Methods of Control Available
Nature of risk
Organizations should try to avoid or reduce their risk exposures as much as possible within their budgets.
However, there are certain risks that are extrinsic to the operations and beyond the control of the organization. Such risks are major flood, earthquakes and natural disasters, which have low probability of occurrence but catastrophic consequences. These events cannot be avoided without being economically justified.
Other risks such as power failure as a result of negligent damage to cables may result in legal actions, driven by loss of profits as a consequence of physical damage to the electrical equipment.
Broadly, the type of risks an organization is exposed to include:
- Avoidable risk - This can be overcome by amending the design or operation of an item of equipment in order to avoid the likelihood of occurrence.
- Insurable risk - This can be overcome by arranging appropriate insurance such as public liability, property damage, workers' compensation etc.
- Controllable risk - This risk can be self-insured by the owner in a planned ongoing way, i.e. making necessary service and monitoring arrangements.
- Residual risk - These are usually uncontrollable and therefore un-insurable. Residual risk fund has to be provided.
There is a limit to the level of risk that an organization can handle. Increased public litigation and court award on third party damage compensation had caused organizations to look for alternative control or avoidance measures.
A suggested approach to implementing risk control/transfer in relation to the nature of risk is shown below:
Insurance
Insurance is one of the most effective means of hedging the risk. The organization pays an annual premium in return for an insurance company underwriting the majority of the risk.
An organization that believes it is particularly vulnerable to risk should consider purchasing insurance to indemnify it against that risk.
The decision as to whether an organization should purchase insurance or self-insure will hinge upon:
- Nature and geographic extent of the organization's activities
- Condition of the assets
- Organization’s capacity to self insure losses
- Cost of commercial insurance.
The main issues which are considered for insurance are:
The Public Liability problem is significant. The major problem arises due to design standards and practices, which do not recognize the limitations of human beings. Once a facility has been constructed, the injury problem is borne as a social cost being covered by insurance systems.
The problem is both political and evident. It is characterized by its regular and generally increasing cost and by the relatively high frequency of occurrence. The identification and control of occupational hazards, involves consideration of all the components of the working environment, including the working premises or work site locations.
The organization needs to be able to judge the control it has prior to the failure of the asset. Systems that will help manage asset failure include:
Redundancy
Alternative operational options that enable the system to be operated in a different manner and therefore substantially overcome the failure.
Performance monitoring systems
Can give real time alerts to failures such as SCADA and telemetry systems.
System protection
An example is thermistor protection on electric motors that will prevent the asset self-destructing.
Staff skills
The abilities of operational staff, and their skill level and experience, that enables remedial action to be taken once the likelihood of failure becomes evident.
Advanced Asset Management Systems
Allow authorities to operate, maintain their assets effectively, know the conditions of their assets and predict the likely decay and failure occurrences.
The key systems are shown in the following figure:
Inputs - Sources of Data
For each option the following applies: