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

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Astute AviationIntroduction to Event Based Management

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

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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

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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

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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

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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

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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

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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

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

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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

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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

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

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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

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"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

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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

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‘
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

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

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

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

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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

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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

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

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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

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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

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

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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

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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

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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

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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

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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

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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

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

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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

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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

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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

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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