Risk Asset Management

Asset management is often viewed also as an integrated approach to balance costs, performance and risks during the asset life cycle.

There are different categories of risks to be considered and PASS 55 identifies the followings:

• physical failure risks, such as functional failure, incidental damage, malicious damage or terrorist action;

• operational risks, including the control of the asset, human factors and all other activities which affect its performance, condition or safety;

Maturity assessment for Physical Asset Management: Evidence from Manufacturing Plants and Infrastructures

• natural environmental events (storm, floods,..);

• factors outside the organization’s control, such as failures in externally supplied materials and services;

• stakeholders risks such as failure to meet regulatory performance requirements or reputation damage;

• asset related design, specification, procurement, construction, installation, commissioning, inspection, monitoring, maintenance, refurbishment, decommissioning and disposal risks as appropriate.

Risk identification assessment and control are then important functions for proactive asset management. Knowledge of risks is an important step in asset risk management, but is not enough. The next step is to know what to do with these risks (Korn, 2008).

The purpose of Risk Asset Management functions is to understand the cause, effect and the likelihood of adverse events which may occur while an asset is managed.

Indeed, the risk assessment is important in different areas of the organization and became fundamental in Asset Management Projects (PAS 55, 2008).

While the range of risks in a modern plant is enormous, fortunately not all are of equal significance and usually only a relatively small percentage, about 10% (Healy, 2006), requires the highest level of risk management to control them. Only after the evaluation they will be identified and this means that the criticality assessment has to be carried out for all assets and systems in the area of interest before the ‘Critical Few’ can be identified from the rest (Healy, 2006). Criticality assessment is a structured methodology that provides a proactive approach for the assessment of risks in the organization.

Regarding the risk management process, there is no standard terminology. Herder and Wijnia (2012), analyzing risk management in Infrastructure Asset Management, identified the following three phases in the risk management process:

• establishing the context;

• risk assessment;

• risk treatment.

The ISO standard on risk management (ISO 31000: 2009) uses risk assessment as the building of risk identification, risk analysis and risk evaluation, whereas COSO

Maturity assessment for Physical Asset Management: Evidence from Manufacturing Plants and Infrastructures

framework (COSO, 2004) separates event identification from risk assessment (a bundling of risk analysis and risk evaluation). However, the steps are very similar, even though the terminology differs.

Also in PAS 55, there is explanation of a systematic approach to evaluate risks, made of the following steps:

1. classify assets: prepare a list of assets and their components;

2. identify potential risks;

3. identify the risk controls that exist;

4. estimate the likelihood and consequences for each potential risks;

5. determine the tolerability of the risks, in other words, decide if planned or existing controls are sufficient to keep the risk under control and to meet any legal, statutory and other asset management requirement.

Focusing on risk assessment, there is no one method in literature. There are various techniques varying from the ‘Wild Guess’ to the fully ‘Quantitative Risk Analysis’. The more common systematic approaches to identifying and representing Criticality include ‘Qualitative Assessments’, ‘Semi-Quantitative assessments’ and ‘Quantitative Assessments’ (Healy, 2006).

Quantitative assessments are based upon historical data to ‘calculate’ the rankings assigned to the equipment or failure mechanisms being assessed. These calculations typically include probability of failure and cost of each failure event. Obtaining the necessary data can be very difficult and often the data has to be pre-processed to get it into a form suitable for the analysis and any pre-processing must be understood and carefully carried out to prevent distortions of the final outcomes.

In some cases, especially for assessing the consequences for safety and environmental failure mechanisms, it is not easy the quantification of the risks and qualitative and semi-quantitative represent the only possible approaches.

In this concern, It is important to select an assessment approach in keeping with the needs of the organization because the use of a too basic approach can result in insufficient resolution while an overly detailed approach can increase the cost and time for the assessment and result in a lot of redundant or unnecessary data being generated.

Maturity assessment for Physical Asset Management: Evidence from Manufacturing Plants and Infrastructures

Depending on the level of detail included in the Criticality Analysis, the results allow many Asset Management decisions to be based on objective criteria and they also provide an audit trail for future review and updating (risk treatment step).

Some of the applications of the criticality analysis results, identify by Healy (2006), include the following:

• Provide a common communication tool;

• Process system design;

• Redundancy – equipment and systems;

• Maintenance programs;

• Work management based on known risk;

• Identify spare parts requirements;

• Target maintenance budgets;

• Identify training requirements;

• Identify skill based risk;

• Quantify the maintenance commitment CSFs, KPIs (critical success factors, key performance indicators);

• Provide a basis for system modeling;

During the risk treatment the option that provide the best net benefit unit of employed resource should be chosen. A practical approach is to monetize the effects on all value and perform a net present calculation but very often mitigation measures have a timing option, so it is needed an integrated approach that takes into account both cost and time of the actions (Herder and Wijnia, 2012)