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Establishing a risk management

plan that identifies the optimal


accepted risk
John Woodhouse
CEO, TWPL
Chair of Faculty, IAM

The Woodhouse Partnership Ltd 2010

Asset risk management

The Woodhouse Partnership Ltd 2010

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Assets have different risks, criticalities & needs


6000

The vital few

5000

4000

The core of the business

3000

2000

The small and many

The Woodhouse Partnership Ltd 2010

How big are the headaches?


CRITICALITY SCORE

How much improvement can we achieve?


1800
1600
1400
1200
1000
800

Current
If improved

600
400
200
0
A

B C D E F G H I J
FUNCTION, SYSTEM or EQUIPMENT

The Woodhouse Partnership Ltd 2010

PAS 55 requirements for cost/risk optimisation

1. Individual intervention
optimisations

Portfolio of assets & systems


(types, criticalities, condition, performance)

(cost/benefit/risk/timing)

3. Activity programme
optimisation

Acquire/create

(cost/benefit/risk/timings)

Operate
Maintain
Dispose/replace
2. Asset life cycle optimisation
(cost/performance/risk/lifespan)
a) Component/equipment level
b) System level

The Woodhouse Partnership Ltd 2010

Business impact (k/yr)

What is the right compromise?


TOTAL
IMPACT

3500

TRUE
OPTIMUM

3000
2500

RISK
EXPOSURE

2000
1500

Balance point
but not optimal

1000
500

PREVENTIVE
ACTIONS

9 10 11 12 13 14 15 16 17 18 19 20

Maintenance/Life Cycle (months/years)

The Woodhouse Partnership Ltd 2010

MACRO project: Asset Mgmt decision-making


European
EUREKA project EU1488

Investments & Capex Projects

Design & purchasing: Life Cycle Costing


Project prioritisation & cost/risk evaluation
Repair vs. replace options
Optimal replacement timing
Life extension/refurbishment projects

Operating & Maintenance Decisions

Maintenance intervals
Inspection/monitoring intvls & alarm points
Safety testing & failure finding tasks
Shutdown & Outage programmes
Work opportunities & clustering

Resources & Purchasing Decisions


www.MACROproject.org

Spares & Materials stock


Supplier & Purchasing strategies

The Woodhouse Partnership Ltd 2010

Conflicting Objectives

The Woodhouse Partnership Ltd 2010

The 4-step Analysis Process


BENEFITS

Problem Definition

Reliability
Efficiency
Direct costs (labour & materials)
Life Extension
Penalty costs (lost oppty, risk etc.) Compliance
Shine
COSTS

Data Gathering & Filtering


Failure modes & consequences
Probability & performance patterns
Costs & penalties
Range estimating

Analysing the uncertainty

Worst-case & Best-case


Sensitivity testing
Evaluate alternative options

Conclusions & Cost/Risk Justifications


(how to interpret & explain a business case!)
The Woodhouse Partnership Ltd 2010

Main sections of a decision-support toolbox


Level 3: integrating multiple tasks into compromise programmes
Asset Whole Life Cost/
Performance Optimisation

Systems-level strategies,
resourcing & What if? modeling

Level 2: evaluating discrete tasks or solutions


1-off tasks
e.g. modifications & design changes

History data events,


costs, performance

Periodictasks
tasks
Periodic
Periodic tasks
e.g. maintenance,
inspection, renewal

e.g. maintenance, inspection, renewal


e.g. maintenance, inspection, renewal

Current data
condition, performance

Future information extrapolation/prediction

Base level of decision support: organising data/information to describe the problem

The Woodhouse Partnership Ltd 2010

Combination of decision criticality & complexity


to select appropriate technology
Increasing complexity of the decision

Customised
system/RAM
Simulation

Criticality/
size of the
decision

Quantified
cost/benefit/risk
Calculation

(appropriate
sophistication
& cost of
method)

Rules, templates
& decision trees
Simple,
structured
common sense

Yes/No
decisions

Options or
scenario
choices

Specific task
evaluation &
timing
optimisation

Multiple tasks
or systems
configuration/
optimisation

n/a

n/a

4
2

n/a

n/a

1
Levels of cost/risk

Patterns of cost/risk
The Woodhouse Partnership Ltd 2010

More complex case, but same output


Optimal
interval

Premium for
compliance

Net impact of delay

The Woodhouse Partnership Ltd 2010

Total costs & risks (k/day)

Using uncertain information

Inspection Interval (days)

The Woodhouse Partnership Ltd 2010

Decision-support toolkit
Quantified risk

identification e.g. CMMS,

Problems

SPC, RAM

Prioritise

Filter

1. asdfasf
2. fwqerv
3. tasdf fwq
4. eadfre rwe
5. rwerwr

Known causes,
unknown solutions

What type
of solution?

Criticality
ranking
APT-PROJECT
Cost/risk evaluation

Impact ($$/yr)

Opportunities

Root Cause
Analysis e.g. PROACT
APOLLO

Cost/benefit/risk
evaluation

3500
3000

OPTIMUM

e.g. RCM, RBI

TOTAL
IMPACT

Optimal work
programming

RISK

2500
2000
1500
1000

PREVENTIVE
ACTIONS

500
1

9 10 11 12 13 14 15 16

Degree of risk taken

APT-MAINTENANCE

APT-PROJECT

(periodic preventive tasks)

(design modifications)

APT-INSPECTION
(testing/monitoring tasks)

APT-SCHEDULE
(work/resource
bundling)

APT-LIFESPAN
(replacement timing)
The Woodhouse Partnership Ltd 2010

The human factors

Education
Conflicting stakeholder expectations
Cross-functional teamwork mechanisms
Black box mentality
Short-termism & fire-fighting habits
Risk-based decision credibility

The Woodhouse Partnership Ltd 2010

Establishing a risk management system


1.
2.

Design, test and obtain top management endorsement


of a criticality backbone
Build the risk register and create ownership clarity
a)
b)
c)

3.
4.
5.

Sites and/or functional systems level


Equipment level (critical systems)
Align to FMEA scales & assumptions

Develop decision-support toolkit & training in


cost/risk optimisation
Build risk & uncertainty criteria into all business case
proposals and investment decisions
Use quick-win cases to pay for more systematic
culture change and business process embedding

The Woodhouse Partnership Ltd 2010

Examples of cost/risk optimisation impact:


Maintenance Strategy: Typically 25-40% saving
Inspection/Condition Monitoring: Corrosion monitoring,
vibration analysis, protections system testing (up to 50% reduction in
testing frequency, some cases 4x more inspection worthwhile)

Shutdown/Outage Strategy: 50% reduction in annual


downtime (manuf.), 28% critical circuit outages avoided (NGT), 2x
extension in turnaround interval (SASOL)

Projects & Asset Renewals: 400 proposals screened/ranked


in just 3 weeks (2 persons); 2.5M capex saved

Strategic spares: $8-12M saved in new plant construction, 60%


inventory reduction in materials service company, 3M downtime event
avoided in N.Sea

The Woodhouse Partnership Ltd 2010

Conclusions & implications

Failure modes interact so simplistic models (FMEA, Weibull


etc) on their own are rarely valid

Life Cycle Cost modelling


a)
b)

must include CAPEX, OPEX and Risks


should not use NPV if different lives are being explored

Tacit knowledge is the key (structured range-estimating is often


more valuable that lots of unsorted data)

Data sensitivity is not what everyone thinks

Financial impact of cost/risk optimisation (what is worth


doing, when) is c.10x bigger than just improving efficiency
(doing the same thing quicker or cheaper)

The Woodhouse Partnership Ltd 2010

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