Risk assessment financial impacts

In determining the risk from a financial perspective, a company should add the financial factors they determine important and arrive at a total loss the company is willing to accept. This becomes the criteria used in the risk assessment for financial impact. 

ABSTRACT The paper presents a decision support system (DSS) for evaluation of risk pipeline risk. The system is able to support risk assessment and risk ranking of sections of natural gas pipelines. The DSS uses an architecture based on a data base, a model base and user interface. The model base has been built based on Multi-Attribute Utility Theory. The multi-attribute approach analysis risks in three dimensions of impact. These dimensions are human, financial and environmental impact. The way in which the model translates decisionmakers preferences into risk management decisions is highlighted. The paper presents the DSS, including some dialogue modules of the system based on real appUcations. 

According to Brito Almeida (2009) there are some limitations to traditional methods of risk analysis and risk assessment that are used for pipelines. These approaches do not consider the multiple dimensions that the impact o f accidents can cause with regard to human, financial and environmental issues. 

Risk mapping is a subjective process where the risks are broadly classified based on risk occurrence and risk impact. Risk occurrence measures the likelihood of that risk event happening and is subjectively assessed as high or low. Risk impact is used as an all-embracing term that covers financial loss, market share, stock prices, etc. Risk impact is also assessed subjectively as high or low. Based on the assessment of risk occurrence and risk impact, a 2 x 2 matrix of risk map can be constructed as shown in Figure 7.1 (Elkins et al., 2008a). 

Some of the risk assessment matrices shown in this chapter combine elements pertaining to personal injury with the financial impact of an incident represented by the amount of property damage, business downtime, and time to recover from an environmental incident. Safety professionals who have made such combinations in their risk assessment matrices insist that they receive better management response to their proposals for risk reduction if they tie the severity of injury to avoiding operational property damage, downtime, business interruption, and environmental damage. That has been this author s experience. 

Offshore facilities pose critical questions of personnel evacuation and the possibility of total asset destruction if prudent risk assessments are not performed. A thorough analysis of both life safety and asset protection must be undertaken. These analyses should commensurate with the level of risk a particular facihty represents, either in personnel exposed, financial loss, or environmental impact. An unmanned wellhead platform might only require the review of wellhead shut-in, flowhne protection, and platform ship collisions to be effective, while manned drilling and production platforms require the most extensive analysis. Generally the highest risks in offshore facilities are drilling blow-outs, transportation impacts, and process upsets. Where inadequate isolation means are provided for either wellheads or pipeline connections to the installation, considerable fuel inventories will be available to an incident. 

This work can be extended in several directions. The qualitative assessment scores for hazards and vulnerability can be improved by using the more elaborate quantitative models of risk developed by Bilsel and Ravindran (2012) for major disruptive events. For rare events, such as earthquakes and floods, Bilsel and Ravindran have used extreme value distributions to determine the financial impacts of disruptions. For other events, such as transportation failures, they use Taguchi s loss functions. Efforts can be taken to extend the risk assessment to consider multiple decision makers. Fuzzy logic can also be used to handle ambiguity in the scores. 

An important consideration of waste minimization projects is their potential to reduce the toxicity of a waste stream and thereby to reduce the environmental risk. Although these risks can be qualitatively identified, it is difficult to quantify their financial impact. Also, although the profitability of a waste minimization assessment program is important in deciding whether to implement a project, compliance with environmental regulations must be considered. Violations may ultimately result in shutting down a facility, or carry possible criminal penalties for the company s responsible people. 

A study that examines how REACH could be devised or implemented to promote innovation in the chemical sector is lacking. Decisionmaking under REACH will need to address this lack of company-and sector-specific business impact assessment data. In particular, regulators will need to account for the distribution of business management risk between companies, across sectors and through supply chains. Otherwise the financial and management hurdles... 

Risk (threat and opportunity) analysis— likelihood and consequent impacts of risks to assess their significance. Impacts to be considered include financial, reputational, safety, health, environmental, community and compliance impacts. 

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