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									DNV Software
CCPS Orlando 2006

Process Business Risk - A methodology for assessing
and mitigating the financial impact of process plant accidents
Nic Cavanagh and Jeremy Linn
26.04.2006
Contents
    Background and Introduction
    The Financial Risk Concept
    Methodology and Model
    Example study
    Conclusions
    Questions




                                   Slide 2
Background
    During the 1980’s many oil, gas and chemical companies were cash-
     rich and extremely proactive over safety issues
    Internal standards were often set at more onerous levels than
     legislation of the time demanded
    Today’s environment is far more competitive
    “Good safety means good business!” Demonstrating this is not always
     straightforward
    By combining techniques from QRA and RBI, Financial Risk Analysis
     can be used to demonstrate the financial risks inherent in an operation
    The “Q” of QRA need not be fatalities, but could equally be cost




                                                                         Slide 3
Background
    We have developed a methodology which can be used to calculate the
     risks associated with process plant operation in financial terms
    This has been implemented as an extension to SAFETI, SAFETI
     Financial
    Looking at a range of operational scenarios and cost mitigation
     methods we can demonstrate how financial risks can be reduced
    The methodology is described and an example is presented
    This is used to demonstrate situations where risk to life may be low
     but there are significant financial risks




                                                                            Slide 4
Introduction – Managing Financial Risks
     Over the last 30 years management of risks to life from major accident
      hazard facilities has improved steadily
     Driven by a number of major accidents - Flixborough (1974), Bhopal
      (1984), Piper-Alpha (1988) and, more recently, Enschede (2000),
      Toulouse (2001), Fluxys (2004) and Texas City (2005)
     These have resulted in significant fatalities and injuries
       -The 3 most recent caused in excess of 60 fatalities and 3000 injuries
       -These kind of tragedies have driven legislation like RMP and Seveso

     Legislation has focused on reducing the risk of fatalities and injuries,
      so the industry is in good shape from the point of view of safety
     There have been many high profile accidents causing few fatalities
      but large losses like Seveso and Esso Longford (both estimated at
      >$1billion)
     Single incidents have caused large financial losses often with no
      fatalities; so from the safety standpoint they’re “off the radar!”

                                                                                Slide 5
Introduction – Recent Focus
     Focus has moved from improved safety and compliance with
      legislation to better financial performance
     But, “Good safety means good business”
     The business risk concept provides a method for demonstrating this
     Traditional QRA can be extended to assess the financial
      consequences of accidents and associated financial risk exposure
     In today’s competitive business environment key drivers are improved
      financial performance, maximised up-time, reduced insurance costs or
      reduced risk of interruption to business resulting from an accident




                                                                           Slide 9
The Financial Risk Concept - QRA
     Traditional QRA provides a technique for
      quantifying the risks associated with the
      production and processing of chemicals and
      petrochemicals
     To quantify risks it is necessary to identify all
      possible risk situations, quantify them in
      terms of event consequence and
      likelihood and compare them
      with acceptance criteria
     The questions to be answered
        -What can go wrong
        -What are the effects if it does go wrong
        -How often is it likely to go wrong
        -What risks am I exposed to




                                                          Slide 11
The Financial Risk Concept - QRA
   Typical output from
    a QRA
   SAFETI
     -Risk contours for
     individual risk
     -FN curves for
     societal risk

   PHAST
     -Various flammable
     and toxic effects
     (Toxic Dose,
     radiation ellipse,
     flame envelope,
     overpressure radii)




                                   Slide 12
Financial Risk Concept - SAFETI Financial
     Risk to life is only one of the risks inherent in the operation of a
      process plant
     Others include risk to the environment, risk to assets and
      equipment and risk to financial performance generally
     All these “risks” have a cost associated with them
     This can be calculated in the same way as fatality risk provided
      appropriate cost parameters are available
     By integrating some additional data and extending the
      methodology, the SAFETI approach to QRA can be extended to
      FRA (Financial Risk Analysis)
     SAFETI Financial is an extension to SAFETI enabling FRA to be
      performed


                                                                             Slide 13
Financial Risk Concept - SAFETI Financial
    The questions to be
                                                                    Plant
     answered by Financial Risk                                     Data


     Analysis may be
                                                                   Hazard
      -What can go wrong                                           Analysis




      -What will it cost if it                                      Derive
                                                   Generic
      does go wrong                              Failure Rate
                                                     Data
                                                                    Failure
                                                                    Cases



      -How likely is
      it to happen                 Historical
                                  Failure Rate
                                                  Calculate
                                                                                    Calculate
                                                                                  Consequences/
                                                 Frequencies
                                      Data                                            Costs

      -What is the
      maximum loss I                               Safety

      can incur as a result                      Management
                                                   Factor


      of an accident
                                                                                                      MET Data
      -What is my overall                                                                            Asset Data
                                                                   Calculate

      financial risk exposure                                   Financial Risks                   Environmental Data

                                                                                                   Equipment Data

      -How can I reduce it                                                                         Population Data

                                                                                                     Ignition Data
                                                                 Cost Benefit
      -And others…..                                              Analysis




                                                                                                                     Slide 14
Financial Risk Model
  For the model under consideration here, the key elements are:-
     A geographical model of the facility and surroundings including
      population, ignition sources and asset and equipment data
     A complete set of major accident hazard scenario failure cases for the
      facility
     A set of representative weather conditions and their directional
      probabilities
     Estimation of the likelihood of each failure case
     Modelling of the range of potential consequences for each failure case
     Assessment of the impact of each of these on the plant, surrounding
      assets and population
     Calculation and assessment of the financial risks associated with
      these impacts
                                                                          Slide 15
Financial Risk Model - Contributors
  Typical contributors to overall financial losses resulting from an accident
    may include:-
     Impact on people in terms of fatalities and injuries
     Property damage including capital costs to repair or replace damaged
      equipment and damage to other assets
     Business interruption and lost production
     Cost of lost inventory from sources and other damaged equipment
     Environmental damage, including clean-up costs, fines, impact on
      animal and plant life
     Plus many other outcomes with financial impact
       -legal costs, fines, loss of reputation, brand damage, compensation,
       reduction of share prices and so on

                                                                          Slide 16
Financial Risk Model - Output
    Typical output from a financial consequence analysis may be
      -Cost of a single failure case
      -Cost per outcome or per cost category, or both
      -Cost ranking per scenario
    This is of use in assessing areas where a single event may result
     in unacceptable losses
    For financial risk, typical output includes
      -Frequency-Cost curves (analogous with FN curves from
      traditional QRA)
      -Estimated Annual Average Loss (EAAL) and Estimated
      Maximum Loss (EML)
    This is of use in assessing the overall financial risk associated
     with your operation

                                                                         Slide 17
Financial Risk Model– Business Benefits
     Aiding the decision making process with risk reduction
      recommendations supported by cost benefit analysis techniques
     Reducing exposure to financial risk by assessing the relative benefits
      of different risk mitigation strategies
     Comparison of financial risk exposure for a range of process and
      operating conditions
     Financial risk trends with time
     Direct assessment of financial risks from major process plant hazards
     Better understanding of appropriate levels of insurance in terms of
      both maximum insured losses and deductible levels




                                                                            Slide 18
Financial Risk Model - Calculations
     The total financial risk is the integration of the total risk due to impacts
      on people, equipment and other assets in terms of damage and
      replacement cost, business interruption, cost of environmental impact
      and other outcomes such as legal costs, fines, brand damage, etc.
     The methodology used in this model considers financial risk in terms
      of the following asset types
        -Population
        -Original Source Equipment
        -Other Specific Equipment
        -Other Assets (buildings, non specific plant, infrastructure, etc.)
     Cost contributors within each of these asset groups may include
      equipment damage, lost inventory, business interruption and
      environmental clean-up


                                                                               Slide 20
Financial Risk Model - Calculations
  The Damage Level and Vulnerability Factor Concept
     The simplest method for assessing the impact of each consequence
      on a receptor
       -Define a threshold value for each outcome type above which an
       asset suffers 100% damage and below which it suffers no damage
     This can be extended to a range of threshold damage levels with
      associated vulnerability factors – we typically use 2
     In simple terms we are saying – At “Damage LeveI” of this effect
      “Vulnerability Factor” proportion of asset is lost
     For example, radiation
       -Damage Level ≥ 37.5 kW/m2 ,Vulnerability factor =1
       -Damage Level ≥ 12.5 kW/m2 ,Vulnerability factor =0.5
       -Damage Level < 12.5 kW/m2 ,Vulnerability factor =0

                                                                         Slide 23
Financial Risk Model - Calculations
  Damage Level and Vulnerability Factor Concept
     For explosions, jet-fires and pool fires, upper and lower damage levels
      (overpressure and radiation respectively) are defined with a
      vulnerability factor between zero and 1 associated with each level
     For flash fires a fraction of LFL is defined below which no damage
      occurs, above which maximum damage occurs, as defined by the
      appropriate vulnerability factor
     For toxic releases, a concentration is provided below which no
      damage occurs and above which maximum damage occurs, again
      based on the relevant vulnerability factor
       -Toxic damage is intended primarily for use with assets where damage will
       result in some kind of pollution which has an environmental clean up cost
       associated with it



                                                                              Slide 24
Financial Risk Model – Hazard Zones
    The figure below illustrates 2 hazard zones, one for each damage
     level, superimposed on a GIS map


    Also shown
     is an
     example of
     each
     receptor type
     available in
     the model




                                                                        Slide 25
Financial Risk Model – Damage Level Concept
     The bold inner and outer footprints represent typical upper and lower
      threshold damage levels
     Any receptor outside the lower threshold value will be undamaged
     Any receptor between
      the inner and outer
      boundaries will be
      damaged to the degree
      indicated by the lower
      vulnerability factor
     Any receptor within the
      inner threshold
      boundary will be
      damaged to the degree
      indicated by the upper
      vulnerability factor
                                                                         Slide 26
Financial Risk Model – Source Costs
     Each source will have a cost    Equipment Type     Outage Time (day)   Repair/Replace Cost ($)

      associated with it whether it   Large Pipes        7                   50,000


      impacts other assets or not     Medium Pipes       4                   20,000

                                      Small Pipes        2                   5,000

     Each source is defined as a     Compressors        14                  250,000


      particular equipment type,      Exchangers         5                   50,000


      which will have its own         Vessels            7                   40,000

                                      Filters            1                   10,000
      unique outage time and
                                      Reactors           14                  80,000
      repair cost                     Tanks              7                   80,000

                                      Pumps              0                   5,000
     The model also allows user
                                      Heater             5                   60,000
      defined equipment types to      Column             21                  10,000

      be added with their own         Other / General    7                   20,000

      outage time and repair costs    Mobile Buildings   5                   25,000

                                      Brick Buildings    15                  100,000
     The same look-up                Asset Zones        5                   1/m2

      information is available for    None               0                   0

      equipment
                                                                                                       Slide 27
Financial Risk Model – Population & Equipment
  Population Zones
     Population information can be entered directly through the GIS
     For financial risk calculations based on population the following
      additional data is required
       -Cost of a Solitary Fatality
       -Number of Injuries Per Fatality
       -Cost of a Single Fatality Among Many Fatalities
       -Cost of One Injury

  Equipment Items
     An equipment item acts as a point receptor to a hazard zone
     Typical examples of assets you may wish to include as specific items
      of equipment are
       -Large capital value items of plant which do not represent a hazard
       -Storage facilities for non-hazardous material of high capital value
                                                                              Slide 29
Financial Risk Model – Asset Zone
     An asset zone is a generic receptor type which will result in a cost
      being incurred if it is impacted by a hazard zone with a large enough
      damage level
     It is treated in the same way as an equipment item in terms of
      financial risk, but with no contribution from environmental costs
     Typical examples of assets may be
       -On-site buildings like control rooms and offices
       -Off site buildings and infrastructure including, for example, houses,
       commercial buildings, factories, warehouses, etc
       -Areas of a plant which do not contribute directly to risk as possible sources
       of hazardous releases but have intrinsic value which will be compromised if
       damaged




                                                                                  Slide 30
Financial Risk Model – Parameters
     Much of the data described above is available as a set of default
      parameters within the model
     These may be modified on a case by case basis for each receptor
      and cost category type
     Data available as defaults includes
       -Damage levels and vulnerability factors for each outcome type, cost
       category and receptor type
       -Cost of lost production per day, environmental clean-up per kg,
       environmental costs for other effects per kg and value of lost inventory
       -Outage time and repair cost for each equipment type with ability to add
       new types
       -Financial information relating to fatalities and injuries including cost of a
       solitary fatality, cost of single fatality amongst many, cost of an injury and
       number of injuries per fatality


                                                                                        Slide 31
Example Study – The Model
    Example
     model
     populated with
     a number of
     sources and
     receptors
    This is the
     basis for a
     simple
     Financial Risk
     Analysis study
     for a facility
     illustrating
     some of the
     benefits

                            Slide 37
Example Study – FN Curves




                            Slide 38
Example Study – Risk Contours




                                Slide 39
Example Study – Frequency/Cost Curves




                                        Slide 40
Example Study – Frequency/Cost Curves




                                        Slide 41
Example Study – Financial Risk Ranking




                                         Slide 42
Example Study – EAL Report




                             Slide 43
Example Study – Maximum Cost Report




                                      Slide 44
Conclusions
   Traditionally QRA has been used to ensure safe operation, usually from a
    compliance perspective
   Methodologies like QRA can be extended to evaluate a broader range of
    business risks and assess their financial impact
   A model has been described which enables the estimation of the overall
    financial risks associated with process plant operations
   This is an extension of the well known SAFETI QRA model
   The same principles could be used with any fatality risk model to extend
    applicability to financial risk as described above
   Key benefits of using this kind of model are
     -Allows identification of key contributors to financial risk
     -Assess benefits of different financial risk reduction strategies
     -Provide a cost-effective method for assessing appropriate insurance levels
     -Method of demonstrating benefits of financial risk analysis to senior management and
     illustrating how the operational risks can be reduced

                                                                                        Slide 45
Questions




            Slide 46
2006 DNV Software

								
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