Map using Balanced Scorecard Principles Key EHS Opportunity SMART Objective Stakeholder Involvement Effective Processes Learning & Growth Making the Business Case for Positive Change 25 The SMART objective is your Key EHS Opportunity Key EHS Opportunities Reduce STS cases to zero over the next two years Making the Business Case for Positive Change 26 13

14 To achieve this objective, what do all stakeholders have to do or accomplish? Key EHS Opportunities Stakeholder Involvement Employees Observed Use of Hearing Protection in Components Dept is 100 % by end of 2 nd Q Engineering/Design Install improved noise control at top 50% noise generating units by end of FY Making the Business Case for Positive Change 27 Next: To obtain the stakeholder involvement, what process must be followed or developed? Key EHS Opportunities Stakeholder Involvement Effective Processes Employees Implement a Behavior Observation process to drive improved hearing protection use-1 st Q Engineering Retain noise control consultant to conduct analyses and provide recommendations-1 st Q Assign engineer to develop plan for implementing improvements- 2 nd Q Set up project with design firm to provide design-3 rd Q Contract with fabricator to build/install improvements-4 th Q Making the Business Case for Positive Change 28 14

15 Lastly, to support these processes and stakeholder involvement, what learning and growth may be needed? Key EHS Opportunities Stakeholder Involvement Effective Processes Learning & Growth Employees Conduct training in hearing conservation - 1 st Q Conduct training in Behavior Observation System- 1 st Q Engineering Send assigned engineer to short course on noise control engineering 1 st Q Making the Business Case for Positive Change 29 Validate the Strategy Map from the bottom up to assess the Cause and Effect Relationships Key EHS Opportunities Stakeholder Involvement Starting at the bottom, is there a true Cause and Effect Relationship between each set of actions? Effective Processes Learning & Growth if this, then this Are the actions identified at each Perspective sufficient to achieve the goals of the dependent Perspective? Making the Business Case for Positive Change 30 15

16 Check the Strategy Map for STS Reduction from the bottom up to see if it is logical Key EHS Opportunities Stakeholder Involvement Effective Processes Emp. Use of PPE=100%- end FY Implement BOS-2 nd Q STS Case Reduction to zero in two years Engineering install Noise Control 50%- 18 months - Hire Consultant 2 nd Q - Assign Eng. -3 rd Q - Build/Install - 15 months Learning & Growth H C Training-1 st Q B O Training-1 st Q Noise Cont. Eng. Training 1 st Q Making the Business Case for Positive Change 31 Workshop Activity Developing an EHS Strategy Map Develop a Strategy Map for the Key EHS Opportunity you select to address the problem statement. Ask who are the key stakeholders in the process? Develop SMART objectives for one or more key stakeholder requirements This will form the basis for tracking your progress Making the Business Case for Positive Change 32 16

17 Strategy Map Development Workshop Debriefing Financial Assessment Measures Why do I need to know about calculating financial ratios for my project? 1. Requires you to assess the projected costs and savings associated with your project 2. Helps you ensure that your project is well designed best possible benefit for the costs involved 3. Defines the tangible elements of the project 4. Provides you with business data you can use to communicate with management in their language Making the Business Case for Positive Change 34 17

18 Financial Assessment Measures Present Value: Calculates today s value of a future cash flow Time Value of Money PV = F 1 /(1+r) 1 + F 2 /(1+r) F n /(1+r) n F = Future cash flow, benefit or savings r = interest rate (discount rate) PV of $5000 a year from now is $4,545 (r=10%) PV of $5000 two years from now is $4,132 So if your project costs $10,000 today, the payback is less than the investment Making the Business Case for Positive Change 35 Financial Assessment Measures Net Present Value: Sum of PV of savings, then subtract costs NPV = [(F 1 /(1+r) 1 + F 2 /(1+r) 2 + )] [Costs] r= interest rate F = Future Cash Flow, benefit or savings Over specific time period, say three years Using the data from the previous slide, assuming $5,000 savings in each of three years: NPV = [($4,545 ) + ($4,132) + ($3756)] [$10,000] = [$12,433] [$10,000] = $2,433 So, the time period for the assessment is important Making the Business Case for Positive Change 36 18

19 Financial Assessment Measures Payback Period: Calculates the time required to recoup initial investment and start showing a profit PP = (Initial Cost) / (Average PV of Annual Net Savings) Use the PV of the future annual savings, averaged over the period of time of the analysis From the previous data, the Average Annual Net Savings = ($12,433) / 3 = $4144 PP = ($10,000) / ($4,144) = 2.4 years Advantage: easy to calculate Disadvantage: doesn t tell anything about magnitude of savings or how the investment performs after your benefits equal the initial costs. Making the Business Case for Positive Change 37 Financial Assessment Measures Return on Investment: Calculates the PV of savings over a specified time period divided by initial costs. ROI = [(PV 1 + PV PV n ) / Initial Costs] * 100 What is the proper period to use? May be specified in your organization Should reflect the expected lifetime of the investment NOT the same as depreciation time for tax purposes Using the previous data, ROI = [($12, 433) / ($10,000)] * 100=124% for 3 years A Net ROI can be calculated by subtracting the initial cost from the savings in the numerator: ROI = [(12, $10,000) / ($10,000)] * 100 = 24% Making the Business Case for Positive Change 38 19

20 Financial Assessment Measures Internal Rate of Return: Calculates the percentage rate by which you have to discount the net savings until they equal the initial costs Used to compare projects; the higher IRR reflects the better investment Very complex calculation; use spreadsheet For previous data, IRR = 23% A Hurdle Rate is a minimum IRR that must be met for approval of a project, say 15% Making the Business Case for Positive Change 39 Forward-Looking Ergo Example WC Annual Avg over last 3 years = $1,000,000/yr Ergo Injuries = 50% of costs = $500,000/yr. Proposed Project: Purchase Ergo Analysis Software Conduct intensive training employees, engineers, supervisors Use contractors to jump start analysis, training teams Goal: Reduce Ergo injury costs by total of $200K-$250K over four years compared to current average annual cost ($500K/yr x 4 = $2,000K). Making the Business Case for Positive Change 40 20

21 Forward-Looking Ergo Example Based on a conservative estimate of 10% savings over 4 years Costs to Implement Year Software Training Contractor Total Costs 1 $ 10,000 $ 30,000 $ 50,000 $ 90,000 2 $ 10,000 $ 40,000 $ 50,000 3 $ 10,000 $ 25,000 $ 35,000 4 $ 10,000 $ 10,000 $ 20,000 Total Costs = $ 195,000 Savings to be Realized Year Reduced WSavings 2 Savings 3 Total Savings 1 $ - $ - 2 $ 25,000 $ 25,000 3 $ 75,000 $ 75,000 4 $ 100,000 $ 100,000 Total Saving = $ 200,000 Making the Business Case for Positive Change 41 Forward-Looking Ergo Example Based on an estimate of 10% savings over 4 years Year Savings Net K PV (Savings) $ NPV ROI IRR ($8) -5% 2% PP Not Used Total Making the Business Case for Positive Change 42 21

22 Forward-Looking Ergo Example Based on an estimate of 12.5% savings over 4 years Year Total Savings Net PV (Savings) $212 NPV (Savings) $34 ROI 19% IRR 18% Making the Business Case for Positive Change 43 Financial Analysis Calculations Exercise: Financial Analysis Use all the information developed in previous exercises, including objectives, targets and metrics Step 1 - Develop estimates of project costs and projected savings over at least three years Step 2 - Using the provided spreadsheet, calculate: PV of savings and costs NPV of savings Payback Period ROI IRR Making the Business Case for Positive Change 44 22

23 Overcoming Resistance to Change C= D * M * P, Where, C = Change D = Dissatisfaction with the Current State M = Model of the Future P = Process to get there Corollary: C Benefits >> C Pain In developing your Presentation, make sure you have addressed these factors Making the Business Case for Positive Change 45 23