Customer Consequence of Failure Cost Model

This can be regarded as the most desirable or ultimate method of understanding the true consequences of failure. However, there may not always be sufficient information on all consequences to estimate this accurately. The key issues are:

• Impact on customers
• Environmental impact
• Loss of public image / staff and public safety.

Organizations should assess the sensitivity of the numbers they have used for probability and consequence, to determine the risk envelope that is really applicable to most failure modes.

In most cases, the executive management team and directors are happy to accept a ‘minimalist approach’ to this consequence or more simply, what is the most likely consequence of the event.

The consequence of failure model is based on the scenario where the organization has the level of failures identified from the customer survey, then these customers leave the business and the income stream would be lost to a competitor.

The loss of income stream (or the consequence of this failure level) is represented by the net present value of the current income or rates paid by this customer group, i.e.: the people served from a water main in the street, from an electricity service or gas main, etc.

By using the GIS and its connection to the property and billing system, the organization can determine the NPV of 15 years of average rates or income from these properties and develop that as the economic cost of the consequence of failure. This is best shown by the following figure.

The organization uses its predictive modeling techniques to identify when this point would be reached for any number of service level failures, such as:

• A number of failures in a set period
• Total customer outage
• Service product quality issues, i.e., water quality, power voltage, etc.

The approach does represent a realistic commercial value to what would be the ‘minimalist’ consequence of failure, and although it does not include the key elements such as environmental, OH&S and other issues, it seems to have acceptance by most Executive Management teams and Directors as a true minimalist figure for the consequence of failure.