Guidance on the use of cost-benefit analysis when
determining whether a measure is necessary to
ensure safety so far as is reasonably practicable
RSSB
2, Angel Square
1 Torrens Street
London EC1V 1NY
Please send any comments to: risk@rssb.co.uk
© Copyright 2014
Rail Safety and Standards Board Limited
July 2014
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Contents
Description
Page
Guidance on the use of cost-benefit analysis when determining whether a measure is
necessary to ensure safety so far as is reasonably practicable..............................1
Part 1
Introduction ........................................................................................................3
G 1.1 Purpose of this document.................................................................................................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
Injury degrees and weightings..........................................................................9
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
Purpose of this document
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
Guidance on the use of cost-benefit analysis
when determining whether a measure is
necessary to ensure safety so far as is
reasonably practicable
G 2.1
What is cost-benefit analysis?
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
Using CBA in SFAIRP demonstration
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)
The application of codes of practice
ii)
Comparison with similar reference systems
iii)
Explicit risk estimation
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 made…in 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’.
G 2.2.2 CBA’s role in SFAIRP judgements
G 2.2.2.1 In the context of safety-related decisions, CBA is generally only used where the decision
cannot simply be based on using good practice or competence-based judgement. Taking
Safe Decisions provides more detail on this. CBA should only provide an input to the
overall decision rather than giving a definitive result.
G 2.2.2.2 Figure G A.1 below shows the risk management framework, as described in Taking Safe
Decisions. It aligns with the principles of change and monitoring, which are embedded in
the CSM RA and the CSM for monitoring respectively.
Figure G A.1
The Taking Safe Decisions risk management framework
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
Placement of costs and benefits in the CBA equation
G 2.2.4.3 The ORR’s 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.
G 2.2.5 Discounting and uplifting
G 2.2.5.1 Decisions often involve investments in measures where costs and benefits will accrue over
a number of years. Therefore, all relevant future costs and benefits must be calculated in
present-value terms. A discount rate is chosen to do this, and net present value calculated.
G 2.2.5.2 The ORR guidance document describes which discount rates should be used to account
for future change in societal preference for safety. It also describes how:
i)
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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G 2.2.6 Interpreting the BCR
G 2.2.6.1 The comparison of costs and benefits is generally presented as a benefit-cost ratio. If the
cost is clearly less than the safety benefit, this provides a strong indication that the
measure is likely to be reasonably practicable, and there would have to be a convincing
argument why such an option would not be adopted. Conversely, where the cost is
substantially larger than the safety benefit, this would support a judgement that the
measure is grossly disproportionate and therefore not reasonably practicable.
G 2.2.6.2 However, the judgement is more complicated when the difference in size between the cost
and safety benefit is somewhere between these two extremes. The decision taker will then
need to consider, in particular, the level of confidence in risk and cost estimations made.
G 2.2.6.3 In practice, net values can be positive as well as negative and this throws up a number of
different possible outputs of a CBA appraisal to evaluate whether measures are required in
order to ensure safety SFAIRP. The quadrants of the diagram of Figure G A.3 show the
possible different outcomes.
Figure G A.3
The SFAIRP CBA quadrants
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 2.2.6.7 Risk estimates are subject to uncertainty – particularly low-frequency, high-severity
accidents like train collisions. Sensitivity analysis might be useful in some cases – ie testing
how sensitive estimates are to variation in the key assumptions.
G 2.2.6.8 Case law establishes that financial strength or weakness is not relevant to determining the
appropriate degree of care. Reasonable practicability is an objective test and the specific
circumstances of the duty holder are not relevant.
G 2.3
Using CBA to support commercial decisions
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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Appendix A Injury degrees and weightings
Injury degree
Definition
Fatality
Death occurs within one year of the accident.
Major injury
Injuries to passengers, staff or members of the public as
defined in schedule 1 to RIDDOR 1995 amended April
2012. This includes losing consciousness, most fractures,
major dislocations, loss of sight (temporary or permanent)
and other injuries that resulted in hospital attendance for
more than 24 hours.
Weighting
Ratio
1
1
0.1
10
0.005
200
Injuries to passengers, staff or members of the public,
which are neither fatalities nor major injuries, and:

Class 1
minor injury

for passengers or public, result in the injured person
being taken to hospital from the scene of the
accident (as defined as reportable in RIDDOR 19951
amended April 2012)
for workforce, result in the injured person being
incapacitated for their normal duties for more than
three consecutive calendar days, not including the
day of the injury.
Class 2
minor injury
All other physical injuries.
0.001
1000
Class 1
shock/trauma
Shock or trauma resulting from being involved in, or
witnessing, events that have serious potential for a fatal
outcome, eg train accidents such as collisions and
derailments, or a person being struck by train.
0.005
200
Class 2
shock/trauma
Shock or trauma resulting from other causes, such as
verbal abuse and near misses, or personal accidents of a
typically non-fatal outcome.
0.001
1000
1
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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Appendix B Applicability of costs and benefits to a CBA in
support of SFAIRP decisions
Typically within the scope of an CBA in support of an SFAIRP judgement
Safety Benefits
Capital Costs
Capital Cost
Savings
risk reduction * VPF
Installation/upgrade costs
Installation cost savings
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
Avoided damage and
reinstatement costs
Stated in the case law2.
Stated in the case law.
Within scope. For example, if a level crossing is life expired and needs renewing, the cost of the
minimum renewal would need to be netted off of the cost of putting in place an upgrade if that option
was to be investigated.
Ongoing costs that ‘relate to the measure being implemented’ should be included.
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
Allowance for taxation
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
Lost revenue during
installation/upgrade
Performance regime
compensation payments
Ongoing lost revenue
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).
Outside scope of a CBA in support of an SFAIRP assessment.
Other
Improved reputation
Reduced insurance
premiums
Civil damages and legal
costs
Passenger ‘time savings’
Environmental impact
2
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. 743–749.
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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
Explicit risk estimation
The CSM RA defines ‘risk acceptance principle’ to mean:
the rules used in order to arrive at the conclusion whether
or not the risk related to one or more specific hazards is
acceptable”. It also defines ‘safety measures’ to mean: ‘a
set of actions either reducing the frequency of occurrence
of a hazard or mitigating its consequences in order to
achieve and/or maintain an acceptable level of risk’. In
this document when the term ‘acceptable’ is used with
reference to the term ‘risk’ it is used according to these
definitions and in this context.
A systematic approach to comparing the costs and
benefits associated with a decision. It is useful to
distinguish between a ‘business case’ CBA, which can
inform a decision taken to meet commercial objectives,
and a ‘SFAIRP’ CBA, which can be used when applying
explicit risk estimation to inform a decision as to whether it
is reasonably practicable to implement a safety measure.
In either case, CBA is an input to the decision that is used
to inform a judgement.
One of the three risk acceptance principles set out in the
CSM RA. The regulation defines it as “A written set of
rules that, when correctly applied, can be used to control
one or more specific hazards.” For example, the set of
rules may be made up of clauses from one or more
standard.
A measure of the risk associated with a particular
scenario, control measure or hazard. It is aggregated over
all exposed groups, which might include passengers, staff
and members of the public. Collective risk is the safety
metric used when explicit risk estimation is applied to
determine whether a safety measure is required to ensure
safety SFAIRP.
Commission Regulation 352/2009. Note that a revised
CSM RA, Commission Regulation 402/2013 came into
force on 20 May 2013 (the date from which it may be
used) and applies from 21 May 2015 (the date on which it
must be used). Further details on the CSM RA can be
found on RSSB’s website.
Commission Regulation 1078/2012 on a common safety
method for monitoring to be applied by railway
undertakings, infrastructure managers after receiving a
safety certificate or safety authorisation and by entities in
charge of maintenance.
One of the three risk acceptance principles set out in the
CSM RA. It typically requires a more bespoke approach to
risk assessment than the other risk acceptance principles,
and can be qualitative or quantitative. When explicit risk
estimation is applied the risk acceptance criterion that is
generally used in GB is to ensure safety SFAIRP, as
defined in general legislation.
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Fatalities and weighted
injuries
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)
A combined measure of risk or harm in which injuries are
weighted according to their relative severity. For example,
a major injury is deemed to be statistically equivalent to
one-tenth of a fatality. See Appendix A for further
information.
Case law states that it is reasonably practicable to
implement a safety measure unless the associated costs
are grossly disproportionate to the safety benefits.
Professional judgement is applied to determine whether
this is the case, and particular attention is paid to the
degree of uncertainty in the assessment of costs and
safety benefits.
A measure of the risk to which a hypothetical
representative of a group of people is exposed,
aggregated over all the potential sources of harm on the
railway. It is not used to determine whether a particular
safety measure is required to ensure safety SFAIRP but
can help a company understand its risk profile and
prioritise safety management effort. The regulator may use
measures of individual risk to form judgements about
whether or not they think risks are tolerable.
See gross disproportion.
The CSM RA defines safety as “the freedom from
unacceptable risk”. A system is safe if its risk has been
reduced to an acceptable level.
The CSM RA defines a safety measure as “A set of
actions that either reduce the rate of occurrence of a
hazard or mitigate its consequences in order to achieve
and / or maintain an acceptable level or risk.” A risk
control.
The Health and Safety at Work Act imposes an obligation
on employers to ensure the safety of people affected by
their undertaking so far as is reasonably practicable.
The CSM RA must be applied in full if a change is
significant. This is determined by judgement based on its
failure consequence, novelty, complexity, the ability to
monitor and intervene, and additionality. See the
Regulation and ORR guidance on the application of the
common safety method (CSM) on risk evaluation and
assessment for more information.
One of the three risk acceptance principles set out in the
CSM RA. The regulation defines it as “a system proven in
use to have an acceptable safety level and against which
the acceptability of the risks from a system under
assessment can be evaluated by comparison.”
The multiplier that the railway uses to convert safety
consequences to an equivalent monetary value when
carrying out cost-benefit analysis. The figure is published
by the Department for Transport and uprated annually by
RSSB.
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References
RSSB documents
Taking Safe Decisions
http://www.rssb.co.uk/risk-analysis-and-safetyreporting/risk-analysis/taking-safe-decisions
RSSB Safety Risk Model
www.safetyriskmodel.co.uk
Measuring Safety Performance
http://www.rssb.co.uk/SPR/Pages/Measuring-SafetyPerformance.aspx
GE/GN8640
Guidance on planning of an application of a CMS risk
evaluation and assessment
Guidance on system definition
Guidance on hazard identification and classification
Guidance on risk evaluation and risk acceptance
Guidance on safety requirements and hazard
management
Guidance on independent assessment
GE/GN8641
GE/GN8642
GE/GN8643
GE/GN8644
GE/GN8645
Euronorms and British Standards
BS EN 50126-1:1999
Railway applications — The specification and
demonstration of Reliability, Availability,
Maintainability and Safety (RAMS)
Other references
EC No 352/2009
EU No 402/2013
ORR Internal guidance on cost
benefit analysis (CBA) in support
of safety-related decisions
Commission Regulation on a Common Safety
Method on risk evaluation and assessment
Commission Implementing Regulation on a Common
Safety Method on risk evaluation and assessment
http://orr.gov.uk/__data/assets/pdf_file/0011/2540/riskCBA_sdm_rev_guid.pdf
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