Calculating Risk Avoidance with Online Monitoring Systems
Risk is typically the product of two factors, Consequence and probability. These factors are often combined to develop a financial justification in monetary units. Risk avoidance is the process of reducing risk based on reducing the cost of consequence and likelihood of occurrence.
The role of an online monitoring system is to ensure that the risk is avoided as much as practicable. This is achieved by reducing the cost of consequence, i.e. avoiding a catastrophic failure and consequential costs associated with lost productivity, labour and spare parts and reducing the likelihood through
For example: If a high criticality pump fails catastrophically, a potential consequence is $200,000 in lost productivity, labour and spare parts and other incidentals.
Consider this event occurring at a frequency of once every ten years. This represents an annual risk of $20,000 per annum. Now consider the same failure with the probability of one failure every two (2) years. The annual risk has now increased to $50,000 per annum.
$200,000 Failure Costs
Failure Every 10 Years = $200,000 / 10 years = $20,000 / annum
Failure Every 2 Years = $200,000 / 2 years = $100,000 / annum Read More