Which Flavours of Asset Risk should you Capture?

Which Flavours of Asset Risk should you Capture?

Asset rich companies have long understood the risk to performance and service delivery from deterioration of their assets. But the leading companies are now looking to combine their understanding of deterioration with their knowledge of operational risks and network resilience in one place, and are reaching a truly strategic understanding of asset risk. SEAMS Product Manager, Tom Rowson, explains the difference in these types of risk, and how you can combine and compare them.

More than One Type of Asset Risk

In the asset management industry, considerable effort is put into the modelling of deterioration risk and its mitigation with asset investment plans.

However, two other types of risk have now emerged as having equal, if not greater importance.

Operational risk is day-to-day risk associated with running assets, and it is captured reactively. Operational risk is incurred when an asset appears ready to fail sooner than expected, outside of planned maintenance or replacement windows.

Resilience risk is a measure of a network’s ability to resist infrequent, large-scale ‘shock’ events, such as periods of flooding or drought. If your assets are put at risk by a shock event, are they able to resist or recover quickly, and will supply to customers be protected?

Visualising Risk

All three risk types can be represented together, on a figurative chart of service through time (figure 1). Deterioration risk is represented by the gradual, overall decline in service. Operational risk is the ‘noise’ on the line – the constant flutter in service as single assets come in or drop out of service. The response to shock events (representing the resilience risk) is shown by the large, sharp dips in the line.

Putting a Number on Risk

Now that you know what kinds of risks you need to consider for your assets, how do you go about assessing the relative scale of each?

Deterioration risk is typically calculated through predictive analytics, using swathes of data combined with theoretical models to forecast the long-term degradation of a set of assets. Data is analysed for aggregated groups of assets in order to provide sufficient statistical rigour in the outputs.

Operational risk is far more reactive, and its capture is by its nature ad hoc. An operational risk is not predicted, but rather the result of an unexpected circumstance – an asset deteriorating more quickly than predicted, or a digger cutting through a pipe, or an act of malicious damage. Some operational risks require immediate attention, but others can be deferred and taken account of as part of a planned scheme of works.

Resilience risk is a measure of the system’s ability to keep delivering even when infrequent, large scale shock events occur. As such, it should be proactively assessed, but cannot be as forward-looking as deterioration risk. Because events are rare and data sparse, resilience risk calculation cannot rely so heavily on analytics; instead, assessments are carried out by subject matter experts, and there is a reliance on expert opinion to provide qualitative inputs to the assessment process, which can then be translated into an overall quantitative resilience status (or, resilience to the risk of impact from shock events).

Managing Asset Risk

Once risk has been captured for your assets, what do you do with the information? The obvious answer is to manage and mitigate the risks, but how do you go about that?

The key is to put the risks in a common framework, so that they can be directly compared.

Choosing the measure by which you compare your risks is not necessarily straightforward. A single measure called ‘risk’ may not be directly comparable across risk types and capture methodologies, and so instead the risks have to be converted into time-dependent impacts on key performance, service and cost indicators.

Potential solutions to the risks are also measured in the same terms, and can therefore be submitted to an optimisation engine to produce a plan for capital investment which provides the very best risk reduction for your money, across all types of risk.

A single, unified register of your risks will give you the power to act in a truly strategic way.

If you’re interested in finding out more, or how SEAMS EDA can help you manage asset risk and balance investment, visit
www.seamsltd.com or email:
contact@seamsltd.com

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