Aviation Maintenance Control Centre (MCC) Financial Considerations - Cost-Benefit Analysis

Introduction

A major advantage of cost-benefit analysis lies in forcing people to explicitly and systematically consider the various factors which should influence strategic decisions, using the cost-benefit analysis process we are able to drive more critical thinking around all aspects of the project value.

Note?- Cost-benefit analysis assumes that a monetary value can be placed on all the costs and benefits of a program, including tangible and intangible returns.

What will Cost / Benefit Analysis Provide?

·???????Cost-benefit analysis provides an evidence-based view of a proposed change whilst minimizing the influences of:

o????technical opinion,

o???company/regulatory politics, or

o???personal bias.

·???????By providing a clear view of the consequences of a decision, cost-benefit analysis is an invaluable tool in developing a management strategy.

The model is built by identifying the benefits of action as well as the associated costs and then subtracting the costs from benefits.

·???????When completed, a cost-benefit analysis will yield concrete results that can be used to develop reasonable conclusions around the feasibility and/or advisability of a decision.

Note?- Without a Cost-benefit analysis, the decision to embody may well be the wrong thing to do.

It is important to consider all the relevant criteria which are applicable including the?various regulatory, technical and organizational obligations that may need to be considered, including a review of benefits to both safety, reliability of process as well as monetary cost.

How To Do a Cost-Benefit Analysis?

While there are no “standard” approaches for performing a cost-benefit analysis, here’s a high-level overview:

1. Establish a framework to outline the parameters of the analysis.

2. Identify costs and benefits so they can be categorized by type and intent.

3. Calculate costs and benefits across the proposed change.

4. Compare cost and benefits using available information.

5. Analyse results and make an informed, final recommendation.

It is important to ensure that your analysis is as comprehensive as possible.

"The best cost-benefit analyses take a broad view of costs and benefits, including indirect and longer-term effects"

?How To Establish a Framework?

In establishing the framework of your cost-benefit analysis, first outline the proposed program or policy change in detail.

·???????Look carefully at how you position what exactly is being evaluated in relation to the problem being solved.

Consider the Following Statement :

Will the implementation of a Maintenance Control Centre reduce maintenance costs whilst also enhancing despatch reliability?”?(Will be much more straightforward than a broader programmatic question, such as, “how do we implement an MCC such that despatch reliability is improved?”)

Build a situational overview to examine the existing situation including:

·???????Background

·???????Current performance

·???????Cost-effectiveness

·???????Impact on Existing

·???????Factor in an objective look at any risks involved in maintaining the status quo

Now decide on how you will approach cost benefits. -?Which cost benefits should be included in your analysis?

·???????Include the basics, include an estimate of unforeseen costs that could impact the initiative in both the short and long term.

·???????In some cases, geography could play a role in determining the feasibility of a project or initiative. (Line Stations or Base Maintenance Organizations, etc) will be affected build into the framework upfront.

?Identify and Categorize Costs & Benefits

The primary categories that costs and benefits fall into are direct / indirect, tangible / intangible, and real.

·???????Direct Costs?Often associated with the production of a cost object / service / project.

·???????Indirect Costs??Usually fixed in nature and may come from the overhead of a department or cost centre Overheads associated with Support Manpower or Services.

·???????Tangible Costs?Easy to measure and quantify, and are usually related to an identifiable source or asset Aircraft Downtime, facilities etc.

·???????Intangible Costs?Difficult to identify and measure Operational Interruption Costs for example.

·???????Real Costs?expenses associated with delivering the proposed project.

How to Calculate Costs and Benefits?

With the framework and categories in place, you can start outlining overall costs and benefits.

Compare Costs and Benefits

Here we’ll determine net present values by subtracting costs from benefits. This facilitates the projection of the timeframe required for benefits to repay costs, also known as return on investment (ROI).

Considering the Risks and Uncertainties of Cost-Benefit Analysis

Despite its usefulness, cost-benefit analysis has several associated risks and uncertainties that are important to note. These risks and uncertainties can result from human agendas, inaccuracies around data utilized, and the use of shortcuts to reach conclusions.

Risks to an effective CBA

·???????Stakeholders or interested parties may try to influence results by over-or understating costs.

·???????Supporters may assert a personal or organizational bias into the analysis.

·???????Inaccurate cost and benefit information can diminish decisions around value.

·???????Lack of sufficient research benefits and accumulation of concrete data.

Next Steps

·???????Sofema Aviation Services (www.sassofia.com) and Sofema Online (www.sofemaonline.com) offer EASA Regulatory Compliant and Vocational Training across a range of Aviation Areas – please see our Websites or email?[email protected] for details

·???????Sofema Aviation Services provides a 3-day course to implement your own MCC – please see the following:?https://sassofia.com/course/developing-an-aviation-maintenance-control-centre-3-days/