Consequence of Failure - A Management Tool
Many aspects of asset management including ORDM and maintenance management are related to asset criticality.
This is generally expressed as Risk Cost Exposure, which is the economic consequence of the failure x the probability of failure. However it is important to look at the degree of confidence in the development of this risk cost.
An organization can be reasonably accurate with the estimate of its direct costs to repair the failure, and the lost income or production costs.
It may be less accurate with the costs associated with the failures such as damage to other services, private property etc.
It may be even less accurate with the ancillary costs of failure such as environmental, image of organization, political sensitivity etc.
However, even though confidences in these aren't high, they may still exceed the degree of confidence in predicting the probability of failure.
For many assets, organizations have little or no failure histories and therefore no statistics to provide mean time between failures (MTBF), mean times to failure (MTTF) or even the current or predicted probability of failure.
Degree of confidence
The confidence in the probability of failure is therefore far less than the confidence in the consequences of failure.
This is shown in the following tables.
Probability of Failure
Assets Type | Degree of Confidence |
Multiple like assets (large numbers) | Medium ± 25% |
Single unique assets | Low ± 50% |
Assets with extensive failure histories | High ± 15% |
Assets with little or no failure history | Low ± 50% |
Assets with objective condition monitoring and assessment systems | Medium ± 20% |
Assets with little condition assessment | Low ± 50% |
Consequence of Failure
Assets Type | Degree of Confidence |
Direct costs: |
Repair costs | High ± 10% |
Damage claims (property) | High ± 20% |
Damage claims (personal) | Low ± 25% |
Insurance excess payments | Medium ± 20% |
Loss of production | High ± 10% |
Indirect (ancillary) business costs: |
Environmental damage | Low ± 50% |
Loss of service/customer * | Medium ± 25% |
Image | Low ± 50% |
Political sensitivity | Low ± 50% |
Impact on system | Medium ± 20% |
* If customer surveys have been completed & an indication of customer costs has been determined |
Where assets or components have a similar current risk cost, the organization should always favor the one with the higher consequences of failure, as we can have a greater confidence in this than we do in the probability of failure.
When developing the costings for the consequence of failure, the organization should show the calculations for the various options together with the degree of confidence.
A sample is shown below:
Costing the Consequences of Failure for Various Treatment Options
Consequence of Failure | Treatment Options |
Events/Costs | Do Nothing | Maintain More | Rehabilitate† | Replace ‡ |
Direct Costs | | | | |
Loss of Production | | | | |
Indirect Costs | | | | |
Degree of Confidence | | | | |
† Rehabilitate at 75% of Effective Life e.g. 60 Year LTD
‡ Replace at 120% of Effective Life |