CBA Calculation

Cost Benefit Analysis

Risk Description, including mitigation: Describe the risk being analyzed.

Probability/Frequency of risk event (year⁻¹): Annual probability or frequency of the risk event.

% deviation for sensitivity: Absolute % deviation for sensitivity analysis.

Severity of Consequences (per event, equivalent fatalities)

Fatality (1 pu): Number of fatalities per event.

Major injury (0.1 pu): Number of major injuries per event.

Class 1 minor injury (0.005 pu): Number of Class 1 minor injuries per event.

Class 2 minor injury (0.001 pu): Number of Class 2 minor injuries per event.

Class 1 shock/trauma (0.005 pu): Number of Class 1 shock/trauma incidents per event.

Class 2 shock/trauma (0.001 pu): Number of Class 2 shock/trauma incidents per event.

% deviation for sensitivity: Absolute % deviation for total severity in sensitivity analysis.

Risk Rating X (out of Y): Risk level X out of maximum Y per your risk matrix.

Y: Maximum risk level Y in your risk matrix.

Design Life (years): Lifespan of the solution in years.

% deviation for sensitivity: Absolute % deviation for design life in sensitivity analysis.

CAPEX ($): One-time capital expenditure for the solution.

OPEX ($ per year): Annual operational expenditure for the solution.

Developed by Safety Argument Pty Ltd

Methodology Explanation

This calculator helps decide if a safety measure must be implemented for legal compliance by comparing its costs to its benefits, using a method called Cost-Benefit Analysis (CBA). It follows the idea of reducing risks So Far As Is Reasonably Practicable (SFAIRP), a principle used in safety management and law. CBA is used as quantitative analysis, where qualitative method alone is insufficient. The approach is based on guidance from the Rail Safety and Standards Board (RSSB) (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, 2014) and uses Australian values from the Office of Impact Analysis (OIA) (Value of statistical life, OIA, 2024).

How It Works

• Risk Description: A short note about the risk you're evaluating.
• Probability/Frequency: How often the risk might happen each year (e.g., "once every 10 years" means 0.1 times per year).
• Severity of Consequences: How bad the outcome could be, measured in "equivalent fatalities." For example:
  • 1 Fatality = 1
  • 1 Major Injury = 0.1
  • 1 Minor Injury = 0.005 or 0.001 (depending on type)
  • 1 Shock/Trauma = 0.005 or 0.001 (depending on type)
• Risk Rating (X out of Y): Your company’s risk score based on matrix, used to set a Gross Disproportionality Factor (GDF). GDF = max[(X/Y) × 10, 2]. This shows how much extra society expects to spend to avoid risks.
• Design Life: How many years the safety measure and/or protected asset will last.
• Costs:
  • CAPEX: One-time setup cost.
  • OPEX: Yearly running cost.

Steps of the Calculation

1. Total Risk Events: How many times the risk might happen over the design life.
   • Formula: Events = Design Life × Frequency
2. Total Consequences: The total harm, calculated by adding up all weighted outcomes.
   • Example: 2 fatalities (2 × 1) + 5 major injuries (5 × 0.1) = 2.5 equivalent fatalities per event.
3. Safety Benefit: The dollar value of preventing that harm.
   • Value of preventing 1 fatality = $5,700,000 (OIA, 2024).
   • Total Benefit = $5,700,000 × Total Consequences × Events.
4. Cost Benefit Ratio (CBR): Compares costs to benefits.
   • Total Cost = CAPEX + (OPEX × Design Life).
   • CBR = Total Cost ÷ Total Benefit.
5. Decision:
   • If CBR < GDF, ADOPT the measure (as reasonably practicable).
   • If CBR > GDF, REJECT the measure (costs are grossly disproportionate to benefit).
6. Sensitivity Check: Tests how changes in inputs (like frequency or severity) might change the decision.

Simplifications

• Costs and benefits are not adjusted for time (no discounting).
• OPEX is assumed to stay the same each year.
• Uses Australia’s $5.7M value for a life (OIA, 2024), not the RSSB’s older £1.75M.

This calculator is a simple, practical tool to balance safety and cost. For more details, check the RSSB guidance (2014) and OIA’s Value of statistical life (2024).