Why the existing cost saving projects have little chance of success and what can be done about it? Never before has there been so much hype about cost saving, and never before has there been less evidence of it. We often mistake knowing the inexhaustible volume of reported data for understanding the costs, forgetting that it is not just facts that are important, but the intertwined threads and people that connect them to their ever-changing origins. What we really need to know in order to make improvements is what these underlying processes are and how they affect a company's performance. The constantly changing interrelated causes that influence costs are mostly invisible, complex, non-linear - hard for our brains to digest and for computers to model. Instead of following a factual stream of cost data derived from financial sources and dissociated with their true origins, you should apply Disruption Diagnostics techniques that focus on authentic costs and their causes, associated with the most disruptive operational events. "It would cost Southwest approximately 8 to 10 airplanes of flying per day if we were to add just a couple of minutes of block time to each flight in our schedule." Greg Wells, Southwest Built-in disruption buffers, investment in punctuality, and other inefficiencies inherent within hub and spoke operation make between 10% and 30% of total operating costs.Ongoing disruptions can account for 2-3% of variable costs especially with hub operators. One part of these costs is integrated in company's plans as an insurance against uncertainty, and another part is hidden inside the variance between planned and actual costs. ‘Delays cost the nation’s [US] economy in wasted fuel, rescheduled business meetings, and lost productivity $41 billion in 2007 alone, excluding international traffic. In 2007 airlines operating domestic flights spent $19 billion in fuel, labour and maintenance costs while aircraft sat idle or circled in holding patterns above congested airports.’ Joint Economic Committee (JEC) of the US Disruption Diagnostics is an approach to management where unforeseen costs caused by disruptive events are diagnosed and associated with their root causes. It then becomes possible to minimise business risk by reducing costs when and where it really matters, decrease the size of operational and cost buffers in a controllable way, experience fewer 'unforeseen' events, and recover losses caused by third parties. Disruption Diagnostics enriches the rigidly structured organisational and cost mechanisms with the fluidity of real life. As a result, your airline will become more resilient, able to bounce back more quickly when faced with unexpected events. It is an indispensable tool for improvement in airline operational and cost efficiency, quality of service, competitiveness, and ultimately - profit.

1. How to unlock unexplored potential for cost saving and
improve airline profitability
Jasenka Rapajic, Astute Aviation
Introduction to Event Based Management

2. Astute AviationIntroduction to Event Based Management

3. Never before has there been so much hype
about , and never before has there
been of it.
Astute Aviation
Introduction to Event Based Management

4. We often mistake
knowing the
inexhaustible volume of
reported data for
understanding the costs,
forgetting that it is
that are
important, but the
and
that
them to their ever-
changing origins.
Introduction to Event Based Management Astute Aviation

5. Still we look at costs as
numbers, unaware of
their
like
effort, resources,
services, efficiency,
missed opportunities,
knowledge, and
communication.
Introduction to Event Based Management Astute Aviation

6. What we really need to
know in order to make
improvements is
and how
they affect a company's
performance.
Introduction to Event Based Management Astute Aviation

7. If you are responsible for
projects aimed at keeping
operating costs down and
find it
in
planned costs, you should
know that this is because
cost causation
and measured by
traditional cost tracking
methodologies inherited
from the industrial era.
Introduction to Event Based Management Astute Aviation

8. The constantly changing
that
influence costs are
mostly invisible,
- hard for our
brains to digest and for
computers to model.
Introduction to Event Based Management Astute Aviation

9. This is why major cost
cutting programs usually
end up with laying people
off, creating new sources
of
, and making
the business and people
.
Introduction to Event Based Management Astute Aviation

10. What can you do about it?
Introduction to Event Based Management Astute Aviation

11. Instead of following a
factual stream of cost
data derived from
financial sources and
dissociated with their
true origins, you should
apply
techniques that
focus on authentic costs
and their causes,
associated with the
.
What drives
these
changes?
Introduction to Event Based Management Astute Aviation

12. Disruption events
represent segments of
real life situations when
business 'happens' –
where
and where their
and .
Passing the
means keeping the
business .
Introduction to Event Based Management Astute Aviation

13. How many airlines are failing the
‘test of reality’ and how much does
this cost the industry?
Introduction to Event Based Management Astute Aviation

14. Built-in
inherent
within hub and spoke
operation make between
of total
operating costs.
Operational
disruptions take
of operating
costs over a year.
Is this possible?
Something has
to be done!
Introduction to Event Based Management Astute Aviation

15. "It would cost Southwest
approximately
if
we were to add just a
to
each flight in our schedule."
Greg Wells, Southwest
Look at
this… what
about hub
airlines?
The on the
route between London
Heathrow and Paris Charles de
Gaulle take an
of aircraft utilisation
each day.
Introduction to Event Based Management Astute Aviation

16. Aircraft damaged on ground is
the cause of longest and most
costly operational disruptions.
Industry losses are estimated
at $10billion ($4billion in
2003).
Flight Safety Foundation
Indirect costs related to flight
disruptions caused by
unserviceable aircraft could be
8-36 times higher than direct
costs of aircraft repair.
Marsh
Losses to airlines
must be much
higher as they
cannot provide
good evidence for
indirect costs of
damage
Introduction to Event Based Management Astute Aviation

17. ‘
in wasted fuel,
rescheduled business
meetings, and lost
productivity in
2007 alone, excluding
international traffic. In 2007
airlines operating domestic
flights spent
, labour and maintenance
costs while aircraft sat idle or
circled in holding patterns
above congested airports.’
Joint Economic Committee (JEC) of the US
Let’s see how
Event Based
Costing can
help.
Introduction to Event Based Management Astute Aviation

18. What is Event Based Costing?
Introduction to Event Based Management Astute Aviation

19. is an
approach to management
where
caused by
are diagnosed and
associated with their
.
Introduction to Event Based Management Astute Aviation

20. Event Based Costing
focuses on of
and their
intangible causes.
.
Introduction to Event Based Management Astute Aviation

21. To take full advantage of
Event Based Costing, you
need to focus on the
. This will allow
you enough time to go
deeper instead of wider
and get to the roots of
avoidable causes.
costs
events
Introduction to Event Based Management Astute Aviation

22. It then becomes possible to
minimise business risk by
when and
where it really matters,
the size of
in a controllable way,
experience
, and
caused by
third parties.
EBC
COSTS DISRUPTION
S
Introduction to Event Based Management Astute Aviation

23. Causes and consequences of operational disruptions spread
across multiple functions and processes connecting data and
people.
Introduction to Event Based Management Astute Aviation

24. By embracing the principles
of Event Based Costing, you
build an understanding of
and discover
between
functions and processes as
they happen, without
depending on biased
'translators‘.
Introduction to Event Based Management Astute Aviation

25. You also get a better
insight into the experience
of ,
crucial for preventing the
loss of a company's
reputation and ultimately
the in the
longer term.
Introduction to Event Based Management Astute Aviation

26. Let us look at two real life
examples
Introduction to Event Based Management Astute Aviation

27. EXAMPLE 1
Let's look at how an European airline identified
and responded to findings related to one of its
strategic oversights
Introduction to Event Based Management Astute Aviation

28. Unexplainable
increase in
planned costs
Public criticism
over increased
number and
length of
disruptions
THE PROBLEM EXISTINGCOST CUTTING
OPTIONS
Departmental costs
already squeezed
below tolerable
levels Occasional cost
saving projects
never brought
lasting results
Laying people
off no longer an
option
EXAMPLE 1 – Part 1
ONGOINGCOST SAVING DISCUSSIONS
Indecisiveness about how best to tackle cost reduction prompted
the airline to apply the principles of Event Based Costing to
understand unreported issues missing from company reports.
Introduction to Event Based Management Astute Aviation

29. Most costly
disruption events
identified over
past three
months.
Main cause identified as
reduced stock of aircraft
spare parts - strategic
move to cut maintenance
costs.
The process included 11
departments from
operational to strategic,
resulting in invaluable
insights into areas in need
of improvement.
MAIN DISRUPTION COSTS
• aircraft rentals (or
passengers and spare
parts
• commercialand
technical aircraft
positioning
• accommodationand
transfer of crew and
passengers
• transport by other
carriers
• passenger
compensations
• additional advertising
to soothe the effects
of bad publicity
Insufficient stock of
spare parts generated
£770,000 in calculable
disruption costs. The
problem remained
undiscovered for
about 9 months,
suggesting much
higher operational
losses
The company re-examined and
balanced their spare part polices
and continued to monitor
disruptive events following the
EBC principles.
EXAMPLE 1 – Part 2
Introduction to Event Based Management Astute Aviation

30. EXAMPLE 2
This example shows the benefits of Event
Based Costing used for recovery of
disruption losses caused by third parties –
in this case related to aircraft damaged on
ground.
Introduction to Event Based Management Astute Aviation

31. THE INCIDENT
The fuselage of a
B747 was damaged
by a catering truck
at an outstation on
a long-haul route.
The aircraft was
temporarily
repaired by a third
party and ferried
back to home base
where it remained
out of service for 5
days.
AIRCRAFT OUT OF SERVICE
DISRUPTED PASSENGERS
Full effects of 5 days’ long passenger disruptions
included in calculation
EXAMPLE 2 – Part 1
Introduction to Event Based Management Astute Aviation

32. After thorough analysis
based on principles of
Event Based Costing, the
full cost impact of knock-
on effects came to
in losses caused
by the third party, ready to
support claims for loss
recovery.
INDIRECT COSTS OF
AIRCRAFT DAMAGE
Event Based Costing
INDIRECT COSTS OF
AIRCRAFT DAMAGE
Airline estimate
The value of indirect losses
was estimated at
based on the average,
generic values normally
used to perform the loss-
of-aircraft-use analysis.
(The airline spent
on direct cost of
aircraft repair).
EXAMPLE 2 – Part 2
Introduction to Event Based Management Astute Aviation

33. To sum up…To sum up…
Introduction to Event Based Management Astute Aviation

34. enriches the rigidly
structured organisational
and cost mechanisms
with the fluidity of
.
This may seem a modest
step, but there are
for
keeping the most damaging
causes of operational and
cost inefficiencies under
control.
Introduction to Event Based Management Astute Aviation

35. plan
improvement
disruptions
As a result, your airline
will build
, able to bounce
back
when faced with
.
It will also
by reducing
self-induced
uncertainty, and
of
operational losses.
Introduction to Event Based Management Astute Aviation

36. Event Based Costing brings
to decision
making at all
organisational levels -
something that current
management practices and
information systems
cannot offer.
It is an
for improvement in airline
operational and cost
,
and ultimately - .
PROFIT
Introduction to Event Based Management Astute Aviation

37. Jasenka Rapajic
Astute Aviation
Attuning Plans With Reality
To find out how you can
benefit from Event Based
Costing, get in touch.
www.beyonddisruptions.blogspot.com
jasenka@astuteaviation.com
www.astuteaviation.com
Introduction to Event Based Management Astute Aviation