Asset Management Determine Business Risk

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The Fundamentals of Asset Management

Step 6. Determine Business Risk (“Criticality”)

A Hands-On Approach Tom’s bad day…

Fundamentals of Asset Management 2 Third of 5 core questions

3. Which assets are critical to sustained performance?

 How does it fail? How can it fail?

 What is the likelihood of failure?

 What does it cost to repair?

 What are the consequences of failure?

Fundamentals of Asset Management 3 AM plan 10-step process

Determine Develop Assess Determine Set Target Life Cycle & Asset Performance, Residual Levels of Replacement Registry Failure Modes Life Service (LOS) Costs

Determine Optimize Optimize Determine Build AM Business Risk O&M Capital Funding Plan (“Criticality”) Investment Investment Strategy

3. Which assets are critical to sustain performance? FMECA; Business Risk Exp.; Delphi Techniques

Fundamentals of Asset Management 4 Risk is the heart of AM

Risk

Asset Management

Fundamentals of Asset Management 5 Definition of risk

 Risk in AM-speak is the consequence of failure multiplied by the probability of failure  Often used as a measure of “criticality”  Preferred term is “business risk exposure (BRE)”

Fundamentals of Asset Management 6 Variables in business risk exposure

 Probability or likelihood of failure (PoF)  Consequence or impact of failure (CoF)  “Risk mitigation” or risk reduction and avoidance

Fundamentals of Asset Management 7 Let’s clarify terms

Ambiguous:  ―Risk‖  ―Criticality‖ Preferred:  Probability of failure  Consequence of failure  “Business risk exposure”

Fundamentals of Asset Management 8 All assets have a probability of failure

Two key questions… 1. Is the failure reasonably predictable? 2. Is it cost-effectively preventable?

Fundamentals of Asset Management 9 Most common patterns of failures

Two key failure patterns 1. Bathtub curve—typically applicable for mechanical and electrical assets

High Percent of FailuresPercent of

Low Decreasing Time Increasing

Fundamentals of Asset Management 10 Most common patterns of failures

Two key failure patterns 1. Bathtub curve—typically applicable for mechanical and electrical assets 2. Age-based curve—typically applicable for civil passive assets

High Percent of FailuresPercent of

Low Decreasing Time Increasing Reliability—the probability that a component or system will perform its specified function for the specified period under specified operation conditions

Fundamentals of Asset Management 11 Recall the four major failure modes

Management Failure Mode Definition Tactical Aspects Strategy Capacity Volume of demand Growth, system expansion Redesign exceeds design capacity LOS Functional requirements Codes & permits: NPDES, O&M exceed design capacity CSOs, OSHA, noise, odor, optimization, life safety; service, etc. renewal Mortality Consumption of asset Physical deterioration due O&M reduces performance to age, usage (including optimization, below acceptable level operator error), acts of renewal nature

Efficiency Operations costs exceed Pay-back period Replace that of feasible alternatives

NPDES is National Pollutant Discharge Elimination System, CSOs are combined sewer overflows, and OSHA is Occupational Safety and Health Administration

Fundamentals of Asset Management 12 The role of primary failure modes in determining the probability of failure Decision Issues Failure Mode End of asset life Is capacity Yes Likely before Yes Start Capacity 18 months an issue? other modes? Range No

1. The Has LOS probability Yes Likely before Yes changed LOS 3 years of failure is other modes? from design? different for each primary failure mode! No 2. Look for Is physical imminent Yes Likely before Yes 10 years primary reliability other modes? Mortality failure mode! an issue?

Redo—it has No Is cost Yes Likely before Yes to fail Efficiency 5 years to operate other modes? somehow an issue?

Fundamentals of Asset Management 13 Failure analysis

 Failure cause  Performance parameters  Failure end state  Failure behavior  What to monitor  Failure consequences  Failure mode

Function Functional Failure (It works) (It doesn’t work)

Function Functional Failure Failure Failure Failure Failure Cause Mode Behavior Consequences Defined by performance End state or Contributing Mechanism Evident, Cost, safety, standards potential end & root causes; of failure hidden, environmental state; reasons why random, Evidence— failure P-F interval what you see occurred

Fundamentals of Asset Management 14 Cause and effect diagram

Effect Effect-Cause Root Cause

Electric motor Internal Worn bearing No lubrication burned out contact

Effect

Cause No schedule Effect Cause Physical Forklift bashed No protective Effect damage motor crash barrier Cause

Water inside Incorrectly No assembly motor assembled procedure

Burned out contactor

Fundamentals of Asset Management 15 Probability of failure (PoF)

 PoF is directly related to the failure mode  We cannot absolutely determine PoF  Sometimes we have good data, sometimes we do not  We can estimate a range of failure—how early (pessimistic) and how late (optimistic)

Fundamentals of Asset Management 16 What are sources of Probability of Failure?

 CMMS—mean time between failures (MTBF)  Vendor and industry information  Other failure records (hard copies)  Our brilliant memories (staff)  Our SCADA system (if we have one and if it keeps records on this asset)

PoF is probability of failure, CMMS is computerized maintenance management system, SCADA is supervisory control and data acquisition

Fundamentals of Asset Management 17 Finding a proxy for measuring failure

Can age, usage, or condition be substituted?...

High Data distribution of asset performance

Decay curve

Mean asset condition Performance Minimal asset standard

Age? Usage?Age? Condition? Assets performing below standard Low 0 50 100 Percent of Effective Life Consumed

Fundamentals of Asset Management 18 Linking probability of failure to age of asset (―% effective life consumed‖)

% of Effective Life Consumed PoF Rating <10 1

20 2

30 3

40 4

50 5

60 6

70 7

80 8

90 9

Failed 10 PoF is probability of failure

Fundamentals of Asset Management 19 Linking probability of failure to direct observation tables Probability Assessment * Weighting Description

Almost certain 100 Expected to occur within a year

Very high 75 Likely to occur within a year

High 50 Estimated 50% chance of occurring in any year

Expected to occur within 5 years Quite likely 20 Estimated 20% chance of occurring in any year Expected to occur within 10 years Moderate 10 Estimated 10% chance of occurring in any year

Low 2 Expected to occur within 50 years

Very low 1 Expected to occur within 100 years

* Likelihood of occurrence within a year

Fundamentals of Asset Management 20 Recall alternative: tying condition score to asset failure – how?

Data distribution of asset condition

1 2 4 6 Excellent Decay or failure curve

Condition 10 Minimum Performance

Poor Poor Physical Failure 0 20 40 60 80 100 Percent of Effective Life Consumed

Fundamentals of Asset Management 21 Relating condition to Probability of Failure through % Physical Life Consumed

Element Description SCORE 1 3 5 7 9 10 Technical Substantially exceeds Exceeds current Meets current Obvious concerns: Inefficient; becoming Failing, not capable of Performance current requirements requirements requirements but with cost/benefit questions ineffective, obsolete sustaining required room for improvement performance Operational Negligible attention Exceeds current Meets current Obvious concerns: Difficult to sustain Failing, not capable of Performance required requirements requirements but with cost/benefit questions performance sustaining required room for improvement performance Reliability As specified by Infrequent breakdown Occasional breakdown Periodic breakdown Continuous recurrent Virtually inoperable manufacturer breakdown Availability Virtually always Out of service only for very Out of service for Increasingly difficult to Extensive downtime Virtually impossible to operational short periods moderate period; return to service; parts duration; difficult to return return to service; parts no moderately difficult to becoming a challenge to service; parts, difficult to longer available; return to service acquire, rare skills unavailable trained required personnel Maintainability Easily maintained; OEM Largely preventive Increasing minor Scheduled maintenance Work orders well above Maintenance is frequent maintenance is maintenance with some maintenance required; becoming frequent; more average for type of asset; with recurrent patterns of straightforward corrective maintenance periodic corrective experienced trades people recurrent minor repair; failure; asset must be beginning to show up; maintenance including required for maintenance; close monitoring required; virtually constantly baseline monitoring some repair shortening of frequency of work orders most senior people monitored to sustain monitoring intervals increasing substantially required to sustain performance with short monitoring performance intervals % Physical life Almost new; up to 10% Up to 30% physical life Up to 50% physical life Up to 70% physical life Up to 90% physical life Virtually consumed, consumed physical life consumed consumed consumed consumed consumed imminent failure CONDITION SCORE 1 3 5 7 9 10 Prob of Failure 0.1 0.3 0.5 0.7 0.9 0.99

Fundamentals of Asset Management 22 Relating condition to Probability of Failure through % Physical Life Consumed

Fundamentals of Asset Management 23 Scoring the Consequence of Failure

Table 4 Consequence of Failure ( CoF)

Social/community/ organizational Can be out of service Cannot be down a Loss of Service Cannot be down a month Cannot be down a day Cannot be down 8 hours Cannot be down one hour indefinitely week Moderate injury and some Major injury, sickness, Subsrtantial death, widespread Safety No impact Minor inconvenience Minor injury sickness some death injury and sickness No media or no Continual; political Agency's Image Neutral coverage Adverse media Widely adverse media Nationally adverse media consequence opposition 1 3 5 7 9 10

Econcomic/Financial Likely to trigger rate Increase, Financial impact Low cost Moderate cost High cost High cost; diverts $ Painful change of priorities staff changes Economic impact Insignificant <$100k <$500k <$2 million <$10 million >$10 million 1 3 5 7 9 10

Environmental Large areas vacated and closed Moderate basement Many inconvenienced; Severe health and habitat Short duration, small to public access; entensive Spill, flood Some basement backups backups, some moderate health and issues; some mandatory quantity onsite specialized containement offsite spillage habitat issues vacation of premises cleanup required Extensive complaints Odor at dangerous levels at spill A few compliants adjacent to Moderate complaints Extensive area-wide Odor No complaints adjacent to station; site; evacuation of premises station adjacent to station complaints lingering area odor required Extensive regulatory Regulatory sanction Minor violation - reporting Regulatory sanction sanction virtually assured; Severe sanctions; damage Permit compliance No consequence likely; Damage reversible only possible damage reversible in one to reversible in five years or more less than one year five years Score 1 3 5 7 9 10

Fundamentals of Asset Management 24 Quantifying consequence of failure Sophisticated

• Direct Costs to the Local Government – Repair and return to service costs – Service outage mitigation costs – Utility emergency response costs – Public safety costs “Full – Admin & legal costs of damage settlements Economic – (Lost product costs) • Direct Customer Costs Cost” – Property damage costs (including restoration of business) – Service outage costs – Service outage mitigation and substitution costs – Access impairment and travel delay costs – Health damages • Community Costs – Emotional strain/welfare – Environmental Pollution, erosion, sedimentation – Destruction of/damage to habitat – ―Attractability‖ (tourist, economic)

Fundamentals of Asset Management 25 Alternative view of “criticality”—impact on core processes Code Description 1 Mandated by law or corporate policy Impacts multiple processes, runs continuous without an on-line 2 spare Impacts multiple processes, runs intermittently without an on-line 3 spare, and/or causes lost production in fewer than 4 hours Impacts a single process, runs intermittently without an on-line 4 spare, and/or causes lost production between 4-24 hours Impacts a single process, runs intermittently without an on-line 5 spare, and/or causes lost production in fewer than 24 hours Impacts multiple processes, runs continuous with an on-line spare, 6 and causes no lost production Impacts multiple processes, runs intermittently with an on-line 7 spare, and causes no lost production Impacts a single process, runs intermittently or continuous with an 8 on-line spare, and causes no lost production 9 Minor or no impact on safety, product, or cost

Fundamentals of Asset Management 26 Alternative view of “criticality”—impact on revenue

Code Description Assets required for conducting value stream functions that 1 produce the core unit of value Assets required to ensure that revenue producing assets are 2 powered or controlled Assets required for order fulfillment functions such as sales 3 orders, production planning, shipping, and accounting Assets required for other core production or service functions such 4 as material handling or warehousing Non-revenue producing assets required for protecting revenue- 5 producing assets from inoperable conditions Non-revenue producing assets required for conducting supporting 6 business functions

7 Non-revenue producing assets that impact quality of life

Fundamentals of Asset Management 27 Determining significant failures

The business risk exposure trade-off…

High

B High probability- low consequence D High probability- high consequence

Probability A Low probability- low consequence C Low probability- high consequence Low Low Consequence High

Fundamentals of Asset Management 28 Business risk exposure drives work program

WorstNo first? High B Poor D Fair Probability

A Good C Good Low Low Consequence High

Fundamentals of Asset Management 29 Business risk exposure drives work program

Work program response

High B D Aggressive Immediate monitoring work

Aggressive

Risk Risk monitoring

A Sample Aggressive monitoring monitoring C

Low Low Consequence High

Fundamentals of Asset Management 30 1. Set strategic Relating Business Risk Exposure to management levels of service & tolerable risk action limits

Advanced Concepts and Techniques in Infrastructure Asset Management 31 Simple risk (criticality) metric

Condition, Costs of the Reliability, Consequences Performance of Failure Business Risk Exposure (BRE)

Probability Consequence of Failure (PoF) of Failure (CoF)

PoF x CoF = BRE

Fundamentals of Asset Management 32 BRE 1—simple approach

Business risk exposure (BRE) increases (higher numbers) as probability of failure (PoF) and consequence of failure (CoF) increase

High

3 3 6 9

2 2 4 6

1 Probability of Failure 1 2 3 Low 1 2 3 Low Consequence of Failure High

Fundamentals of Asset Management 33 Introducing ―risk mitigation‖ into the risk metric

 Risk mitigation” significantly reduces the risk metric  BRE = PoF x CoF x R

To Aeration Tanks  Where See Detailed Schematic of Blower 4 System Below • PoF is probability Air Discharge Header of failure Check Valve 1 2 3 4 5 25,000 40,000 40,000 40,000 25,000 • CoF is consequence Centrifugal Blower CFM CFM CFM CFM CFM Blower Blower Blower Blower Blower System System System System System of failure Butterfly Valve • R is a risk mitigation factor Venturi Meter Silencer (≤1.0) Air Intake Duct

Filter

Air Intake

Louver Damper

Fundamentals of Asset Management 34 Determining risk mitigation factor

Start

Does any other system/asset/approach fully fulfill the function if the asset fails?

Does any other system/asset/approach partially fulfill the function if the asset fails?

Yes Yes No

Full Partial No Mitigation Mitigation Mitigation

Fundamentals of Asset Management 35 Example of assigning weight to risk mitigation – in this case, redundancy

Type Percent Percent PoF Redundancy Redundancy Reduction Partial 50 50 Full 100 90

Double 200 98

Set weights considering operating circumstances, where possible ● True redundancy (peak vs. average) ● Age and condition of equipment ● Nature of operating environment ● Nature of failure modes (evident, hidden, random)

Fundamentals of Asset Management 36 Step-by-step BRE methodology

Levels of filtering and sophistication

5% of Advanced Increasing Assets BRE 3

20% of Intermediate Assets BRE 2 Filtering andFiltering Sophistication 100% of Basic Assets BRE 1 Full Economic 1-10 matrix of 1-1,000 CoF, Cost Model, CoF & PoF, 0-100% PoF, Probability = MTBF, Decreasing 1-100 Score 0-1000 Score 0-$millions Decreasing Time Increasing BRE is business risk exposure, CoF is consequence of failure, PoF is probability of failure, MTBF is mean time between failures

Fundamentals of Asset Management 37 Level 1—simple

BRE rating = probability x consequence

Risk Mitigation Asset No. % Probability Consequence Factor Risk Rating

1 .60 4 0.50 1.2

2 .70 2 1.00 1.4

3 .40 5 1.00 2.0

4 .66 10 1.00 6.6*

5 .95 7 1.00 6.7*

6 .10 10 0.90 0.9

* Requires further investigation

Fundamentals of Asset Management 38 Level 2—intermediate

Multiple elements, enhanced FMECA analysis techniques

Max. Element Rating Weighting Score

Safety 1-5 10 50

Environment 1-5 6 30

Functionality 1-5 5 25

Cost 1-5 8 40

145

FMECA is failure mode effect critical analysis

Fundamentals of Asset Management 39 Example of risk table

Matrix of probability and consequence of failure

Consequence of Failure Probability of Failure 1 2 3 4 5 6

Very low L L L L M M

Low L L L M M S

Moderate L L M M S S

Quite likely L M M S S H

High M M S S H H

Very high M S S H H H

Almost certain S S H H H H

L is low risk, M is moderate risk, S is substantial risk, H is high risk

Fundamentals of Asset Management 40 1. Set strategic What is ―tolerable risk‖? levels of service & tolerable risk limits

 As you think of Business Risk Exposure, consider following questions for each asset or asset group: • What is a tolerable Consequence of Failure that can happen repeatedly and why? • What is a Consequence of Failure that cannot happen even once and why? • What do you want to avoid the most and why? • What risk score could be acceptable at times and why?  Categories • Tolerable with reactive/PM focused management strategy (―run to failure‖) • Tolerable with proactive/PdM/monitoring management strategy • Not tolerable – ―cannot fail‖

Fundamentals of Asset Management 41 Tolerable risk mapping

Tolerable Risk Graph (BRE = 50) Zone 1: Intolerable Risk 10 Zone 2: Tolerable and Manageable Risk - Assets with a consequence of failure score that are 9 similar to Zone 1 in terms of the environmental and operational impacts that would be experienced on 8 failure; however failure of these assets is not highly

likely at this time; aggressive monitoring is called 7 for.

Zone 3: Tolerable and Manageable Risk - 6 Assets in this zone have a consequence of failure and probability of failure that warrant aggressive 5 monitoring and management.

4 Zone 4: Tolerable and Manageable Risk - Assets in Zone 4 experience failure consequences 3 that are tolerable because they are managed Probability Probability of Failure (PoF) through designed redundancy and operational mitigations such as spares and condition 2 monitoring.

1 Zone 5: Repeatable Risk - Minor consequences are experienced due to failure of 0 assets in Zone 5. Repeated failures are acceptable 0 1 2 3 4 5 6 7 8 9 10 in terms of consequence. Consequence of Failure (CoF)

Fundamentals of Asset Management 42 Risk Mapping

Operational Structural least most Failure likely likely Failure

Fundamentals of Asset Management 43 Modifying the 10-step process

Determine Develop Assess Determine Life Cycle & Set Target Asset Performance, Residual Replacement LOS Registry Life Failure Modes Costs

Establish Risk Determine Develop Develop Ratings Funding Build AMP O&M Plans CIP Program (Criticality) Strategy

Fundamentals of Asset Management 44 Modifying the 10-step process

Determine Develop Assess Determine Life Cycle & Set Target Asset Performance, Residual Replacement LOS Registry Life Failure Modes Costs

Establish Risk Determine Develop Develop Ratings Funding Build AMP O&M Plans CIP Program (Criticality) Strategy

Fundamentals of Asset Management 45 Putting it all together—calculating business risk

Core Risk Probability Consequence Risk Mitigation Business of Failure x of Failure x Factor = Risk Score

Use design or standard Consider… life table ● Safety, health, and welfare ● Environmental Here’s the impact Adjust for… ● Process criticality point of the ● Design standard ● Repair costs analysis – to ● Construction quality ● Revenue and identify and ● Material quality aggravation impact ● Operational history on customers and deploy risk ● Maintenance history agency mitigation ● Operating environ. ● External stresses strategies! Consider… Consider… ● Redundancy ● Failure mode ● Diversion/Pipe around ● Condition ● Spares on site ● Operating Performance ● SCADA ● Reliability ● Etc. ● Availability ● Maintainability

Fundamentals of Asset Management 46 Managing risk—reduction options

Management Treatment Options

Reduce Probability Reduce Consequence

Manage Post- Add Redundancy Failure Impacts

Refocus O&M Insure

Influence Refurbish/Replace Customer Expectations

Fundamentals of Asset Management 47 What caused the Jones Street power station to fail?

 Truck hits pole and causes power failure  June’s incident report

Fundamentals of Asset Management 48 Let’s apply failure analysis techniques with Tom

 Failure cause  Performance parameters  Failure end state  Failure behavior  What to monitor  Failure consequences  Failure mode

Function Functional Failure (It works) (It doesn’t work)

Function Functional Failure Failure Failure Failure Failure Cause Mode Behavior Consequences Defined by performance End state or Contributing Mechanism Evident, Cost, safety, standards potential & root causes; of failure hidden, environmental end state; reasons why random, Evidence— failure P-F interval what you see occurred

Fundamentals of Asset Management 49 Recall the cause and effect diagram

Effect Effect-Cause Root Cause

Electric motor Internal Worn bearing No lubrication burned out contact

Effect

Cause No schedule Effect Cause Physical Forklift bashed No protective Effect damage motor crash barrier Cause

Water inside Incorrectly No assembly motor assembled procedure

Burned out contactor

Fundamentals of Asset Management 50 June’s incident report notes

Hour Notes 19:35 Entered superstructure to shut off power breakers before power-up. The main breaker had been thrown. No immediate clue as to what caused it to trigger. No sign of arcing or flash explosion around the box. That means neither Motor-pump 1 or Motor-pump 2 could run. No wonder the overflow. Why both down? 20:25 Power temporarily restored by Costly Electric & Illumination. Will return in am to install permanent pole. (Shouldn’t we ask them to move it back from the road?) 20:30 Mac and I turned on main breaker to Motor 1. Immediately heard loud screeching. Seems to be from Motor 1. Immediately shut main down. Turned off breaker to Motor 1. Turned on main. Good news— Motor 2 ran fine. No unusual noise. Nice to have lights. Wonder if coffee pot works! 20:40 Noted that motor mounts on Motor 1 appear loose—black skid marks up to half inch from front feet. Back shows movement, but not as bad.

Fundamentals of Asset Management 51 June’s incident report notes, continued

Hour Notes 20:45 I entered wet well and dry well with Motor 2 running. Mac stayed top. Noted that the two shaft guides on the wall for Motor-pump 1 was completely loose, one side pulled off wall. Bolts pulled clear from wall too. Noticed substantial play in pump shaft at the coupler to the shaft. Way too much play here. See photos. 05:15 My guess at this point—looks like vibration worked the shaft guides loose, increasing strain on the motor, working the motor loose, which strained bearings to point of break down. 05:30 Sent crews home with Motor-pump 2 running alone. What to do with Motor-pump 1? Repair? Refurbish? Replace? Will discuss with you after I get some shut eye.

Fundamentals of Asset Management 52 Tom’s cause and effect diagram

Effect Effect-Cause Root Cause

Main breaker Breaker Motor Bearing Grease cap thrown overload overload dry failed

Effect Bearing Cause Misaligned stressed Effect Cause Pump Impeller Effect overload jammed Cause

Breaker Not fully Defective failure seated breaker case

Defective Defective

Fundamentals of Asset Management 53 Which major failure modes are at work?

Decision Issues Major Failure Mode

Is capacity Yes Likely before Yes Start Capacity an issue? other modes? 

Has LOS Yes Likely before Yes changed LOS other modes? from design? X

Is physical Yes Likely before Yes reliability Mortality other modes? an issue? 

Redo—it has Is cost No Yes Likely before Yes to fail to operate Efficiency other modes? somehow an issue? ~

Fundamentals of Asset Management 54 Risk mitigation: does Tom have redundancy? If so, how much?

Superstructure Control Switchboard Power Pole Motors &Transformer

Access Stairs Caisson Inlet Sewer Drive Shafts

Pumps Inlet Screen

Wet Well Dry Well Sump Pump

Fundamentals of Asset Management 55 Tom’s risk mitigation tactical options

 Store key spares on site  Modify piping to accommodate bypass pumping  Provide proper electrical interface for generator  Upgrade alarm system to real time SCADA  Bury power line  Build berm containment  Increase redundancy (full)  Other

Fundamentals of Asset Management 56 Applying business risk to the organization

A business risk is the threat that an event—action or inaction—will adversely affect an organization’s ability to achieve its business objectives and execute its strategies successfully. Management of these risks has the twofold advantage of both avoiding and minimizing the risk itself, and enabling informed business decision-making based on an understanding of where the business vulnerabilities lie.

Fundamentals of Asset Management 57 Mapping organizational risk: List risk elements

1. Terrorist attack on OCSD asset (e.g. treatment 21. Loss of Board institutional knowledge plant) 22. Not sustaining effective plant operations during 2. Regional power outage (up to 24 hours) construction 3. Safety incident on OCSD project 23. Disasters that destroy collection system or plant 4. Internal security breach of IT systems 24. Inability to appropriately fund staff at required 5. Increase in regulatory requirements technical strength 6. Finding places to put our biosolids 25. Inability to balance strategic initiatives that support GWRS (Groundwater Replenishment 7. Potential loss of property tax revenue System) with plant operations 8. Internal labor unrest at OCSD 26. Emergency (operations level) communication 9. Consultants ability to meet stakeholders among response teams and management for expectations emergencies 10. Level of service change for environmental 27. Lack of alignment of organizational structure with stewardship (constituents of concern) requirements for strategic initiatives 11. Loss of public confidence in OCSD ability to 28. Unable to put into effect funding agreement for perform core services SARI (Santa Ana River Interceptor) 12. Exceedance of pollutants of concerns in 29. Unable to negotiate new operating agreement groundwater related to GWRS with SAWPA (Santa Ana Watershed Project 13. Internal business fraud (e.g. malfeasance) Authority) 14. Non compliance by OCSD that result in fines by 30. Public ceases support for GWRS after investment regulators and legal activities by NGO's is in place 15. Lack of incentives for early retirement of ageing 31. Inability to meet new air emission standards for staff that perform physical activities generating facility 16. Poor two way communications across OCSD 32. Inability to balance impacts on neighbors with levels desire by public to reduce cost 17. Lack of a leadership model in EMT and 33. Cost to meet odor and air emissions standards management level from facilities 18. Changing technology vs. CIP decisions 34. Privatization of OCSD 19. Board not supporting the funding required to 35. Recruiting and retention of staff in face of local support CIP/O&M (Full Cost Pricing) cost of living 20. Ability to accurately forecast growth of county 36. Lack of succession planning at OCSD

Fundamentals of Asset Management 58 Mapping organizational risk: BRE map Critical Risks: None categorized as Critical

High Risks: Sanitation Utility Risk Profile 2 Regional power outage (up to 24 hours) 5 Increase in regulatory requirements 6 Finding places to put our biosolids 8 Internal labor unrest 9 Consultants ability to meet stakeholders expectations Catastrop- 19 Board not supporting the f unding required to support CIP/O&M (Full Cost Pricing) hic 21 Loss of Board institutional knowledge 23 Disasters that destroy collection system or plant 23 28 Unable to put into effective f unding agreement with key customer 30 Public ceases support f or potable water af ter investment is in place 30 28 Major 6 Medium Risks: 1 1 Terrorist attack on assetS (e.g. treatment plant) 2 19 3 Saf ety incident on major projects 7 Potential loss of property tax revenue 7 31 5 10 Lev el of service change f or environmental stewardship (constituents of concern) 20 29 36 12 Exceedance of pollutants of concerns in groundwater Moderate 26 8 18 13 Internal business f raud (e.g. malfeasance) 13 33 2422 14 Non compliance that result in f ines by regulators and legal activities by NGO's 12 25 17 21 16 Poor two way communications across department levels 34 14 35

4 17 Lack of a leadership model in EMT and management lev el Consequence 11 32 18 Changing technology vs. CIP decisions 27 3 Minor 10 16 20 Ability to accurately f orecast growth of county 9 22 Not sustaining eff ective plant operations during construction 24 Inability to appropriately f und staff at required technical strength 25 Inability to balance strategic initiatives that support groundwater replenishment with plant 15 operations 26 Emergency (operations level) communication among response teams and management f or emergencies Insignificant 27 Lack of alignment of organizational structure with requirements f or strategic initiatives 29 Unable to negotiate new operating agreement with key customers 31 Inability to meet new air emission standards 32 Inability to balance impacts on neighbors with desire by public to reduce cost 33 Cost to meet odor and air emissions standards f rom f acilities 34 Priv atization of organisation Rare Unlikely Possible Probable Certain 35 Recruiting and retention of staff in f ace of local cost of liv ing 36 Lack of succession planning Low Risks: 4 Internal security breach of IT systems Schematic represents allocation of 11 Loss of public confidence in organisation to perform core serv ices 15 Lack of incentives f or early retirement of ageing staff that perf orm physical activities risk rather than absolute values Likelihood Fundamentals of Asset Management 59 The risk register – building an action plan

Fundamentals of Asset Management 60 Key points from this session

Given my system, which assets are critical to sustained performance? Key Points: Associated Techniques:  Not all assets fail the same  Failure analysis (―root cause‖ way analysis; failure mode, effects and criticality analysis;  Not all assets have the same reliability-centered analysis) likelihood of failure  Failure codes  Not all assets have the same  Probability of failure consequence of failure  Consequence of failure  Understanding failure drives  Business risk exposure acquisition, maintenance and  Asset list by business risk renewal management exposure level decisions.  Asset functionality statements

Fundamentals of Asset Management 61 Tom’s spreadsheet

Fundamentals of Asset Management 62