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Risk Management Sir A. S. Chaubal


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Risk Management Sir A. S. Chaubal

  1. 1. Risk Management A. S. Chaubal
  2. 2. Risk & Risk Management Why Pick on Insurers ?
  3. 3. <ul><li>WHY INSURERS ? : </li></ul><ul><li>Huge Amounts of Liabilities assumed </li></ul><ul><li>through various Insurance products sold, </li></ul><ul><li>Complex Risk Situations in Underwriting </li></ul><ul><li>Losses come to them in various shapes </li></ul><ul><li>& sizes, </li></ul><ul><li>Immediately after the insured, they are the </li></ul><ul><li>ones to monetarily suffer in the event of a </li></ul><ul><li>loss or damage. </li></ul><ul><li>So, insurers seriously concerned with all </li></ul><ul><li>Risk & Risk Management Issues. </li></ul>
  4. 4. <ul><li>RISK </li></ul><ul><li>Concise Oxford Dictionary : </li></ul><ul><li>“ Hazard, chance of bad consequences, </li></ul><ul><li>Loss etc., exposure to mischance.” </li></ul><ul><li>Chamber’s English Dictionary : </li></ul><ul><li>: Hazard, danger, chance of loss or </li></ul><ul><li>injury </li></ul><ul><li>: the degree of probability of loss </li></ul><ul><li>: a Person, thing or factor likely </li></ul><ul><li>to cause loss or danger. </li></ul>
  5. 5. Risk & Uncertainity : Risks : Those for which the probability of occurrence can be calculated either on a rational basis or on the basis of the statistical analysis of a number of similar events that have occurred in the past.
  6. 6. Uncertainity : Those for which analysis is impossible by virtue of the fact that they are either a “one-off” event or because their occurrence does not follow an apparent pattern of events.
  7. 7. Risk is, therefore defined as the variation in the outcomes that occur over a specified period in a given situation. The Probability of Occurrence is measured in the range of Zero to One. ‘ Zero’ indicates state of intrinsic impossibility & ‘ One’ indicates state of absolute certainity.
  8. 8. <ul><li>Insurers generally use the word </li></ul><ul><li>‘ Risk’ in two distinctive meanings </li></ul><ul><li>As the subject-matter of insurance </li></ul><ul><li>OR </li></ul><ul><li>(2) Different perils such as Fire, </li></ul><ul><li>Flood etc.. </li></ul>
  9. 9. Risk is something or some happening that can cause harm or loss. But risk is not always loss causing and some Risks may cause both loss and gain ( usually to different people as with the extra work a repairer gets after a bad Storm or Flood).
  10. 10. Behaviour of those involved is also an equally important factor as the physical circumstances. There are many aspects of human behaviour which directly influence the outcome of a risk situation.
  11. 11. Companies are also subject to changes in social, political and economical factors. Modern economies are highly interdependent and changes in one section of economy may change the risk situation for other sections.
  12. 12. Risks can be of different types : Physical, causing direct harm or damage, or Social, causing loss of reputation or damage to self esteem. In simple terms Risk can be expressed for a business as uncertainty that will not allow the business targets to be achieved and the degree of the effects on targets will depend upon the degree of risk.
  13. 13. The Risk Iceberg … Risks that are clearly visible and quantifiable are relatively easier to manage
  14. 14. Risk Classification : Personal: Potential loss to the persons Property: Potential loss to the property Liability : Potential liability for any individual or institution. 1. Personal, Property or Liability Risk
  15. 15. Market : The price reduction or the purchase and sale constraints are involved. Social : Riot, Strike, Civil Commotion, Burglary, Theft etc. Physical : Storm, Tempest, Flood, Hurricane and such other natural phenomena. 2. Physical, Social or Market Risk
  16. 16. Pure Risk: is considered in the context of the existence of a chance of loss only, but not the chance of gain at all. Speculative Risk: When there is a chance of gain as well a chance of loss. 3. Pure or Speculative Risk
  17. 17. Static Risk: Which are connected with losses caused by the irregular action of the forces of the nature or the mistakes and misdeeds of human beings. Dyanamic Risk: Which are associated with changes in human wants and improvements in Machinery or Technological innovations . 4. Static or Dynamic Risk
  18. 18. Fundamental Risk: Risks associated with groups, impersonal in original and effect. These fundamental risks are in the form of Political or Economic changes happening to a group. Particular Risk: Which are associated with individuals. 5. Fundamental or Particular Risk
  19. 19. Fire,explosion,collapse Machinery breakdown Electrical/ electronic damage Negligence of employees Strike Transport accident Criminal acts Accidents Effects of fire or explosion from outside Lightning Environmental damage Criminal acts Political risks Insolvency of debtors Defective products Natural hazards Internal fire Explosion Impact of vechicles, falling aircraft Risk Threats Damage to property or health of third party
  20. 20. <ul><li>Classification of Risks (Threats) </li></ul><ul><li>Physical Loss or Damage to Property </li></ul><ul><li>Liability </li></ul><ul><li>Business Interruption </li></ul><ul><li>Management </li></ul><ul><li>Wastage </li></ul><ul><li>Technological </li></ul><ul><li>Social </li></ul><ul><li>Political </li></ul><ul><li>Physical Environment </li></ul>
  21. 21. Financial Exch. Rate Credit Foreign Exch. Trading Market Negat. Eqty Counterparty Reputation Operational Fire/Expl M/C Brkdwn Computer/IT Contigency H S & E Theft Fraud SRCC BI Regulatory Legal Compliance Publ.Relation Contract Settlement Insurance RISKS
  22. 22. Management of Risks
  23. 23. Risk Concepts Risks can be This is the fundamental principle of the discipline of ‘Risk Management’. <ul><li>Identified, </li></ul><ul><li>Measured, </li></ul><ul><li>Controlled and </li></ul><ul><li>Financed ; </li></ul>
  25. 25. <ul><li>Formal System of Risk Threat : </li></ul><ul><li>Identification/ Anticipation </li></ul><ul><li>Measurement/ Evaluation </li></ul><ul><li>Control </li></ul><ul><li>Treatment of Residual Risk </li></ul><ul><li>Monitoring Results </li></ul>
  26. 26. It’ll Never Happen to Me Risks – General Attitude
  27. 27. <ul><li>Risk Attitudes : </li></ul><ul><li>Risk attitudes can be defined as the ways in </li></ul><ul><li>which a person behaves in an uncertain </li></ul><ul><li>situation and vary from person to person </li></ul><ul><li>because of their personalities, economic status, </li></ul><ul><li>potential gains/ losses. </li></ul><ul><li>Attitude Categories ; </li></ul><ul><li>Risk neutral, </li></ul><ul><li>Risk preferer , </li></ul><ul><li>Risk averter. </li></ul>
  28. 28. <ul><li>Cost of Risk : </li></ul><ul><li>Cost of the loss , </li></ul><ul><li>Costs of handling risk, </li></ul><ul><li>Costs imposed by risk : </li></ul><ul><li>Risk control measures, </li></ul><ul><li>Uninsured losses </li></ul><ul><li>Insurance </li></ul>
  29. 29. <ul><li>Adopting Measures for Economic Control </li></ul><ul><li>Produce Measurable Reduction in Overall </li></ul><ul><li>Cost of Risk </li></ul><ul><li>Insurance Plus </li></ul><ul><li>Loss control Plus </li></ul><ul><li>Self Insured Losses </li></ul><ul><li>Reduce Possibility of Catastrophe Loss </li></ul><ul><li>Help to Ensure the Company's Survival </li></ul><ul><li>whilst Minimising the Overall Cost of </li></ul><ul><li>Risk Control </li></ul>
  30. 30. Organization needs to build an enabling risk management framework that ... Identify Measure Manage Monitor <ul><li>Risk strategy </li></ul><ul><li>Risk organization </li></ul><ul><li>Risk process & information </li></ul>
  31. 31. <ul><li>Risk Management : </li></ul><ul><li>A structured programme: </li></ul><ul><li>Aimed at coming to Terms with </li></ul><ul><li>The risks and dangers that threaten </li></ul><ul><li> - A person, </li></ul><ul><li>- An industrial facility or </li></ul><ul><li>- Any Other System and </li></ul><ul><li>Arise from the Interplay of System </li></ul><ul><li>- with its environment or </li></ul><ul><li>- are intrinsic to the System </li></ul>
  32. 32. Risk Management : Essentially a Multi-disciplinary Process: Where Different Skills Are Brought Together in Risk Problem Solving.
  33. 33. Role of Risk Management Specialist
  34. 34. <ul><li>Risks Result in Injury & Loss for </li></ul><ul><li>Number of Reasons </li></ul><ul><li>Lack of Awareness </li></ul><ul><li>Lack of Capability : * Lack of knowledge </li></ul><ul><li>* Lack of Skill or </li></ul><ul><li>Competence </li></ul><ul><li>* Lack of Resources </li></ul><ul><li>* Lack of Practical </li></ul><ul><li>Training </li></ul><ul><li>Lack of Motivation </li></ul>
  35. 35. Having seen the Rationale for Risk Mgt & Targets against which Risk Management Performance Can be Measured, Let us Look at What is already Happening. An Industry may have many Specialists in the Areas of Manufacturing, Finance, Fire Fighting, Safety, Legal Control etc. However, priorities of Line Managers are much different & under considerable work pressure. =>
  36. 36. <ul><li>Functional Management may be under considerable pressure and the three factors of </li></ul><ul><li>Lack of Awareness, </li></ul><ul><li>Lack of Capability & </li></ul><ul><li>Lack of Motivation </li></ul><ul><li>Provide the Basis for a </li></ul><ul><li>Risk Management Specialist. </li></ul>
  37. 37. Risk Management Specialist must be capable of dealing with these shortcomings in a practical way without seriously disrupting the company’s operations or adding substantially to cost.
  38. 38. <ul><li>Risk Manager’s “value add” comes from being Realistic, Cost Effective, his Ability & Insight to achieve Substantial Improvement through </li></ul><ul><li>Understanding : Careful & </li></ul><ul><li>Multidisciplinary </li></ul><ul><li>Analysis including </li></ul><ul><li>Human Behaviour , </li></ul><ul><li>Practical Ability : Stydy, Experience, </li></ul><ul><li>Wider View points, </li></ul><ul><li>Communication Skills : </li></ul><ul><li>Effective Use of </li></ul><ul><li>Illustrations and </li></ul><ul><li>Presentations </li></ul>
  39. 39. Managing Risks Three-Fold Approach
  40. 40. Risk Management Approaches Traditional Integreted Enterprise
  41. 41. Risk management Traditional Approach Risks Detection : Ad-hoc Dept.wise Measurement : Often not Done Finance : Separate Consideration : Not in Decision Making
  42. 42. Risk management Integrated Approach Risks Detection : Partially Integrated Across Depts. Measurement : Mostly Done but Co-relation & Concentration not examined Finance : Integrated Across Some Risks Consideration : I n Some Decisions but not Formally
  43. 43. Risk management Enterprise Approach Annual Comprehensive Risk Detection Including Scenario Planning, Total Risk Profile is Examined, Including Concentration & Co-relation between Risks, Risk financing is Integrated Across Depts. ( e.g. Integrated Financing of HAZARD & FINANCIAL Risks ) Risks Are Formally Incorporated into Strategic Planning, Performance Measurement & Pricing
  44. 44. Risk Management The Emerging Environment Strategic Risk Management Enterprise Risk Management
  45. 45. Strategic Risk Management <ul><li>OBJECTIVES </li></ul><ul><li>Reduce Insurance Cost/ Improve Effcncy </li></ul><ul><li>Improved Insurance Coverage </li></ul><ul><li>Development of Risk Mgt.Dept. Skills </li></ul><ul><li>Apply Measurement to Decision Making </li></ul><ul><li>Advantage Through Innovation </li></ul>
  46. 46. Enterprise Risk Management The discipline of systematically and comprehensively identifying, quantifying and addressing the collective impact of critical business risks to maximize shareholder value.
  47. 47. <ul><li>Brand / intellectual property risks </li></ul><ul><li>Customer / product / competitor risks </li></ul><ul><li>Geopolitical/regulatory risks </li></ul><ul><li>Supply chain/business interruption risks </li></ul><ul><li>Human resources </li></ul><ul><li>IT systems </li></ul><ul><li>Quality </li></ul><ul><li>Control systems </li></ul><ul><li>Market risk </li></ul><ul><li>Asset price volatility (currency, interest rates, commodities) </li></ul><ul><li>Credit risk </li></ul><ul><li>Natural catastrophes </li></ul><ul><li>Legal / compliance </li></ul><ul><li>Property / physical assets </li></ul><ul><li>Health & safety </li></ul><ul><li>Environmental </li></ul>Risk Radar
  48. 48. <ul><li>To manage risks, enterprises need </li></ul><ul><li>to look beyond </li></ul><ul><li>hazard and financial risks </li></ul><ul><li>to include </li></ul><ul><li>Operational and strategic risks – </li></ul><ul><li>i.e. The Risks that are the </li></ul><ul><li>Most often overlooked and </li></ul><ul><li>Least well managed today. </li></ul>Enterprise Risk Management
  49. 49. Benefits of Enterprise Risk Management <ul><li>RISK PROFILE </li></ul><ul><li>Profitability </li></ul><ul><li>Capital allocation </li></ul><ul><li>Financial stability </li></ul><ul><li>Risk Management Communications </li></ul>
  50. 50. <ul><li>Monitoring Process </li></ul><ul><li>Coordinated and integrated decisions for retaining and transferring risk </li></ul><ul><li>A better understanding of enterprise’s </li></ul><ul><li>forecasted loss activity </li></ul><ul><li>Maximum efficiency of risk financing </li></ul><ul><li>and risk transfer </li></ul><ul><li>Strengthened risk prevention & claims </li></ul><ul><li>management controls in respect of the </li></ul><ul><li>underlying loss exposures </li></ul>Benefits of E R M
  51. 51. <ul><li>Loss Prevention Ideas </li></ul><ul><li>From Risk Analysis, </li></ul><ul><li>From Experience on </li></ul><ul><li>Specific Losses </li></ul>
  52. 52. <ul><li>Safety & Loss Prevention </li></ul><ul><li>Safety : Oldest Risk Management </li></ul><ul><li>Function </li></ul><ul><li>Loss prevention: Developed from Risk </li></ul><ul><li>Evaluation & Control </li></ul>Safety + Loss Prevention Improved Risk Features =
  53. 53. <ul><li>Risk Management Tasks </li></ul><ul><li>Preparing a Risk Profile </li></ul><ul><li>Formulating a Series of Key Risk anagement </li></ul><ul><li>Objectives </li></ul><ul><li>Carrying out an Audit of Present Risk </li></ul><ul><li>Management Capability </li></ul><ul><li>Defining the Responsibility of Different </li></ul><ul><li>Members of Management </li></ul><ul><li>Provide Appropriate Training for Those </li></ul><ul><li>Involved in Risk Management </li></ul><ul><li>Establishing a System for Monitoring the </li></ul><ul><li>Effectiveness of Risk Management Work </li></ul>
  54. 54. <ul><li>Monitoring </li></ul><ul><li>Objectives : - Compliance With Overall Risk </li></ul><ul><li>Management Objectives </li></ul><ul><li>To Conserve Resources & </li></ul><ul><li>Maintain/Improve Profitability </li></ul><ul><li>Timing : - At Regular Intervals Related to </li></ul><ul><li>Budget & Other Reviews </li></ul><ul><li>After Serious Incidents </li></ul><ul><li>Method : - Risk Inspection (Physical Study) </li></ul><ul><li>Evaluation (Reports Supplemented </li></ul><ul><li>as Necessary by Visits) </li></ul><ul><li>Special Investigation </li></ul><ul><li>(e.g. Accidents) </li></ul>
  55. 55. Risk Management is Simply a Practice Of Systematically Selecting Cost Effective Approaches for Minimising the Effect of Threat Realisation to the Organisation. All Risks can never be fully avoided or Mitigated simply because of Financial & Practical Limitations of the Real World. All Organisations have to Accept some level of Residual Risks which still may realise despite their Efforts.
  56. 56. <ul><li>Risk Management </li></ul><ul><li>Contributions to Business : </li></ul><ul><li>Risk Management may make the </li></ul><ul><li>Difference between survival and failure. </li></ul><ul><li>Contribute directly to business profits , </li></ul><ul><li>Reduce the fluctuations in annual </li></ul><ul><li>profits and cash flows. </li></ul><ul><li>Business continuity Planning (BCIP), </li></ul><ul><li>Continued growth , </li></ul>
  57. 57. Integrated Risk Management - aiming to reduce the total cost of risk. Multi-functional skills required to manage risks better Brokers well placed to manage risks as they possess multifunctional skills Risk Engineers Brokers / Underwriters Auditors Investment Bankers Financial Analysts Actuaries
  58. 58. Risk Analysis Entire Task of Identifying & Measuring Potential Impact of Risk <ul><li>One Particular Method may not be </li></ul><ul><li>Sufficient to Identify All Risk problems, </li></ul><ul><li>Certain Methods may be more useful some, </li></ul><ul><li>It should not be ‘One Off’ Exercise, </li></ul><ul><li>Accurate Record Keeping – a Must, </li></ul><ul><li>Element of Imagination – by Experience. </li></ul>
  59. 59. Risk Analysis Chain Every Risk is Caused by Some Factor(s) & Result in Some Effect Cause Risk Effect
  60. 60. Is there a risk ? yes No Has it been measured? No yes Measure Significant? No Yes Can it be avoided or eliminated? Disregard Avoid/Eliminate Yes No Can it be Reduced? No Yes Yes Is residual risk significant? No Is it catastrophic? Disregard Yes Can it be retained? No Yes No TRANSFER Ignore Insure Others Ignore Interrelationship of Risk analysis, Risk control and Risk financing
  61. 61. Task of Risk Analysis must be carried out with Realism and Proper Perspective of Risks & Costs involved in Analysis.
  62. 62. <ul><li>RISK ANALYSIS METHODOLOGIES </li></ul><ul><li>Qualitative Methodologies </li></ul><ul><li>Tree Based Techniques </li></ul><ul><li>Techniques for Dynamic System </li></ul>
  63. 63. <ul><li>1. Qualitative Methodologies : </li></ul><ul><li>Preliminary Risk Analysis </li></ul><ul><li>Hazard and Operability studies (HAZOP) </li></ul><ul><li>Failure Mode and Effects Analysis </li></ul><ul><li>(FMEA/FMECA) </li></ul>
  64. 64. <ul><li>Preliminary Risk / Hazard Analysis (PHA): </li></ul><ul><li>Qualitative Technique </li></ul><ul><li>The possible Undesirable Events are Identified </li></ul><ul><li>first & then Analysed, </li></ul><ul><li>For each Undesirable Event Possible </li></ul><ul><li>Improvements or Preventive Measures </li></ul><ul><li>formulated </li></ul><ul><li>Inspections, </li></ul><ul><li>Check Lists, </li></ul><ul><li>Flow Diagrams, </li></ul><ul><li>Organisation Charts </li></ul>Provides Basis to decide which Categories of Hazard should be Looked into more closely & which Analysis methods are most suitable
  65. 65. What is a HAZOP? HAZOP is an abbreviated term for HAZ ard and OP erability study. Developed by ICI in1970 to Assess Effects of Deviations in Design Specifications. It is a technique that identifies the potential hazards and operating issues with the design and construction of equipment and plant and involves the interaction of a multi-disciplinary team.
  66. 66. HAZOP Objectives : The purpose and scope of the study should be determined before a HAZOP. Study objectives may be to: <ul><li>Check the safety of the design, </li></ul><ul><li>Decide whether and where to build, </li></ul><ul><li>Check operating and safety procedures, </li></ul><ul><li>Improve the safety of an existing and or </li></ul><ul><li>modified facility, and </li></ul><ul><li>Verify that safety instrumentation is </li></ul><ul><li>working optimally </li></ul>
  67. 67. <ul><li>Setting up a HAZOP </li></ul><ul><li>The HAZOP technique reviews the </li></ul><ul><li>operational progress of plant and Equpt </li></ul><ul><li>at various stages, including: </li></ul><ul><li>At the initial concept stage </li></ul><ul><li>When the (PID) are available </li></ul><ul><li>During construction and installation </li></ul><ul><li>During commissioning, and </li></ul><ul><li>During operation to ensure that </li></ul><ul><li>procedures are reviewed and updated. </li></ul><ul><li>  </li></ul>
  68. 68. <ul><li>The HAZOP study concentrates on how the </li></ul><ul><li>design will cope with abnormal conditions, </li></ul><ul><li>and is based on the assumptions that the </li></ul><ul><li>plant or process will: </li></ul><ul><li>Perform as designed in the absence of </li></ul><ul><li>unintended events </li></ul><ul><li>Be managed in a competent manner </li></ul><ul><li>Be maintained in accord with design </li></ul><ul><li>intent, and </li></ul><ul><li>Have regular safety systems tests. </li></ul>
  69. 69. HAZOP Information Required It is imperative that accurate information associated with the project is sourced and included in the study. <ul><li>heat and material balances </li></ul><ul><li>layouts </li></ul><ul><li>logic diagrams </li></ul><ul><li>equipment datasheets </li></ul><ul><li>hazardous area layouts, & </li></ul><ul><li>start-up and emergency </li></ul><ul><li>shutdown procedures.   </li></ul><ul><li>provisional layouts </li></ul><ul><li>material safety data sheets (MSDS) </li></ul><ul><li>process flow diagrams </li></ul><ul><li>plant model </li></ul><ul><li>eqpt arrangement drgs </li></ul><ul><li>provisional operating instr. </li></ul>
  70. 70. When to Perform a HAZOP Traditionally, HAZOPs were incorporated in the design process of new facilities within the petrochemical industry. However, as employers take a more performance-based approach to safety, there has been significant interest in applying HAZOP as a Risk Management Tool for a diverse range of work situations, across an array of industries.  
  71. 71. Simple HAZOP (HAZID) A simple HAZOP is conducted at the preliminary design stage prior to the development of detailed designs for a small-scale rig, experimental set-up or simple equipment. It does not outline detailed specifications and modifications but rather identifies key issues relating to the hazard and operability that need to be considered when developing the detailed designs.
  72. 72. Detailed HAZOP A detailed HAZOP is the full application of the HAZOP technique. It is conducted as the final check when the detailed design has been completed for more complex engineered plants or equipment. It analyses the plant as a whole and enables a detailed review of the reqd. specifications. A detailed HAZOP can also be conducted on an existing facility by reviewing the modifications required to be implemented.
  73. 73. HAZOP Study Procedure The design drawings are to be divided into sections and each section is divided into study lines that are assessed by a combination of primary and secondary keywords. Questions for each keyword must be asked in order to identify problems, e.g. : <ul><li>What might cause a deviation with </li></ul><ul><li>reference to the keyword; </li></ul><ul><li>What are the consequences resulting </li></ul><ul><li>from the keyword; and </li></ul><ul><li>What actions are required to prevent </li></ul><ul><li>unacceptable effects. </li></ul>
  74. 74. Divide Sections into Study Lines Select a Study Line Apply all Appropriate Primary & Secondary Keyword Combinations. Any Hazards / Operating Problems Need More Info Record Consequences & Causes Suggest Remedies NO Yes Not Sure HAZOP Procedure Methodology
  75. 75. HAZOP Keywords An important feature of the HAZOP methodology is the use of keywords. (i) Primary Keywords (Parameters) Primary Keywords focus the attention upon a particular aspect of the design Intent or a process parameter / condition. FLOW, TEMPERATURE, PRESSURE, LEVEL, REACT, MIX, ISOLATE, DRAIN, INSPECT, MAINTAIN, START-UP, SHUTDOWN  
  76. 76. (ii) Secondary Keywords (Guidewords) When Secondary Keywords are applied in conjunction with a Primary Keyword, potential deviation and problems are identified. HIGH, LOW, ZERO, EMPTY, REVERSE, ALSO, OTHER, TESTING, PLANT ITEMS, ELECTRICAL, COMPOSITION
  77. 77. Haz ard & Op erability Studies (HAZOP)             A Process Flow Technique PLAN   Select team, Examine System, Keywords TEAM   System Assessment Team Activity REPORT   Action List HAZOP report TRACK ACTIONS HAZOP Review meetings   CLOSE OUT Record/file completed actions  
  78. 78. Failure Mode and Effects Analysis ( FMEA/FMECA) This method was developed in the 1950s by reliability engineers to determine problems that could arise from malfunctions of military system. Failure mode and effects analys is a procedure by which each potential failure mode in a system is analysed to determine its effect on the system and to classify it according to its severity.
  79. 79. When the FMEA is extended by a Criticality analysis, the technique is then called Failure Mode And Effects Criticality Analysis (FMECA). Failure mode and effects analysis has gained wide acceptance by the aerospace and the military industries
  80. 80. <ul><li>2. Tree Based Techniques : </li></ul><ul><li>Fault tree analysis </li></ul><ul><li>Event tree analysis </li></ul><ul><li>Cause Consequence Analysis </li></ul><ul><li>Management Oversight Risk Tree </li></ul><ul><li>Safety Management Organization </li></ul><ul><li>Review Technique </li></ul>
  81. 81. <ul><li>Fault Tree Analysis ( FTA ): </li></ul><ul><li>A Top Down Analysis that starts with the </li></ul><ul><li>Effect and Evaluates All the Potential </li></ul><ul><li>Causes ( Faults ) of that Event </li></ul><ul><li>Creates a Logical “Tree” of Events </li></ul><ul><li>Lowest “Root” is the root cause or Transfer </li></ul><ul><li>to another Analysis, </li></ul><ul><li>Forces Analysis of Interactions. </li></ul>
  82. 82. Symbols Used in FTA : Transfer Point : To another Page or Analysis AND Gate : Failure occurs if ALL of the Input Event Occurs OR Gate : Failure occurs if ANY of the Input Event Occurs Cause : Events that Drive the Failure Event : Primary Or Intermediate Failure or Event
  83. 83. <ul><li>The FTA Process </li></ul><ul><li>Determine & Document the TOP Event </li></ul><ul><li>Build the Tree by Considering “ Whys” to the Top Event ( Use Process Flows & any FMEA already performed as supporting info ) </li></ul><ul><li>Continue to Build based on Preconditions that </li></ul><ul><li>Exist or co-exist to create the Event </li></ul>
  84. 84. Fault Tree for Event – Fire Breaks Out
  85. 85. <ul><li>Benefits of FTA </li></ul><ul><li>Helps to Identify Many to All Causes of a </li></ul><ul><li>Failure Mode </li></ul><ul><li>Helps to Identify Interrelationships between </li></ul><ul><li>Multiple Causes </li></ul><ul><li>Allows to Determine the Most Effective Area </li></ul><ul><li>to put a Control Measure </li></ul><ul><li>Limitations of FTA </li></ul><ul><li>Each Tree has a Narrow Focus </li></ul><ul><li>It is an Art in addition to Science </li></ul><ul><li>Quantification would require Data </li></ul><ul><li>Human Factors </li></ul><ul><li>When to Stop? </li></ul>
  86. 86. <ul><li>Event Tree Analysis ( ETA ) </li></ul><ul><li>This is a Method for illustrating the </li></ul><ul><li>Sequence of Outcomes that may arise </li></ul><ul><li>after Occurrence of a Selected Initial </li></ul><ul><li>Event. </li></ul><ul><li>Mainly used in Consequence Analysis </li></ul><ul><li>for Pre-incident & Post-incident </li></ul><ul><li>Application </li></ul>
  87. 87. Cause – Consequence Analysis (CCA) This Technique Combines Cause Analysis (FTA) - deductive, & Consequence Analysis (ETA) – inductive. Purpose is to Identify Chain of Events that Can result in undesirable consequences Management Oversight Risk Tree (MORT) Primarily a FTA with Top Event as “ Damage, Destruction, Other Costs, Lost Production Or Reduced Credibility. The Tree gives an Overview of the causes of Top Event from Management Oversights & Omissions.
  88. 88. Safety Management Organisation Review Technique (SMORT) Simplified modification of MORT. This Analysis is structured by means of Analysis Levels with Check Lists while MORT is based on Tree Structure.
  89. 89. <ul><li>3. Techniques for Dynamic System </li></ul><ul><li>GO method </li></ul><ul><li>Digraph/Fault Graph </li></ul><ul><li>Markov Modelling </li></ul><ul><li>Dynamic Event Logic Analytical </li></ul><ul><li>Methodology </li></ul><ul><li>Dynamic Event Tree Analysis Method </li></ul>
  90. 90. Case Study – FTA : Top Event Incorrect Patient Results Given To Physician Build FTA for This Event
  91. 92. Group Exercise
  92. 99. <ul><li>Risk Management </li></ul><ul><li>Practical Aspects for Insurers </li></ul><ul><li>Identification : Physical Inspections </li></ul><ul><li>Evaluation : PML, Loss Control Methods </li></ul><ul><li>Minimise : Risk Improvement Methods </li></ul><ul><li>Analysis & Trends </li></ul><ul><li>Transfer : Reinsurance, ART Methods </li></ul>
  93. 100. Risk Inspections
  94. 101. Place of inspections in Risk Management Process Predominant Place in * Risk Identification, * Risk Assessment, * Risk Control.
  95. 102. <ul><li>Property Insurance Inspections </li></ul><ul><li>Risk Appraisals ( Pre-acceptance ) </li></ul><ul><li>Rating - Basic Rates </li></ul><ul><li>- Discounts </li></ul><ul><li>Loss Prevention - Risk Improvement </li></ul><ul><li>- Safety </li></ul><ul><li>Matl. Damage Exposures </li></ul><ul><li>Business Interruption Exposures </li></ul><ul><li>Liability Exposure </li></ul><ul><li>Project Site Monitoring etc. </li></ul>
  96. 103. <ul><li>Purpose of Inspections </li></ul><ul><li>Provide Adequate Info.To U/W r </li></ul><ul><li>Assmnt. of Risk for Purpose of </li></ul><ul><li>Decision Making on </li></ul><ul><li>. Acceptance </li></ul><ul><li>. Rating </li></ul><ul><li>. Retentions / Reinsurance </li></ul>
  97. 104. <ul><li>Underwriter’s Main Needs </li></ul><ul><li>A Summary of the Risk as a Whole </li></ul><ul><li>& Its Hazards in General </li></ul><ul><li>Summarised Details Under Separate </li></ul><ul><li>Headings for Various Risk Features, </li></ul><ul><li>Protection/ Prevention Features, </li></ul><ul><li>External Exposures, Dependency </li></ul><ul><li>Factors & Lead Time for BI etc. </li></ul><ul><li>Recommendations </li></ul><ul><li>Loss Estimates </li></ul><ul><li>Claims History </li></ul>
  98. 105. <ul><li>Inspection Report - Contents </li></ul><ul><li>Executive Summary </li></ul><ul><li>Purpose of Inspection </li></ul><ul><li>Date/Inspection Team/Participants </li></ul><ul><li>Name /Address/Location </li></ul><ul><li>Business Activities of Insured </li></ul><ul><li>Plant- Age,Capacity, History,Expansions </li></ul><ul><li>Workforce-Dept.wise </li></ul><ul><li>Location - Access by Rail/Road/Air </li></ul><ul><li> Dist. Public Fire Brigade </li></ul><ul><li> Neighbouring Occupancies </li></ul><ul><li> Geological/Meteorological </li></ul><ul><li> Design/ Construction Codes </li></ul><ul><li>Contd. </li></ul>
  99. 106. <ul><li>Inspection Report - Contents </li></ul><ul><li>The Compound -Plot / Area Occupied </li></ul><ul><li> Spread of Units </li></ul><ul><li> Internal Roads/ Drains </li></ul><ul><li> Fencing / Gates </li></ul><ul><li> Watch n Ward </li></ul><ul><li>Plant Operations / Processes </li></ul><ul><li>Plan & Block Diagram </li></ul><ul><li>Raw Matls./Operating Parameters/Outputs </li></ul><ul><li>Utilities & Plant Services </li></ul><ul><li>Working System </li></ul><ul><li>Electrical Installations </li></ul><ul><li>Matls. & Goods - Storage Details </li></ul><ul><li>Contd. </li></ul>
  100. 107. <ul><li>Inspection Report - Contents contd. </li></ul><ul><li>Bldg.Details -Const./ Height/Separation </li></ul><ul><li>Protected/Unprotected/Open </li></ul><ul><li>Loss Prevention Measures </li></ul><ul><li>Alarms/Auto.Detection </li></ul><ul><li>Push Button </li></ul><ul><li>Telephone / Wireless etc. </li></ul><ul><li>Safety Organisation & Systems </li></ul><ul><li>Fire Protection & Fire Fighting </li></ul><ul><li>Organisation </li></ul><ul><li>Portable Appliances </li></ul><ul><li>Hydrants & Fixed Systems </li></ul><ul><li>Fire Water/Pumps/ </li></ul><ul><li>Hoses/Nozzles </li></ul>
  101. 108. <ul><li>Inspection Report - Contents contd. </li></ul><ul><li>Mutual Aid </li></ul><ul><li>Emergency Procedures-Onsite/Offsite </li></ul><ul><li>Maint./Inspection Programmes </li></ul><ul><li>Housekeeping - General & Inplant </li></ul><ul><li>Management Systems in Place </li></ul><ul><li>Management Attitude ON Risk Issues </li></ul><ul><li>BI - Downtime </li></ul><ul><li> Local Facilities for Repairs </li></ul><ul><li> Spares / Stand-by </li></ul><ul><li> Dependencies/Interdependencies </li></ul><ul><li> Alternate Working </li></ul><ul><li> Reserve Stocks etc. </li></ul><ul><li>Insurance Details & Claims Records </li></ul>
  102. 109. Inspections - Site Monitoring
  103. 110. Examination of & Discussions on Munich Re’s Risk Assement Questionnaire For Fire & Allied Perils
  104. 111. <ul><li>Risk Management </li></ul><ul><li>Practical Approach For </li></ul><ul><li>Fire Risk Control </li></ul><ul><li>Pre Event </li></ul><ul><li>During Event, </li></ul><ul><li>Post Event </li></ul>
  105. 112. <ul><li>Pre Event : Seperation & Reduced Energy </li></ul><ul><li>Ignition Control – </li></ul><ul><li>Fire Load Control - </li></ul><ul><li>Flameproof equpt. </li></ul><ul><li>Process Enclosure </li></ul><ul><li>Matches/Lighters </li></ul><ul><li>Review Operating Parameters </li></ul><ul><li>Reduce Stored Volume </li></ul><ul><li>Review Materials Used </li></ul><ul><li>Separate Process from Storage </li></ul><ul><li>Limit Storage Area </li></ul>
  106. 113. <ul><li>During Event : Reduced Energy & Cost </li></ul><ul><li>Detection Systems </li></ul><ul><li>Fire Fighting – </li></ul><ul><li>Review Routes for Growth of Fire </li></ul><ul><li>Manual / Automatic </li></ul><ul><li>Removal of Goods / Equpt. </li></ul><ul><li>Smoke Removal </li></ul><ul><li>Protection Against Water </li></ul><ul><li>Fire Doors </li></ul><ul><li>Roofs </li></ul><ul><li>Any Connecting Routes </li></ul>
  107. 114. <ul><li>Post Event : </li></ul><ul><li>Emergency Treatment- </li></ul><ul><li>Protect Assets Exposed to Further Damage </li></ul><ul><li>& </li></ul><ul><li>Contingency Planning- </li></ul><ul><li>Alternative Means for Temp. Production </li></ul><ul><li>Steps to Restore Normal Working </li></ul>
  108. 115. All risk control and financing measures cost money but some are more cost effective at minimising the total cost of risk than others. Risk control measures can be divided into : (a) eliminate or reduce the risk; (b) prevent loss i.e. the risk exists but no loss occurs; (c) detect and reduce the extent of the loss; (d) rehabilitate, restore and recover.
  109. 116. <ul><li>Loss Control Management </li></ul><ul><li>The purpose of Loss Control Management is to limit </li></ul><ul><li>the total cost of losses to the lowest possible level by </li></ul><ul><li>implementing measures which : </li></ul><ul><li>Prevent losses from occurring i.e. eliminating </li></ul><ul><li>the cause of loss; </li></ul><ul><li>(b) Protect people and/or property from loss; </li></ul><ul><li>(c) Limit the extent of any loss that may occur; </li></ul><ul><li>(d) Maximise recovery from any loss that occurred </li></ul>
  110. 117. <ul><li>Measures to limit extent of any loss and to </li></ul><ul><li>maximise recovery from loss are of two basic types: </li></ul><ul><li>Passive : </li></ul><ul><li>Proactive : </li></ul>Nature of the measure itself limits the loss or facilitates recovery without any change in state e.g. walls, automatic fire doors, curtain boards and the contingency plan. the measure involves taking steps to limit the loss or maximise the recovery e.g. sprinklers, burglar alarms and salvage operations
  111. 118. <ul><li>The measures can also be classified in terms of: </li></ul><ul><li>Reducing the probability of loss such as fitting </li></ul><ul><li>safety guards to machines and removing possible </li></ul><ul><li>sources of ignition. </li></ul><ul><li>Reducing the severity of loss such as sprinklers, </li></ul><ul><li>storage of goods susceptible to water damage above </li></ul><ul><li>ground floor level and providing first aid facilities; </li></ul><ul><li>Reducing both the probability and the severity of </li></ul><ul><li>loss such as education and training of management </li></ul><ul><li>and employees and the use of fire resistant building </li></ul><ul><li>materials. </li></ul>
  112. 119. <ul><li>Risks Result in Injury & Loss for </li></ul><ul><li>Number of Reasons </li></ul><ul><li>Lack of Awareness </li></ul><ul><li>Lack of Capability : * Lack of knowledge </li></ul><ul><li>* Lack of Skill or </li></ul><ul><li>Competence </li></ul><ul><li>* Lack of Resources </li></ul><ul><li>* Lack of Practical </li></ul><ul><li>Training </li></ul><ul><li>Lack of Motivation </li></ul>
  113. 120. Education and Training : The Human Factor is never absent & hence education and training have a major role to play in loss reduction programmes and should cover everyone employed by or associated with the work of an organisation. Risk Reduction Risk avoidance Risk Spreading
  114. 121. <ul><li>Risk Financing & Transfer : </li></ul><ul><li>Risk Mgt decisions lead to choice between insurance </li></ul><ul><li>& non-insce. </li></ul><ul><li>Among the options of insurance, contract and </li></ul><ul><li>captive-insurance Risk transfer by insurance is </li></ul><ul><li>most common, </li></ul><ul><li>Benefits of Insurance : </li></ul><ul><li>Reduction of uncertainity, </li></ul><ul><li>Loss control & risk improvement, </li></ul><ul><li>Indemnification, </li></ul><ul><li>Funds for investment. </li></ul><ul><li>Disadvantage : </li></ul><ul><li>Operating Expns. of insurer, </li></ul><ul><li>Moral hazard. </li></ul>
  115. 122. <ul><li>Risk Financing : </li></ul><ul><li>In the long run one pays for his own losses & hence </li></ul><ul><li>Primary objective of Risk Financing is to spread cost </li></ul><ul><li>of risk more evenly over a period of time to reduce </li></ul><ul><li>Financial strain and likely insolvency due to </li></ul><ul><li>random large losses, </li></ul><ul><li>Secondary objective is to minimise risk costs. </li></ul><ul><li>An organisation can finance the risk costs by : </li></ul><ul><li>Payment out of current expenses, </li></ul><ul><li>Thro’ funded or non-funded reserves, </li></ul><ul><li>Debt or equity financing, </li></ul><ul><li>Pre or post-loss credit. </li></ul>
  116. 123. Risk Retentions : Primarily based on the ability to afford financial Consequences and not based on inability to afford suitable cover. Monitoring the strategy : Final but most important step to keep the whole process going. Overall objective is to improve financial performance By helping to reduce expenditure and avoid potential loss situations.
  117. 124. Risk Management Application Analysis of Losses
  118. 125. Analysis of Worldwide Losses Over Last 25 Years Risk Management Application Refinery/Petrochemical Losses
  119. 126. <ul><li>Site / Facility Type </li></ul><ul><li>Plant Type </li></ul><ul><li>Process Unit Type </li></ul><ul><li>Status of Plant </li></ul><ul><li>Loss Type </li></ul><ul><li>Material Released </li></ul><ul><li>Cause of Loss </li></ul><ul><li>Source of Ignition </li></ul>Parameters of Analysis
  120. 127. Site / Facility Type <ul><li>Refinery Site 48% </li></ul><ul><li>Petrochemicals Facility 20% </li></ul><ul><li>General Properties 10% </li></ul><ul><li>Storage Terminals 8% </li></ul><ul><li>Onshore Production Plant 7% </li></ul><ul><li>Jetty Installations 3% </li></ul><ul><li>Other 4% </li></ul>
  121. 128. <ul><li>Plant Type </li></ul><ul><li>Storage Tanks and Pipeline 23% </li></ul><ul><li>Refineries 22% </li></ul><ul><li>Oil/Gas Production 13% </li></ul><ul><li>Offsites 10% </li></ul><ul><li>Monomer and Polymer 6% </li></ul><ul><li>Petrochemical 6% </li></ul><ul><li>Fertilisers 5% </li></ul><ul><li>Gas Processing 3% </li></ul><ul><li>Others 12% </li></ul>
  122. 129. Process Unit Type <ul><li>Furnace or Heater 10% </li></ul><ul><li>Pipework 9% </li></ul><ul><li>Storage Tanks 7% </li></ul><ul><li>Drill, Pump, Compressor & 5% each </li></ul><ul><li>Boiler </li></ul><ul><li>Heat Exchanger & 4% each </li></ul><ul><li>Cone Roof Tank </li></ul><ul><li>Column, Vessel, </li></ul><ul><li>Flat Roof Tank & Reformer 3% each </li></ul><ul><li>Others <2% each </li></ul>
  123. 130. Status of Plant <ul><li>Normal Operation 50% </li></ul><ul><li>Start Up 15% </li></ul><ul><li>Under Maintenance 10% </li></ul><ul><li>Filling Tanks or Vessels 6% </li></ul><ul><li>Well Drilling 5% </li></ul><ul><li>Plant Shut Down 3% </li></ul><ul><li>Process Upset 2% </li></ul><ul><li>Emptying Tanks or Vessels 2% </li></ul><ul><li>Construction 2% </li></ul><ul><li>Others <2% each </li></ul>
  124. 131. Loss Type <ul><li>Fire 33% </li></ul><ul><li>Explosion 12% </li></ul><ul><li>Explosion With Fire 10% </li></ul><ul><li>Wind Storm and Flood 10% </li></ul><ul><li>Blowout, Mechanical </li></ul><ul><li>& Ship Impact 5% (Each) </li></ul><ul><li>Contamination </li></ul><ul><li>& Mach. Breakdown 4% (Each) </li></ul><ul><li>Product Loss, Cable Fire 3% (Each) </li></ul><ul><li>Construction Defect < 1% </li></ul><ul><li>Vapour Cloud Explosion < 1% </li></ul><ul><li>Earthquake < 1% </li></ul><ul><li>Others < 1% Each </li></ul>
  125. 132. Material Released <ul><li>Feedstocks and Products 41% </li></ul><ul><li>Petrochemicals 31% </li></ul><ul><li>Gas Processing 13% </li></ul><ul><li>Acids, Glycols, Additives 6% </li></ul><ul><li>Monomers and Polymers 3% </li></ul><ul><li>Others (each) < 1% </li></ul>
  126. 133. Cause of Loss <ul><li>Operation Error 17% </li></ul><ul><li>Wind Storm and Flood 16% </li></ul><ul><li>Pipe/Weld Failure 7% </li></ul><ul><li>Tube Failure 4% </li></ul><ul><li>Machinery Breakdown 7% </li></ul><ul><li>Electrical Short Circuit 4% </li></ul><ul><li>Valve Leakage 4% </li></ul><ul><li>Pipe Flange Leakage 4% </li></ul><ul><li>Instrument Failure 4% </li></ul><ul><li>Others < 3% each </li></ul>
  127. 134. Sources of Ignition <ul><li>Material Not Ignited 35% </li></ul><ul><li>Furnace 12% </li></ul><ul><li>Hot Surface 12% </li></ul><ul><li>Autoignition 7% </li></ul><ul><li>Electrical Arcing 3% </li></ul><ul><li>Operator Error 3% </li></ul><ul><li>Other Electrical Apparatus 3% </li></ul><ul><li>Welding 3% </li></ul><ul><li>Others < 3% each </li></ul>
  128. 135. Conclusions Less Incidents Bigger Loss per Incident. Half of Losses Occur at Refinery Sites. Losses Evenly Spread Between: Storage and Pipeline Equipt. Processing Plant. High Loss Frequency For: Furnaces/Heaters/Pipework/ Storage Tanks. Only Half of Losses During Normal Oprn.
  129. 136. <ul><li>Case Studies : (3) </li></ul><ul><li>Hazards, Effects & Prevention for </li></ul><ul><li>Combustible Solids, </li></ul><ul><li>Flammable Liquids, </li></ul><ul><li>Flammable Gases </li></ul>
  130. 137. Illustrative Case Studies on Risk Characteristics & Underwriting Criteria For Roads, Railways & Bridges
  131. 138. Next to Follow Risk Management Policy, Self Insurance & Captives, PML Role & significance.
  132. 139. THANK YOU