Business interruption losses

The PSM Rule requires all PrHAs to address "any previous incident which had a likely potential for catastrophic consequences in the workplace," 29 CFR 1910.119(e)(3)(ii). An incident is an unplanned event that may or may not result in injuries and/or loss. For example, an incident might involve a flammable gas leak that does not ignite. An accident, on the other hand, is an unplanned event that actually leads to personal injury, property damage, environmental damage, and/or business interruption losses, such as the ignition of a flammable gas leak resulting in burns and fire damage. 

Property damages and legal liabilities are not the only sources of financial impacts a company may suffer at the time of an incident. Business interruption losses will also occur since the facility will not longer be able to function as intended. Analysis of insurance industry claims data shows that business interruption losses are generally three times the amount of physical property damage. Often the justification for a safety feature may not be the loss of the component itself but of the impact to operations and loss revenue it produces. 

Dow Fire and Explosion Index. The Dow Fire and Explosion Index (3) is a procedure useful for determining the relative degree of hazard related to flammable and explosive materials. This Index form works essentially the same way as an income tax form. Penalties are provided for inventory, extended temperatures and pressures, reactivity, etc, and credits are applied for fire protection systems, process control (qv), and material isolation. The complete procedure is capable of estimating a dollar amount for the maximum probable property damage and the business interruption loss based on an empirical correlation provided with the Index. 

The net index is used with correlations provided to determine the maximum probable property damage and business interruption loss in the event... 

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Marsh McLennan s Large Property Damage Losses in the Hydrocarbon-Chemical Industries—A Thirty-Year Review reported the property damage was 23 million and the business interruption loss associated with the incident was estimated at 44 million. 

The Dow index applies only to main process units and does not cover process auxiliaries. Also, only fire and explosion hazards are considered. Recently the index has been expanded to include business-interruption losses. The principles and general approach used in the Dow method of hazard evaluation have been further developed by Mond in the United Kingdom to include toxicity hazards. This revised Mond index is described in a paper by Lewis ... 

Recommendations that are strictly for the protection of the fixed property and business interruption can be easily evaluated against the potential economic loss that will be suffered. Since it is already assumed that the probability of the risk is high, since a recommendation has been made, it is simply a matter to determine if the cost to implement the recommendation would exceed the cost to rebuild and economic loss of sales. This value may be further reduced if insurance coverages would alleviate some of the burden of the projected loss. If the cost to implement the recommendation approaches the rebuild and business interruption loss, it not justified and therefore impractical. 

Fire protection engineers on my staff made many computations of property damage and business interruption loss estimates for their clients. A reasonable-worst-case hazard and exposure scenario—a modeling of an event—would be written. It would include assumptions about hazards being realized, where on the property the incident would most likely occur, the value of the facilities and equipment in that area, and the monetary value of the damage to property that could occur. Clients provided the values of properties used in the computations, and they were often inaccurate. 

The final part of the analysis (bottom of Figure 24.21 is the calculation of probable loss of property and loss of business if a fire or explosion were to occur. The area likely to be damaged is estimated from the F EI. The value of the equipment in this area ( 5 million in the exanple) is used to estimate the likely property loss, which is a function of loss control credits. The business interruption loss is estimated based on (1) probable days of outage and (2) annual fixed costs plus before-tax profit. 

Cost considerations can be a primary factor in a decision to implement a countermeasure. A cost-benefit analysis is a critical thinking tool used by occupational safety managers in justifying occupational safety measures or programs. Cost-benefit analysis is a cost analysis methodology used to justify occupational safety expenditure however, all costs, including life cycle costs, should be considered in whatever methodology is used. In addition to direct project costs, those expenditures associated with indirect impacts (e.g., business interruption, loss in productivity, or loss in credibility) should be considered. Any decision to not secure assets or to defer... 

Direct costs of risk are relatively easy to assess the replacement value of equiimient. rqiair costs to vmnises. The indirect costs risk, e.g. business interruption, loss of client confidmice, litigation, are often overlooked, despite die fact diat they are nearly always of a significant size and sometimes are even larger than the direct costs. 

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