Safety @ Speed - Cost Model

Paris 15th 17th May 2002

Contents

Introduction Types of Costs Business Costs Risk Based Costs Economic Formula Example Demonstration Evaluation of Risk Control Options ICAF Example Discussion

Introduction
The objectives of the cost model are:
To develop a general purpose integration methodology to apply life cycle costing to high speed craft, able to incorporate the effect of alternative SEFs

NB. SEF = Safety Enhancing Feature

Introduction
The objectives of the cost model are:
To assess the benefits of the SEFs, in terms of reduced losses of people, payload and vessels

Introduction
The objectives of the cost model are:
To indicate those SEFs having the most favourable cost-benefit ratios for given operational conditions (i.e. capacities, speeds, routes, and weather).

Introduction
Timings (as far as I can work out from
storyboards)
WP 1 and 2 formulated by by 1st October 2002 WP 3 Not sure WP 4 formulated by 1st September 2002 WP5 starts 1st June 2003 ( I will be starting before)

Types of Cost
Business
Capital Costs Life Cycle Costs Direct Costs Indirect Costs Environmental Capital Human

Risked Based Costs

Business Costs
Capital Costs
This is the cost of building the ship. E.G. Steel work, Engines, etc

Life Cycle Costs

Direct Costs E.G. Fuel and Crew costs Indirect Costs E.G. Administration and Insurance

Risk Based Costs

Environmental
Costs
Oil leaks Wash

Society

Clean up

Capital Costs
The ship Lost Income

Operator Insurance No Income

Risked Based Costs

Human Injury Death Operator
Insurance Bad Publicity More Generally Society Taxes General Loss Earning Potential

Economic Formula
Net Present Value
Sum of the annual discounted cash flow over the life of the vessel

Discounted Cash Flow

= (Income Costs) * Present Worth Factor

Present Worth Factor

= (1+ i) N Where i is the minimum annual return required

Example
Fast ferry 460000 passengers a year at 9 euro per

person Crew costs start 700000 euro and increase at 10% per annum Fixed overheads of 600000 euro a year Vessel can be resold for 13000000 euro in year 6

Example
Income:
9 * 460000 = 4140000 euro

Present Worth Factor= (1+ 0.1)-N

Example
Thousands of

Year 0 1 2 3 4 5 6

Ship cost Crew Costs -18000 -700 -770 -847 -932 -1025 +13000 -4274

Other Income Cash FlowPW 10%DCF Costs -600 -600 -600 -600 -600 +4140 +4140 +4140 +4140 +4140 -18000 +2840 +2770 +2693 +2608 +2515 +13000 1.0 0.909 0.826 0.751 0.683 0.621 0.565 -18000 +2582 +2288 +2022 +1781 +1562 +7345 -420

Totals -5000

-3000 +20700 +8426

Therefore NPV= -420000

Example - Conclusions
Although the vessel seems profitably (as
shown by the positive cash flow) the yield is insufficient (less than 10%) as shown by the negative NPV

Demonstration of Software

Evaluation Risk Control Options

A straight forward approach
Simply give a monetary sum for human life etc. For the risk level of the ship calculate the expected number of fatalities and injuries Transform into monetary value and include as a through life cost Good for whole ship evaluation

Evaluation Risk Control Options

Cost per Unit Risk Reduction or ICAF
Calculate how much a life would have to be worth for the option to be worth while Allows better examination of different RCOs

Example ICAF Calculation

Reference:
Cost-Benefit Analysis Of Improved Ship Survivability John Spouge RINA Watertight Integrity Conference Nov. 1996

ICAF Example
Cost Benefit Analysis of fitting 3
transverse bulkheads retrospectively to a RORO We will look at:
Costs Benefits Conventional CBA ICAF

ICAF Example
Costs
1.5 m to fit Can be installed during annual refit Minimal effect on cargo loading time Expected remainder of ships life is 15 years Discount rate of 5% Equivalent annual cost is therefore 0.15m

ICAF Example
Benefits
Restricting flooding preventing capsize Increase subdivision index by 17% Small GM and Beam are low while Freeboard is high This means it capsizes before any extra buoyancy is achieved
form the car deck

Helps containment of fire In total, benefits are estimated to be 18% risk

reduction for the ship

ICAF Example
Benefits
This means: Reduction in total vessel losses:
8.0 x 10-5 per year Reduction in fatalities: 0.04 per year

NB. Calculated from a Risk Assessment Model

ICAF Example
If we assume today the non-fatality costs
of a RORO capsizing is 150m Then the reduction in cost of total losses due to the bulkheads is: 15m x 8.0 x 10-5 = 12,000 a year This small compared with the installation costs

ICAF Example
Conventional CBA based on a 2m life
says: (2m x 0.04 +12,000) x 10 = 0.92m Where 10 is the annuity factor which reflects the discount rate and operating life As this less than 1.5m Capital Cost it is not cost effective

ICAF Example
ICAF = 0.15m per year/0.04 fatalities per year = 3.8m Because societal risks for ROROs is high it may be appropriate to introduce the option even though the cost exceeds 2m If we applied a disproportion factor of 2 to account for this. It then becomes Reasonably Practicable

Discussion
Do we agree that in this case Safety refers
to human risk based costs only?

How can we calculate the capital and

through life costs and account for changes? (Mass?)

Capital Costs
Design and Engineering Steelwork Materials and Labour Outfitting Materials and Labour Machinery Costs Shipyard Overheads

Through Life Costs

Costs of Class Crew Insurance Repayment of Loan Fuel Port Fees Maintenance Hotel Services Administration

Conclusions
Hopefully there is a better understanding
of how we are going to use the cost model part of the tool And from our discussions.