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Blog HomeReturn to armsreliability.com 01Oct 2018 Asset Strategy Management: The Missing Piece in the Asset Management Puzzle admin Leave a Comment Tweet

By Jason Apps, ARMS Reliability CEO

When it comes to asset management, many organizations continue to be hampered by high costs, a high volume of unplanned failures and, ultimately, an unacceptable level of risk. The reason? There’s a piece missing in their asset management puzzle.

That piece is called Asset Strategy Management (ASM). It’s a simple – but vital – component of any asset management or reliability improvement initiative.

There are three questions you can ask of your organization to see if ASM would be of benefit:

Do you know if you are currently executing all the strategies in your EAM system and at the set interval? (And, if not, do you know what level of risk you’re exposed to?)Do the strategies in your EAM system align to your agreed strategies or best-in-class strategies – on all assets? (And, if not, do you know what level of risk you’re exposed to?)Does your maintenance plan cover all the basic equipment care fundamentals and statutory or regulatory requirements – on all assets?

Answering ‘no’ to one or more of these questions sends a clear signal that you would gain immediate value from implementing ASM.

Delivering high reliability

Once an asset has been selected and installed, its ongoing reliability is determined by two things: how it is operated and how it is maintained.

Putting operations aside for moment, how you maintain an asset will directly impact its performance. And to decide how and when that maintenance is conducted, you need a strategy. Hence, an asset’s performance all starts with a maintenance strategy. At the most basic level, there aren’t many options for setting a strategy. You can either decide to execute a task at a regular interval to prevent or predict a failure; or you can monitor the asset for specific failure mechanisms, with an alarm or alert triggered if remedial action is needed.

It sounds easy enough. Yet many organizations will set a strategy in the first instance – upon installation of the asset – and leave it at that. There’s no ongoing management of that strategy. The implication of this is that, over time, the strategy may no longer be appropriate for how the asset’s being used. Or, someone may change the strategy without proper review or justification. Think about it. If someone goes into the EAM system and changes an interval of one of your maintenance plans without any review – and it turns out to be an inappropriate change – imagine the risk to your business.

Since strategy is the single biggest driver of asset performance, it must be managed effectively to ensure it remains optimal for the life of the asset.

ASM is the process you need to realize reliability

Enter ASM, a process that integrates with work management, but with a very different objective. Whereas work management is all about the efficient execution of work, ASM is all about making sure you are executing the right work – all the time.

Many organizations have unsuccessfully tried to tackle ASM within their work management process. The reason this approach doesn’t deliver results is that ASM and work management have very different objectives and therefore require entirely different triggers, resources, data and technical solutions to be effective.

Beyond delivering optimal performance and management of risk on an ongoing basis, ASM also delivers benefits that are out-of-reach for many organizations:

A consolidated, standard, component-based maintenance strategy – driving consistency of strategy but allowing for local operating contextA consistent Master Data build for all plans and materials supporting executionIdentification of undesirable riskAutomatic detection of where to focus improvement initiativesRapid deployment of relevant strategy changes across the entire asset base

Organizations typically see an immediate uplift in performance and reduction in costs on implementing ASM. The clarity generated from an ASM program can also improve work management, because the objective of the work management process become singular and clear, allowing the organization to do work more efficiently.

How does Asset Performance Management (APM) fit in?

Some organizations may be familiar with APM, which is focused on maintaining asset health and condition. APM manages the ongoing performance of assets by monitoring current conditions or current performance data; and alerting the organization when an intervention is required to prevent an impending failure.

Types of monitoring range from a periodic assessment by a technician through to multi-parameter continuous monitoring devices. Essentially however, the intent is the same: understand the condition, determine if that condition is deteriorating and identify any impending failure so that rectification can be scheduled into the workflow. And, in doing so, avoid that failure.

Recently, the cost of technologies that support the online monitoring of asset operating parameters has fallen, leading to wider-scale adoption of online monitoring tools. APM, as a result, is getting cheaper and easier to perform. It’s good news for organizations – but it’s important to remember that these monitoring tools don’t take care of strategy.

ASM sits alongside APM to make sure that routine maintenance strategies and whole of life asset strategies are best-in-class and aligned to the performance requirements of the plant. It uses a consolidated base of Reliability Master Data that is deployed and connected across the entire asset base. Any updates to strategy follow a process to ensure that the change is effective (data-driven where applicable); and work-flowed to ensure review, approval and implementation. This may result, where applicable, in a single site-based change, driving the update of the corporate Reliability Master Data, and the resulting change being deployed automatically across an entire asset base.

ASM can also help to identify where it is cost-effective and practical to implement monitoring or APM. Hence, along with work management, you have a closed loop for reliability maintenance.

So, where do you start?

Most organizations will already have a work management process in place. Ideally, this process has been refined to ensure that assets are maintained and repaired quickly to minimize downtime.

But if you’re serious about asset maintenance then your next step is to implement an ASM plan. It’s the most effective way to deliver improvements, reduce costs and improve your existing work management processes.

Why? Because any reliability process must start with a strategy aligned to your performance goals. This strategy must be best-in-class and continually managed – it can’t be changed ad-hoc, without review and approval. By the same token, if effective local strategy changes are made, it is a waste not to electronically distribute that change to all relevant instances of that asset.

Implementing an ASM process puts the organization back in control of asset management; and will continually drive the execution of best-in-class strategies across the entire asset base.

Where does your organization sit on the Asset Strategy Management maturity scale? Find out how you compare to best-in-class Reliability programs on this and other key measures with our short 12-question Asset Strategy Management Assessment and receive a custom report with our recommended path forward.

23Aug 2018 ARMS Reliability Named One of the 20 Most Promising EAM Solution Providers by CIOReview admin Leave a Comment Tweet

ARMS Reliability has been named by CIOReview in the magazines 2018 list of the 20 most promising EAM solution providers for our innovative Asset Strategy Management software platform, OnePM®. “OnePM® puts companies back in control of their risks and costs, through continuous dynamic deployment of digital strategies to physical assets- ARMS Reliability CEO, Jason Apps.

In this video, Apps discusses the CIOReview recognition and speaks to how OnePM® is advancing the future of Asset Strategy Management.

Read the CIOReview Article: ARMS Reliability: Tapping the Potential of Every Asset and learn how OnePM® is helping organizations achieve optimal strategies, on every asset, all the time.

24May 2018 RCA Program Development: Human Change Management Plan- Do You Need One? admin Leave a Comment Tweet

By Bruce Ballinger, RCA Instructor, ARMS Reliability

Most organizations today have a well-defined, reliable Management of Change process for things like the addition of new equipment or changes in the manufacturing processes, to ensure the transformations are implemented smoothly and with minimal disruption.  However, fewer organizations put much effort into how best to prepare the workforce for the changes they will be having to make within their duties, roles, and responsibilities. Yet, research by the Human Change Management (HCM) specialist organization, Prosci, validates that more projects or programs fail from not addressing the impact and changes that will occur for the organization’s employees than from technical flaws in the initiative itself.

HCM is often defined as, “the people side of project management.”  A new initiative may be the best answer to a problem or the right thing to do to improve the organization.  However, if the employees impacted by the change aren’t supportive or properly prepared, then the effort is in grave risk of failure.  The HCM process requires an organized, objective methodology for defining the degree to which a formal HCM effort may be required and identifies where and upon whom the HCM effort should be focused to greatly improve chances of initiative success.

In short, a few key components must be addressed by the methodology:

The first is visible executive sponsorship of the initiative to develop an environment where the change can happen. As is said, “If it isn’t important to the boss, then it won’t be important to anyone that works for the boss.”Second, is identifying the positions that may be either negatively or positively affected by the change. Those affected negatively will be provided assistance throughout the change period using training, mentoring, and coaching until such time they have successfully transitioned from current state into the future state.Last is future follow up and monitoring to guard against regression back into the old ways.

For major projects, the HCM process can be very important for a successful outcome. For example, if employees are to have a complete role change by perhaps becoming a full-time RCA facilitator and problem solver, then an HCM plan would be vital.  However, in the case where RCA facilitation is simply a minor change in duties (say, changing from a mix of RCA methodologies to standardizing on one), then an informal, less rigorous effort should suffice.

Regardless of the magnitude of the change, organizations need to consider and detail the HCM process to ensure the new initiative is successfully deployed by preparing and informing all stakeholders of how the change will affect their daily roles, processes, and working environment.

So far in the RCA Program Development series we’ve covered:

The Key Steps of Designing Your Program

Defining Goals and Current Status

Setting KPIs and Establishing Trigger Thresholds

RCA and Solution Tracking and Roles and Responsibilities

Recommended RCA Team Structure

Responsibilities of the Six Roles

Training Strategy

Oversight and Management

Process Mapping

And, Change Management

Stay tuned for our next installment on Implementation Tracking.

27Mar 2018 RCA Program Development: Process Mapping admin Leave a Comment Tweet

An often-overlooked element of implementing any new initiative is the process mapping exercise. The more intricate the initiative, the more valuable the process map becomes. Although launching a root cause analysis implementation plan is usually fairly straight-forward, it is still worthwhile spending some time mapping out how the work flows from a triggered event all the way through tracking the effectiveness of implemented solutions. It’s an effective way of ensuring that everyone has a clear understanding of their role and where it fits into the process.

Process mapping is usually done in two-steps commonly known as the brown paper/white paper exercise. The brown paper mapping step creates a diagram representing how RCAs are currently managed throughout the system. Once the existing workflows are clearly understood and charted the white paper charting is performed. This diagram documents the desired workflow and systematically identifies gaps between the current and desired future state. Identifying the nature and magnitude of these gaps allows the Facility Leadership Team and/or RCA Steering Committee to dedicate the resources needed to make the change over.  It also clearly defines the roles and responsibilities of affected departments and positions in the RCA program.

As seen in the example below, different symbols and colors are used to represent various steps and components. The steps are laid out from left to right and top to bottom. A start or stop point is usually designated with an oval or rounded rectangle, a regular step is a rectangle and a decision point is a diamond. All steps are connected by lines and arrows.

Example RCA Process Map- Click to download enlarged PDF

When done properly, process mapping leaves no room for misunderstanding of what needs to be done when or voids in roles/responsibilities, resulting in efficient and effective implementation of the RCA initiative and ultimately, operational improvements.

So far, this blog series has covered:

The Key Steps of Designing Your Program

Defining Goals and Current Status

Setting KPIs and Establishing Trigger Thresholds

RCA and Solution Tracking and Roles and Responsibilities

Recommended RCA Team Structure

Responsibilities of the Six Roles

Training Strategy

Oversight and Management

And, Process Mapping.

Stay tuned for our next installments on Change Management and Implementation Tracking.

21Mar 2018 Why Upskill in Reliability Centered Maintenance (RCM) admin Leave a Comment Tweet

Corporate and site reliability teams face challenges and pressures to continuously improve and demonstrate the value and business impact they have on their organizations.  The old adage of RCM being a “Resource Consuming Monster” has plagued many a Reliability Department – some organizations have even banned the use of the acronym.

Instead, RCM needs to be viewed as an engineering framework that enables the definition of a complete maintenance regime for maintenance task optimization.

Both public and private sector organizations around the world rely on reliability centered maintenance as a means to significantly increase asset performance by delivering value to all stakeholders. Successful implementation of RCM will lead to an increase in cost effectiveness, reliability, machine uptime, and a greater understanding of the level of risk that the organization is managing. It can also deliver safer operations, provide a document base for planned maintenance, and predict resource requirements, spares usage, and maintenance budget.

 So, how do you equip your organization for best-practice reliability centered maintenance?

An RCM study determines the optimal maintenance strategy for assets determines by modelling different scenarios and comparing risks and improvements over this lifetime to enable better long-term management of the assets.

At a high level, an RCM Study involves:

Step 1: Developing an FMEA using collected failure data from a variety of sources, such as work order history, spares usage rates, interviews with personnel responsible for maintaining the equipment

Step 2: Combining data with OEM maintenance manuals and spares catalog information to develop a preliminary RCM model

Step 3: Making changes to the preliminary model during facilitation with the staff

Step 4: Validating and optimizing the RCM model by assessing each failure mode by the cost, safety,  environmental and operational contributions to reduce cost and risk

Step 5: Building an maintenance plan that can be uploaded into your CMMS for direct integration of RCM with CMMS

This process will reveal any gaps in the existing maintenance strategy, or conversely deliver peace of mind that existing strategies are working.

Join us at the Reliability Summit, March 26-29, 2019, in Austin, Texas to learn how to manage reliability centered maintenance for your organization.

Attendees will learn: 

RCM Skill BuildingWhy Traditional Maintenance cannot meet the needs of business todayWeibull Data AnalysisWhat is RCM and how does RCMCost deliver this methodology plus moreHow to identify failure modes that can impact your plantHow to calculate failure data relevant to your equipment using Weibull feature in RCMCostAssessing the total cost impact of failure on a businessHow Preventive Maintenance and Predictive Maintenance improve business, safety, environment and operational risksSimulating the maintenance strategy in RCMCostRCM Skill Building ContinuedHow to select the optimum maintenance task and frequencyExercises in RCMCostMaintenance Decision making elements and sensitivities

This is one of many workshops attendees can select to attend at the Reliability Summit. For a full list of workshops, please visit our Reliability Summit website.  

14Mar 2018 The Essential Tools for a New Reliability Engineer admin Leave a Comment Tweet

Your company is going through an asset management initiative and they need ‘reliability engineers’ to support this new focus.  One day your title begins with ‘Maintenance _____’ and the next day you come into the office and the title on your door now reads ‘Reliability _____’.  Undertaking new asset management initiatives as a newly titled “reliability engineer” can be daunting.

Reliability Engineering isn’t typically something one would go to school for or get a certificate in, so what does an R.E need to know?

Your “toolkit” as an R.E. should consists of various methods that you can employ with the goal of optimizing maintenance strategies to achieve operational success, including:

root cause analysisreliability centered maintenancefailure modes and effects analysisfailure data analysisreliability block diagramslifecycle cost calculation

To be successful at increasing the reliability of your plant, reliability practitioners should utilize these ‘tools’ that can deliver the best results, applying them based on the type of problem you’re facing.

Approaching Maintenance Strategy Optimization with Your Toolkit

Its essential for a newly appointed reliability professional to be aware of common maintenance issues. The more time maintenance personnel spend fighting fires, the more their morale, productivity, and budget erodes. The less effective routine work that is performed, the more equipment uptime and business profitability suffer.

Here’s the good news: An optimized maintenance strategy is simpler and easier to sustain than a non-optimized strategy, resulting in fewer issues and downtime. Its easy for organizations and new reliability engineers to be intimidated by the idea of maintenance strategy optimization. An important tip to remember is that small changes can make a huge difference. Maintenance optimization doesn’t have to be time-consuming or difficult, nor does it have to be a huge undertaking. By creating a framework for continuous improvement and understanding the methods to employ, you can ultimately drive towards higher reliability, availability and more efficient use of your production equipment.

Join us at the Reliability Summit, March 26-29, 2019 in Austin, Texas to learn the essential tools in a Reliability Engineers toolkit and how to apply them to achieve operational success.

Attendees will learn: 

History of ReliabilityIntroduction to Reliability ConceptsBenefits of a Reliability Based Maintenance SystemPerformance MeasuresDefinitions of Terms and Measures in ReliabilityIntroduction to Reliability Engineering MethodsFailure Mode and Effects AnalysisFailure Data AnalysisReliability Centered MaintenanceMaintenance OptimizationSystem Availability AnalysisLifecycle Cost CalculationProblem ReportingWhat Tool WhenKey Factors for SuccessKey Steps in a Reliability ProgramSummarizing the Business Case for Reliability

This is one of many workshops attendees can select to attend at the Reliability Summit. For a full list of workshops, please visit our Reliability Summit 2019 website.  

09Feb 2018 Getting Buy-In from Leadership to Support Your Reliability Initiatives admin Leave a Comment Tweet

World-class maintenance performance requires strong maintenance strategy. But all too often, Leadership within the organization isn’t fulling on board with undertaking an optimization project because they don’t yet see the full value in doing so. And, perhaps, you’re not sure exactly how to convince them that the initiative is worthwhile. 

So, how do you raise awareness within the organization and get support for what you need to do? 

You must build a business case that can overcome the primary objections, illuminate the need and demonstrate the real, tangible value that your project will provide to the organization. 

If you are thinking your organization should invest in doing a maintenance review and optimization, then you’re probably experiencing some of the signs:  

High production downtime Maintenance staff in fire-fighting mode Some spare parts collecting dust, yet key spares are not available when needed Maintenance instructions consist of little more than a title or some generic text, e.g., “check and lube as necessary”Very little, if any, information captured on maintenance work orders Scheduled maintenance tasks generally only created after equipment has failed Costly equipment failures creating budget overruns Higher risk of catastrophic failure, equipment damage and major events due to potential (or actual) equipment failuresMaintenance KPIs are not in place or are trending towards lower performanceMaintenance group isn’t highly valued by the rest of the organization 

To get the buy-in you need, you need to consider points of resistance you might encounter from Maintenance, Production, and Site Management teams. Show them how the signs listed above are causing real problems for your organization, build your business case backed by data, and demonstrate how your initiatives will benefit each stakeholder group.  

Join us at the Reliability Summit, March 26-29, 2019, in Austin, Texas to learn in-depth how to build a compelling business case to gain support for your reliability initiatives.  

Attendees will learn: 

Potential resistance, fear of change and how the two impact reliability initiatives  Benefits to stakeholders at all levels and how to sell themNecessary steps to build the business case  What analyses and data are required to assess the current state of maintenance and how to use your CMMS to assist   How to explain how each problem affects the business from a maintenance, production, EHS, and business impact  How to develop a project proposal and the key items to be included  What tools to use and how to quantify the additional cost savings to be realized   How to conduct a pilot project and benefits of doing so  

This is one of many workshops attendees can select to attend at the Reliability Summit. For a full list of workshops, please visit our Reliability Summit 2019 website.  

 

07Feb 2018 The Impact of Designing for Reliability in Capital Projects admin Leave a Comment Tweet

 How do you know if your plant is designed to deliver the target level of productivity?

For many organizations, their answer is “we don’t know.” New capital projects are  typically designed with the main goals of achieving the lowest possible capital outlay for plant and equipment while maintaining the plant’s ability to meet productivity targets. Too often; however, minimizing costs ultimately garners most of the focus in the design phase and as a result plants are handed over to operations teams that simply aren’t designed for reliability. Then the consequences start to appear – High number of failures and breakdowns, no way to achieve better performance from equipment short of a redesign, maintenance costs too high for the plant to be sustainable for the long term.  

To combat this, world-leading organizations are starting to require that a RAMS Analysis (Reliability, Availability, Maintenance, and Safety Analysis) be completed at each project stage. These studies serve as checkpoints with scenario modeling that provides various options to the project team as to how they can meet the business goals of the project at the lowest possible cost. Sophisticated organizations are also incorporating peer reviews to challenge the plant designs and Lifecycle Cost Analysis to evaluate the project over a longer period to predict costs, so they can plan and budget accordingly.  

Case in point… 

Here’s a timeline of how a global mining company built reliability into their design throughout various project stages

2008 – Developed Reliability Block Diagram (RBD) model to validate the design capacity and allow for potential bottlenecks to be understood. Identified that there was a baghouse in the design that could not be isolated and required a complete plant shutdown to perform any maintenance.  Also predicted maintenance budget and labor requirements to understand the maintenance intensive items in the design. Identified multi-million dollar per day single point failure that was addressed in revised re-design that allowed maintenance on baghouse to be completed without plant shutdown.  2010 – Revised RBD to accommodate some design changes and to validate that the capacity could still be achieved.   2014 – Revised RBD to accommodate further design changes as project team was challenged to reduce capital cost and increase construction speed. RAM/RBD proved capacity could still be met. Team was challenged to reduce equipment capital by $30M yet keep capacity. Marginal capacity increase resulted and $30M reduction.  2016 – Revised RBD as more detailed information became available and as further changes were made. Headquarters rubber-stamped project to proceed.  2017 – Estimate for maintenance build from EPC was 120,000+ man hours. Using ARMS’ libraries, past company models/FMEA’s, and an equipment class strategy approach, we estimate it can take around half of that time and investment to produce maintenance strategies that will help ensure the predicted availability is realized. 

All through the process the mining giant found that the RBD was an essential tool for them when undergoing peer reviews at each project gate.  It was used to confidently assure the board that the capacity targets could be met and that they had a solid foundation on which the budget and resource forecasts were made. 

Join us at the Reliability Summit, March 26-29, 2019 in Austin, Texas to learn in-depth best-practices for designing for reliability. This workshop will cover the benefits of designing for reliability and what that process should look like to ensure a sustainable, successful plant is handed over to Operations.  

Attendees will learn: 

How to conduct scenario modelling of the plant design and configuration to ensure the plant meets its availability and production requirements at the lowest cost How to prevent hidden failures and bottlenecks caused by poor plant design How to develop budget predictions around availability, capacity, labor needs, spares needs, and maintenance costs How to build maintenance strategies for projects that help ensure the predicted availability is realized 

This is one of many workshops attendees can select to attend at the Reliability Summit. For a full list of workshops, please visit our Reliability Summit 2019 website.

02Nov 2017 QA with Adam Causley, Manager Network Strategy and Risk of Essential Energy: Implementing Copperleaf C55 admin Leave a Comment Tweet

Essential Energy operates one of Australia’s largest electricity networks, delivering essential network services to more than 800,000 homes and businesses across 95 percent of New South Wales and parts of southern Queensland. The Government-owned corporation is committed to continuously improving safety performance, operating at best industry practice, and minimising network charges to customers.

In line with these objectives, Essential Energy is always on the look-out for ways to improve business efficiency and productivity, and Copperleaf C55 has provided an answer. With Copperleaf C55 and ARMS Reliability, the corporation is enhancing its ability to optimise capital projects, manage risk, and meet regulatory and customer-driven performance targets.

Here, we talk to Adam about the implementation.

Why were you looking for a solution like Copperleaf C55?

The energy industry in Australia is undergoing momentous change with an increasing need to improve efficiency.

Given the scale of Essential Energy’s geographical footprint, it is imperative that we manage our assets as effectively and efficiently as possible. We sought a decision analytics solution to enable our investment planning and decision-making processes and support delivery of long-term strategic business performance goals. Copperleaf C55 enables us to do this.

Why did you choose Copperleaf C55?

Copperleaf C55 lets us identify the optimal set of investments and timing that deliver the greatest value to the organization and its customers across multiple portfolios. It helps us proactively identify, quantify and manage risk.

The solution – delivered by ARMS Reliability – supports our business as it is designed specifically for the complexity found in asset management. It is particularly useful because it can handle the high volume of assets we manage. Other stand-out features include its ability to provide a long-term strategic view of investment needs; its ability to optimise investment portfolios to multiple constraints; and to model multiple alternatives for each investment and the risks in our asset base.

How was the implementation?

The implementation was well executed and we were readily able to incorporate organizational specific requirements by leveraging off the implementation team’s experience. We asked for an atypical roll-out, and they were very flexible in accommodating our need to run multiple implementation stages in parallel.

Is there anything unique Essential Energy is doing with C55?

We are continually discovering the many ways which C55 can accept data to help us in our decision-making.

The first unique application was using CSIRO geographical shape files to generate additional asset data points. Our assets are geographically diverse and these points, such as corrosion regions, termite regions, sulphite soil levels, bushfire zones, wind regions etc, allow us to better understand the behavior of our assets. In many cases, it is where the asset is located rather than the asset type that may define the likelihood and consequence of failure, which determines the appropriate spend levels to achieve sustainable risk management.

The second unique application was to develop flexible models that can be deployed at the individual or rolled up asset levels. The benefit of rolled up assets is that it significantly simplifies investment creation, while individual asset analysis allows us to dive into the detail where required.

What benefits have arisen since the solution was implemented?

It has provided us with a robust methodology for quantifying investment value. We get consistent valuation over a large geographical region. We can articulate the risks on our assets in more detail and clearly to stakeholders.

How easy has it been to train staff and get them familiar with the system?

The system is easy to use and powerful. We have more than 80 staff required to use the system at varying levels of detail and that number will only increase. As with any new system, there is a period of training and acceptance but the initial engagement from the staff is great.

The use of workflow supports how we want to operate and facilitates increased ownership in the process.

For more information about this Asset Investment Planning and Management solution download a Brief Introduction to Copperleaf C55

13Sep 2017 Beyond The Risk Matrix admin Leave a Comment Tweet Author: Dane Boers, Senior Reliability Engineer

The risk matrix has served its purpose but falls well short of the data-driven business requirements of today. Enter the Value Framework.

Background

For more than a decade, the risk matrix has been the go-to decision-making tool for assessing risk, and for good reason. The risk matrix is practical, easy to use and flexible enough to apply to various risk types and situations, including:

Assessing risks of a particular assetDeciding which investments or projects have the highest importanceChoosing which risk controls to implement

Figure 1 Example of a Risk Matrix

The purpose of the risk matrix is to simplify the assessment process while still providing meaningful results. Technology and data processing tools now allow for complex assessments using simple interfaces – this plays a major role in supporting the increasing need for improved risk based decision making.

Shortfalls of the risk matrix

Granularity and/or resolution

Risk is not discrete but continuous, and many risks can be similar. Thus, the first shortfall of the risk matrix is that similar risks cannot be separated even though there are known differences. This reduced granularity can result in sub-optimal decisions and missed opportunities for improvement, because subtle differences in likelihood or consequence will likely result in the same ‘risk box’ selection.

If you were to prioritize two similar risks with all else being equal, it would make sense to address the slightly higher risk before the lower risk ­– even though the assigned risk level is the same according to the matrix.

Consider a reduction in the likelihood of an event by 50%, from once in 50 years to once in 100 years i.e. doubling the life of an asset. This is a huge improvement and may mitigate a significant amount of risk, especially if this is then applied at scale. According to some risk matrixes, the likelihood before and after would be ‘rare’, showing no improvement in risk exposure.

Businesses with large volumes of risk data need to be able to resolve very similar risks to make the best decisions possible, especially when constrained on expenditure or resources. This is even more evident when dealing with large fleets of similar assets and risks.

Multiple risks transparency

The next shortfall of the typical risk matrix is the ability to handle and interpret events that cause multiple similar consequences.

Consider an equipment failure that causes a large amount of smoke in a building. The result may be that 50 people require medical treatment for smoke inhalation. If a single medical treatment injury is assessed as a ‘moderate’ safety consequence, at what point does the sum of these injuries constitute the equivalent of a ‘critical’ or ‘catastrophic’ consequence? E.g. 10, 50, 100 persons?

Without the ability to summate or determine a total risk for an event, low impact but high-volume consequences could leave your organization exposed.

Cost benefit

Assessing risk based purely on outcome risk levels is only one-half of the equation for making effective decisions. The usual risk matrix methodology prioritizes the highest risk levels first, with little regard for the cost to achieve the mitigation. Because organizations have limited resources, determining the best way to utilize these resources is key to remaining competitive in the marketplace. The missing component is cost (monetary or otherwise), and without a cost component, we are unable to answer the following question.

If I can mitigate one of two ‘moderate’ safety risks with the same likelihood, which one should I mitigate?

Once you identify that mitigation of the first risk costs 50% less in dollars, time and resources, the decision becomes clearer. The answer to this critical question is missing from most risk matrixes and risk frameworks.

Alignment

To make effective investment decisions around risk mitigation and exposure, an organization must be able to compare and trade-off the value from different risk types (e.g. stakeholder risk vs. environmental risk). In a budgetary or resource constrained environment, this is especially important. An organization must understand which consequences are more important relative to others. A risk matrix partially does this by grouping the consequences into ‘negligible’ or ‘moderate’ groupings, however, this does not answer the question of:

If I can spend $1000 and mitigate either a ‘moderate’ stakeholder risk or a ‘moderate’ environmental risk with the same likelihood, which one should I do?

The matrix type framework is not flexible enough for most organizations to achieve exact alignment of risk types.

X by Y grid and descriptions

When thinking about consequences, the risk ‘levels’ must be meaningful to be constantly applied. This is why safety risks are often thought about in terms of ‘first aid’, ‘medical treatment’, ‘disabling’ or ‘fatal’ injuries. These can be measured and conceptually linked to an event as the most likely outcome. The ‘negligible’ and ‘moderate’ descriptions aren’t meaningful enough.

In the safety risk example above, there are four consequence levels. What if an environmental risk type is introduced into the matrix, and it only has three consequence levels (e.g. ‘100L spill’, ‘100L-500L spill’ and ‘500L spill’)? Because the number of meaningful levels can be different between risk types, they cannot fit into an X by Y matrix without distortion.

The solution: ‘The Value Framework’

Identify what is important to your organization (value measures)

The first step in creating a value framework is to identify the things that your organization values or considers to be important. An existing risk management framework or risk matrix is a good place to start. Risk types (e.g. safety, environment, stakeholder, legal and compliance etc.) are common values that can be measured and are found in most value frameworks.

Benefits such as financial returns, increases in employee efficiency and so on are also important and should be included. Another common inclusion in a value framework is strategic targets, KPIs or other measures. Everything identified in this step is known as a ‘value measure’.

Identify the common levels and calculations

Each ‘value measure’ obviously needs to be measured! The next step is to determine the discrete levels for each measure (e.g. for safety, they could be ‘first aid’, ‘medical treatment’, ‘disabling’ or ‘fatal’ injuries). Then add calculations for KPIs or values like ‘employee efficiency’ where an exact value can be obtained. For example:

Employee efficiency = Number of employees affected x hourly rate x hours saved per employee

Alignment

Once the value measures and their calculations have been identified, they need to be aligned to a common scale. This is to allow a non-biased tradeoff between any of the measures in the framework. Typically, this common scale is dollars or a dollar equivalent unit. Every level and calculation of every value measure needs to be quantified. For most risk types, this is calculated as the direct cost or benefit to the organisation.

For example, the cost to the organisation for a safety medical treatment injury (MTI) would be:

$10,000 penalty cost + $1,000 legal cost + $1,500 compensation cost = TOTAL $12,500

Application

Now that we have a rational and consistent way to assign a value to every risk, benefit, cost and other measure that an organisation values, the value framework can be used to assess every investment the same way.

Figure 2 What a Value Framework could look like

Summary

The risk matrix is a great tool for rapid risk qualification, but it cannot be used effectively to make risk and value based decisions. More information is required.

Organisations today need to:

Differentiate large volumes of risk, and risks with extremely small likelihoodsEvaluate and totalize multiple risksIncorporate costs into risk-based decision-making processesTrade off one risk type for another achieving a better overall economic outcomeHave a framework that accomplishes all the above with consistent application and transparency

Creating a value framework meets these requirements and allows organizations to make effective value based and risk informed decisions.

To learn more about creating a value framework download the executive whitepaper Value Based Decision Making’

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