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Copyright 2014
Rail Safety and Standards Board Limited
July 2014
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Contents
Description
Page
Introduction ........................................................................................................3
Part 2
Guidance on the use of cost-benefit analysis when determining whether a
measure is necessary to ensure safety so far as is reasonably practicable ..........4
G 2.1 What is cost-benefit analysis? .........................................................................................4
G 2.2 Using CBA in SFAIRP demonstration..............................................................................4
G 2.3 Using CBA to support commercial decisions.................................................................8
Appendices
Appendix A
Appendix B
Applicability of costs and benefits to a CBA in support of SFAIRP
decisions.......................................................................................................................... 10
Definitions
........................................................................................................................... 11
References
........................................................................................................................... 13
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Part 1
Introduction
G 1.1
G 1.1.1
This document gives guidance on the use of cost-benefit analysis when determining
whether a measure is necessary to ensure safety so far as is reasonably practicable
(SFAIRP). This document does not set out requirements.
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Part 2
G 2.1
G 2.1.1
Cost-benefit analysis (CBA) weighs the expected costs of one or more options against the
expected benefits to support a decision as to which option(s) should be implemented.
When the costs and benefits can be quantified a Benefit-Cost-Ratio (BCR) is often
calculated to inform the decision. The approach followed will depend on the type of
decision and the criteria applied to it.
G 2.1.2
CBA can be used by railway companies to assist in taking safety-related decisions; it can
help to determine whether or not a particular measure is necessary to ensure safety so far
as is reasonably practicable (SFAIRP). CBA can also be used to support a wider
commercial decision; Section G 2.3 provides some commentary on this. However this
guidance note focuses on using CBA to support SFAIRP decisions.
G 2.1.3
Safety benefits are incorporated into the CBA by multiplying the expected risk reduction
associated with a measure by the value of preventing a fatality (VPF) figure. Risk, and
therefore any reduction in risk, is quantified in units of fatalities and weighted injuries
(FWIs). The risk estimate used is a collective risk estimate (not an estimate of the
individual risk) which is the aggregate risk estimate from one or more control measures or
hazardous events. Collective risk includes all people who are exposed to the risk to varying
degrees.
G 2.2
G 2.2.1 Background
G 2.2.1.1 If a railway company has decided to make a change, the CSM on Risk Evaluation and
Assessment (CSM RA) must be applied. The CSM RA defines a risk assessment process
that is mandatory if the change is significant (as defined by the regulation) and applies to
technical, organisational and operational change.
G 2.2.1.2 The CSM sets out three acceptance principles, which can be used to determine the safety
measures required to make a change sufficiently safe:
i)
ii)
iii)
G 2.2.1.3 When explicit risk estimation is applied, the risk acceptance criterion in the UK is to ensure
safety SFAIRP. This is consistent with the Health and Safety at Work etc Act 1974
(HSWA), which imposes a duty on employers to ensure the safety of people affected by
their undertaking SFAIRP.
G 2.2.1.4 When applying the CSM RA, explicit risk estimation would generally be used either to
support application of the other principles, or when neither of the other two principles is
applicable. Explicit risk estimation can be qualitative or when CBA is used quantitative.
The depth of analysis should be proportionate to the scope of the problem and CBA is
most often used when the proposed change is complex and the potential consequences of
an accident are high.
G 2.2.1.5 CBA can be used to develop an explicit application of the test of reasonable practicability
as outlined in the Edwards judgement. The case law describes how:
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a computation must be madein which the quantum of risk is placed on one scale and
the sacrifice involved in the measures necessary for averting the risk (whether in money,
time or trouble) is placed on the other.
G 2.2.1.6 Hence the sacrifice is taken to be the cost of a potential measure and the quantum of risk
the safety benefit associated with it. The quantum of risk is a collective risk estimate. The
VPF is used to translate the safety benefit to a financial value.
G 2.2.1.7 Case law establishes that a safety measure is reasonably practicable unless the cost is
grossly disproportionate to the safety benefit. This is determined by professional
judgment, paying particular attention to the degree of uncertainty in the assessment of
costs and safety benefits. See Taking Safe Decisions for more on gross disproportion.
Figure G A.1
G 2.2.2.3 CBA can be used in two areas of Figure G A.1. It can be used in Analysing and Selecting
Options, in order to compare the relative benefits and costs of different options. It can also
be used in Making a Change, to identify whether a risk control is required. See Taking Safe
Decisions for more information.
G 2.2.3 Benefits
G 2.2.3.1 When a CBA is being used to develop an explicit application of the test of reasonable
practicability, the only benefits to be included in the CBA are the benefits in terms of
improved safety. This should include all the reduction in risk to passengers, workers and
members of the public. Appendix B shows the costs and benefits that are routinely included
in industry CBAs undertaken to support SFAIRP judgements.
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G 2.2.3.2 In the GB railway industry, risk is generally estimated in fatalities and weighted injuries
(FWI) per year (Appendix A shows these injury degrees and weightings). In order to make
a comparison of risks with costs, the risk needs to be translated into a financial value. This
is done using the industry value of preventing a fatality (VPF), a figure endorsed for use
by the Department for Transport (DfT 2012), which is uprated annually by RSSB and is
available from the RSSB website, and in June 2013 was approximately 1.75 million per
statistical fatality averted.
G 2.2.4 Costs
G 2.2.4.1 The costs to be included in the CBA should be the net costs to the company of introducing
the safety measure. Appendix B shows the costs and benefits that are routinely included in
industry CBAs undertaken to support SFAIRP judgements.
G 2.2.4.2 Any savings as a result of the measure (for example reduced operational costs such as
avoiding damage and reinstatement costs) should be offset against the above costs. They
are considered cost savings rather than safety benefits and are therefore placed on the
cost side of the CBA. Figure G A.2 below demonstrates this with a CBA for a fictitious
example.
Figure G A.2
G 2.2.4.3 The ORRs Internal guidance on cost benefit analysis (CBA) in support of safety-related
decisions contains further information on the costs and benefits that should be included in
a safety-related CBA.
The costs of safety measures should include the costs of financing to reflect the
cost of capital to the decision taker where appropriate.
ii)
All costs and benefits should be in a common price base, meaning that scheme
costs need to be uplifted to reflect indirect taxation, such as VAT.
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Figure G A.3
G 2.2.6.4 The Standard case is when there is some improvement in safety (a positive safety benefit)
at a financial cost. The net benefits and costs can be compared and the measure will be
required unless the duty holder judges that the costs are sufficiently disproportionate to the
benefits.
G 2.2.6.5 The Easy Decision refers to situations where there is a cost saving associated with a
particular measure, and a safety benefit. This would seem to be clearly a decision where a
measure must be applied. The Should never happen concerns a situation that would
never be expected to warrant serious consideration, namely where a measure both
increases safety risk and costs money.
G 2.2.6.6 The bottom-left quadrant relates to situations where there is a cost saving associated with
a measure or its removal, but an increase in safety risk. This quadrant has been left blank
however, as safety-related decisions should always be framed so that the decision is
considered from the perspective of the proposed change in its entirety. An example that
demonstrates this is if a new technology is being implemented that improves safety and
significantly reduces the reliance on existing controls, and therefore these existing controls
might not need to be retained if they are no longer providing a material safety benefit. The
question to ask is not Can I remove the control? but rather In my new system do I need
the control? In this way, the decision is framed in such a way that it becomes a Standard
case decision. Taking Safe Decisions provides useful information on the psychology of
decisions.
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G 2.3
G 2.3.1
CBA might also be undertaken in support of a commercial decision. In this case, the duty
holder would need to decide what costs and benefits are relevant to the decision from a
commercial perspective. When taking decisions for commercial reasons all of the
information that informs the decision about whether or not a measure is legally required is
still relevant. However, additional information may also be pertinent to the decision (see
Appendix B). In particular, the possible commercial consequences of an accident in which
passengers or railway neighbours are killed or injured can provide a greater financial
incentive to avoid accidents than is suggested by the VPF.
G 2.3.2
As with the SFAIRP judgement, the CBA would provide an input to the overall decision
rather than give a definitive result. There are many other appraisal methods that a
company might choose to help them in making a sensible commercial decision.
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Definition
Fatality
Major injury
Weighting
Ratio
0.1
10
0.005
200
Class 1
minor injury
Class 2
minor injury
0.001
1000
Class 1
shock/trauma
0.005
200
Class 2
shock/trauma
0.001
1000
RIDDOR refers to the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations, a
set of health and safety regulations that mandate the reporting of, inter alia, work-related accidents.
These regulations were published in 1995 and amended in 2012.
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Ongoing costs
Operational costs
Maintenance costs
Training costs
Operational cost savings
Maintenance cost savings
Training cost savings
Ongoing cost
savings
Avoided costs
of accidents
Financing costs
If we are to consider ongoing costs then any similar cost savings must also be considered as long as
they relate to the measure being implemented. To argue otherwise is logically inconsistent. These
would be identified within the CBA calculation as part of the net costs.
The cost of accidents presents a real and recognisable cost which safety measures can mitigate.
To be included as outlined in ORR guidance
Performance costs/benefits and avoided direct costs are potentially within the scope of a CBA to support an SFAIRP
judgement. This is qualified by a judgement of whether or not the costs/benefits relate directly to the measure in the
particular circumstances.
Performance
costs
Performance
Benefits
Reduced performance
regime compensation
payments
Ongoing increased revenue
This can clearly be related to the measure. Lost revenue may in practise be the same thing as
performance regime compensation payments to the person evaluating the scheme.
Should be included where it is known for certain that the payments relate to the measure. However
there are some issues which undermine this judgement. For example the levels at which delay
payments are set is variable.
This is conceptually different to the costs of compensation payments. Revenue losses might not be
considered to relate to the measure in some circumstances because there are many other things that
impact on revenue alongside the implementation of the safety measure (most notably the level of
passenger demand for services).
An initial change in revenue might clearly occur but over time it would be harder to argue that revenue
levels relate to the measure.
Should arguably be included where it is known for certain that the measure is going to result in reduced
delays and compensation payments. However, these payments could be avoided by a range of
measures and might not relate to one particular measure.
It would be hard to argue that these costs relate to the measure. Revenue gains might not be
considered to relate to the measure in some circumstances because there are many other things that
impact on revenue alongside the implementation of the safety measure (most notably the level of
passenger demand for services). This fact also makes it harder to predict changes in revenue over the
long term.
Any change in the railway system that might have the potential to lead to increased revenue would have
to be realised by increased passenger demand and other system changes that might be required to
achieve increased revenue (e.g. additional staff, or further changes to the railway system).
Improved reputation
Reduced insurance
premiums
Civil damages and legal
costs
Passenger time savings
Environmental impact
These are all considered to be outside of the scope of a SFAIRP assessment but might be considered
within a wider business case.
ALL ENGLAND LAW REPORTS. Edwards vs. National Coal Board. 1949, vol. 1, pp. 743749.
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Definitions
Acceptable level of risk
Cost-benefit analysis
(CBA)
Codes of practice
Collective risk
Common Safety
Method on Risk
Evaluation and
Assessment (CSM RA)
Common Safety
Method for monitoring
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Gross disproportion
Individual risk
Reasonably
practicable
Safe
Safety measure
So far as is reasonably
practicable (SFAIRP)
Significant change
Similar reference
system
Value of preventing a
fatality (VpF)
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References
RSSB documents
Taking Safe Decisions
http://www.rssb.co.uk/risk-analysis-and-safetyreporting/risk-analysis/taking-safe-decisions
www.safetyriskmodel.co.uk
http://www.rssb.co.uk/SPR/Pages/Measuring-SafetyPerformance.aspx
GE/GN8640
GE/GN8641
GE/GN8642
GE/GN8643
GE/GN8644
GE/GN8645
http://orr.gov.uk/__data/assets/pdf_file/0011/2540/riskCBA_sdm_rev_guid.pdf
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