Facility Risk Management: Assessment & Risk Exposure

May 17, 2013

A risk assessment measures the risk of failure for a facility and its associated infrastructure by identifying the relative strengths and weaknesses of individual buildings. The process of facility risk assessment can be approached in a number of ways. One basic way is to rank facilities or systems using two criteria: the likelihood (frequency) of failure and the impact (severity) of failure.

Table A – Likelihood/ Frequency of Failure

 Category  Likelihood  Frequency
 Almost Certain  Extremely likely to occur  Daily  5
 Likely  Likely to occur, has occurred  previously and could reasonably occur  again  Monthly  4
 Periodic  Periodically has occurred in the past  1-2 Years  3
 Unlikely  Has happened in the past  3-5 Years  2
 Rare  Extremely rare/has not occurred in the  past  5-10 Years  1

Table A shows a way to rank facilities or individual systems by the likelihood they will fail. The likelihood is measured by how often this may happen, and the scores from one to five are applied accordingly, with a score of five for those facilities/systems that are extremely likely to fail.

Table B – Impact/Severity of Failure

 Category  Impact  Financial Consequences  Score
 Catastrophic  Imminent/certain life safety risk;  entire campus/large area may  require shutdown; a critical  failure with a long recovery  period; legislated/code  requirement with major  legal/fine/penalty implications  Severe/catastrophic  financial consequences  (calls into question the    viability of the  institution)  5
 Major  Potentially major safety risk;  legislated/ code violation; major failure  Major financial consequences  4
 Moderate  Significant failure requiring  actions beyond routine activity;  failure requires closing of floor  or section of a building  Moderate financial  consequences (budget  restrictions,  reallocations)  3
 Minor  Failure which can be managed  under routine activity; failure  requires closing of a small area  Minor financial  consequences (handled  within existing  budgets by  reprioritization)  2
 Insignificant  Failure not requiring shutdown  or closure; minor occupant  discomfort; poor appearance  Insignificant or  no  financial consequences  1

 In Table B, facilities and systems can be ranked by the severity of the failure, based on the potential impact, with particular consideration given to the financial consequences. Again, each facility or system can be given a score from one to five, with those whose failure would be catastrophic to the organization given a five.


Table C – Project Ranking

 Score  Priority/Risk Level
 16 or over  Very High Priority/ Very High Risk
 11 to 15  High Priority/ High Risk
 6 to 10  Moderate Priority/ Moderate Risk
 Less than 6  Low Priority/ Low Risk

In order to rank projects based on risk exposure, multiply the likelihood score by the impact score (Table C). Projects with the same score can be ranked from the lowest cost to the highest cost (i.e. all else being equal, lower cost projects should have a higher priority than higher cost projects). This can be done manually or by using facility capital planning software.

This type of facility risk measurement provides a basic understanding of risk in facility portfolios and can be used to quickly assess the potential for risk exposure. Next week, we will examine a more sophisticated method to measure the risk of failure that can be used to account for multiple considerations: an asset metric known as a Risk Index (RI), which uses a combination of system criticality and condition.



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