Overview

Well-managed organizations are those that appreciate and control the risks in their service delivery.

Managers of major asset portfolios have several conflicting influences on them:

• Reduced capital budgets for replacement and rehabilitation works ("just in time" investments)
• Reduced recurrent expenditures for maintenance
• Ageing asset stocks with a greater probability of failure
• Greater customer awareness with associated demands for a higher level of service from existing assets and the provision of new services
• Increased accountability for service failure and resulting litigation
• Demands for cost effective, commercial, business-like performance.

For some assets, deferring maintenance and renewal works will not immediately affect the performance of the assets.

However if this continues without assessing the full ramifications (including the risk cost of the consequences of failure), then the compounding problems of the ageing asset may not be rectified, even with substantial investment.

The resulting "bad press", community outrage and political pressure is likely to affect the responsible managers.

Asset managers need to be able to:

• Assess the long-term ramifications of their business strategies
• Identify and quantify the future problems including risk
• Adopt strategies that will enable the organization to deliver the level of service required by its customers at the most cost effective price.

For asset owners, the assessment and management of risk is a key part of managing their service delivery.

The effort put into assessing and managing the risk needs to be proportional to the risk exposure but less than the total risk.

Like the apportionment of the total cost of maintenance between planned and unplanned activities, risk management needs to be balanced against the overall exposure, as shown below:

The keys to successful risk management are:

• Determining the overall risk cost to the business
• Optimizing this to acceptable levels.

To do this effectively, asset owners need to be able to break their assets down to identifiable items, where a ‘micro’ assessment of their probability of failure and the consequences of that failure can be made.

It is only when this micro assessment is aggregated for all assets that the macro assessment of risk can be completed to a high degree of confidence.

Being able to identify the potential risk posed by the failure and then to invest in either maintenance, rehabilitation or replacement options are the key ingredients to all cost benefit analysis and project evaluations.

The key elements of risk engineering/management for assets are:

Risk Identification

• Identification of the fault tree
• Pre-event influences
• Control systems available
• Failure event outcomes — consequences
• Post event influences.

Risk Quantification

• Determining the economic cost of the failure (risk cost) to the business including:
• Cost to repair asset and ancillary damage
• Loss of business
• Other ancillary costs (social, business, political)

Risk Evaluation

• Assessing the current risk cost to determine its severity and level of acceptability.

Risk Control

• Developing a strategy to either:
  • Reduce or eliminate probability of failure effectively
  • Reduce the impact of the failure for those events that are not cost effective or have a random probability that is difficult to assess (failure management plans).
• Key issues are the organization's ability to determine:
  • An accurate economic value for the ancillary consequences of failure of both minor and major assets
  • An accurate probability of failure for all their assets.

These are essential if the organization is to judge the relative cost benefits of its investment opportunities against competing demands for resources.

The adoption of a planned approach to risk management of assets is not likely to occur overnight. An effective implementation program that raises the level of sophistication in a cost effective way is the key to introducing risk management activities into most organizations.