Risk Management

Exciting Times for Pipeline Risk Management

Armed with modern and robust RA, we are now better able to manage risks.  ‘Better’ means more consistently, efficiently, and defensibly.  Decision-making need no longer be relegated to debate among area managers or accommodation of pre-set budgets that are rarely truly risk-based.  This is the exciting part—the ability to manage risks in an objective, transparent way.

Introduction/Context

Risk management is the logical next step after risk assessment. However, even with good risk assessment information, risk management is not without challenges.  Challenges arise not because of the processes we use but only because of the complexities of the real world.  This is an important distinction.  Our risk analyses methods should ONLY appear complex when the underlying phenomena are complex.  When the science, engineering, or economic models that describe the real-world phenomena are complex, then at least some of the complexity will likely appear in our risk analyses.

Managing risks does not mean eliminating risk.  So, let’s now examine the multidimensional nature of pipeline RM.  An early decision must involve the acceptability of the current risk level.  That is, answering the question:  is it already safe enough?  With a recommended philosophy of ‘continuous improvement’, the answer will be ‘yes’.  However, the answer can often be ‘the risk is low enough that further risk reduction here is not a high priority’. 

The determination of ‘acceptable’ (or ‘tolerable’) risk involves dimensions such as:  ‘acceptable to whom?’, ‘acceptable for what time period and over what space?’.  Addressing the first requires knowledge of all stakeholders and their individual cost/benefit calculus of how the pipeline impacts them.  The second is more subtle, requiring us to recognize that some risks may be acceptable for short segments of pipe or for short periods of time, even though the same risk is not tolerable for longer lengths or longer time.

Perhaps the most obvious decision is a choice to reduce risk where ever it is feasible.  This typically suggests the employment or improvement of risk mitigation measures.  The perhaps less obvious associated dimensions include:  over what space (length of pipeline), to what degree, when, and for what future period.

Evaluating potential risk mitigation projects requires analyses of both the risk and the economics associated with the project.  It is not in any stakeholders’ interest for the pipeline owner/operator to spend inefficiently.

Risk reduction analyses is often a comparison with status quo, ie, not performing the potential project.

Example

To illustrate this multi-dimensional nature, consider the following scenario.  A large subdivision is planned over and all around an older high pressure pipeline.  An associated increase in third party damage potential is recognized.  This new risk is estimated to be $800/yr of additional Expected Loss (EL) over 4,000 ft of the pipeline. 

Options to manage this increased risk are identified and analyzed.  Two of the identified options, 1) a protective concrete slab or 2) increased patrol, are compared as follows

The concrete cap would be installed over 4,000 ft of pipeline at a cost of $200K.  It is estimated to have negligible influence on potential consequences of pipeline failure but should reduce probability of failure by 90%.  That is, only one in ten of the potential damaging third party incidents would actually cause a failure while nine out of ten would be successfully thwarted by the new slab.  This lowers the EL to $200/yr for the 4,000 ft where the slab is installed.

The alternative of increased patrol is estimated to cost $10k /yr and, for logistical efficiency reasons, would cover not only the 4,000 ft impacted by the new subdivision, but an additional 25,000 ft of pipeline.  So, a total of 29,000 ft of the pipeline would benefit.  The frequencies and detection capabilities of the potential new patrols are estimated to cause a minor reduction in both failure probability and consequence potential for the 29,000 ft of pipeline.  The risk reductions for the 4,000 ft and the 25,000 ft segments are assessed and estimated to be a total of $300/yr for the 4,000 ft segment and a reduction of $100/yr for the neighboring 25,000 ft segments that also benefit from the increased patrol. 

Decision-Making

The multitude of numbers in this example makes this appear to be a fairly complex economic decision.  It does indeed reflect the complexity of the real-world situation.  But, having undertaken the above analyses, the problem is now solvable with simple algebra.  We compare the initial costs and the on-going costs of each option against total risk reduction achieved by each.  We can look at future years, consider the cost of capital, and any other dimensions we choose to add.

With such a quantification of risk, the decision-makers can now make fully informed decisions.  If there remain disagreement among decision-makers, it should revolve around the real challenges rather than emotional and opinion-based notions of risk levels and mitigation effectiveness.

The challenges and nuances of managing risks today make the management processes very serious but also exciting.  Removing the ‘one size fits all’ template and the emotional pitfalls of the ‘let’s meet and discuss options’ approach, frees the manager to analyze, gain additional insights, and really understand the impacts of his decisions.  

Conservatism

Let’s not forget the role of conservatism (uncertainty management) in decision-making. A critical and challenging aspect of risk management will be “to what level of conservatism should I manage?”.  Knowing that risk assessments are generating probability distributions–even when discrete values are reported–how much should a decision-maker focus on the extremes?  Avoiding incidents that may happen every few years is certainly important.  At the other extreme, how much resources should be expended to avoid the extremely rare, eg once every 100,000 years, incident?