risk management sir a. s. chaubal
TRANSCRIPT
04/12/23 A S Chaubal 1
Risk Management Risk Management
A. S. Chaubal A. S. Chaubal
04/12/23 A S Chaubal 2
Risk & Risk ManagementRisk & Risk Management
Why Pick on Insurers ?Why Pick on Insurers ?
04/12/23 A S Chaubal 3
WHY INSURERS ? : WHY INSURERS ? :
• Huge Amounts of Liabilities assumed Huge Amounts of Liabilities assumed through various Insurance products sold,through various Insurance products sold,• Complex Risk Situations in UnderwritingComplex Risk Situations in Underwriting
• Losses come to them in various shapes Losses come to them in various shapes & sizes,& sizes,• Immediately after the insured, they are the Immediately after the insured, they are the ones to monetarily suffer in the event of a ones to monetarily suffer in the event of a loss or damage.loss or damage.
So, insurers seriously concerned with all So, insurers seriously concerned with all
Risk & Risk Management Issues.Risk & Risk Management Issues.
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RISK RISK • Concise Oxford Dictionary : Concise Oxford Dictionary :
“ “ Hazard, chance of bad consequences, Hazard, chance of bad consequences, Loss etc., exposure to mischance.” Loss etc., exposure to mischance.”
•Chamber’s English Dictionary :Chamber’s English Dictionary :
: Hazard, danger, chance of loss or : Hazard, danger, chance of loss or injuryinjury
: the degree of probability of loss : the degree of probability of loss
: a Person, thing or factor likely : a Person, thing or factor likely to cause loss or danger.to cause loss or danger.
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Risk & Uncertainity :Risk & Uncertainity :
Risks :Risks :
Those for which the probability Those for which the probability
of occurrence can be calculated of occurrence can be calculated
either on a rational basis or on either on a rational basis or on
the basis of the statistical analysisthe basis of the statistical analysis
of a number of similar events that of a number of similar events that
have occurred in the past. have occurred in the past.
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Uncertainity :Uncertainity :
Those for which analysis is Those for which analysis is
impossible by virtue of the fact impossible by virtue of the fact
that that
they are either a “one-off” event they are either a “one-off” event
or or
because their occurrence does not because their occurrence does not
follow an apparent pattern of follow an apparent pattern of
events.events.
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RiskRisk is, therefore defined as the is, therefore defined as the
variation in the outcomes that occur variation in the outcomes that occur
over a specified period in a given over a specified period in a given
situation.situation.
The Probability of Occurrence is The Probability of Occurrence is
measured in the range of measured in the range of Zero to One.Zero to One.
‘‘Zero’Zero’ indicates state of intrinsic indicates state of intrinsic
impossibility & impossibility &
‘‘One’One’ indicates state of absolute indicates state of absolute
certainity.certainity.
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InsurersInsurers generally use the word generally use the word
‘‘Risk’Risk’ in two distinctive meanings in two distinctive meanings
(1)(1) As the subject-matter of insurance As the subject-matter of insurance
OR OR
(2) Different perils such as Fire, (2) Different perils such as Fire, Flood etc..Flood etc..
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Risk is something or some happening Risk is something or some happening
that can cause harm or loss. But riskthat can cause harm or loss. But risk
is not always loss causing and some is not always loss causing and some
Risks may cause both loss and gain Risks may cause both loss and gain
( usually to different people as with ( usually to different people as with
the extra work a repairer gets after the extra work a repairer gets after
a bad Storm or Flood).a bad Storm or Flood).
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Behaviour of those involved is Behaviour of those involved is
also an equally important factor also an equally important factor
as the physical circumstances. as the physical circumstances.
There are many aspects of human There are many aspects of human
behaviour which directly behaviour which directly
influence the outcome of a risk influence the outcome of a risk
situation.situation.
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Companies are also subject to Companies are also subject to
changes in social, political and changes in social, political and
economical factors.economical factors.
Modern economies are highly Modern economies are highly
interdependent and changes in interdependent and changes in
one one
section of economy may change section of economy may change
the risk situation for other the risk situation for other
sections.sections.
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Risks can be of different types :Risks can be of different types :
Physical,Physical, causing direct harm or damage, causing direct harm or damage,
oror Social,Social, causing loss of reputation or causing loss of reputation or
damage to self esteem.damage to self esteem.
In simple terms Risk can be expressed for a In simple terms Risk can be expressed for a
business as business as uncertainty that will not allow uncertainty that will not allow
the business targets to be achievedthe business targets to be achieved and and
the the degree of the effects on targets will degree of the effects on targets will
depend upon the degree of risk. depend upon the degree of risk.
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The Risk IcebergThe Risk Iceberg
… … Risks that are clearly Risks that are clearly visible and quantifiable visible and quantifiable are relatively easier to are relatively easier to managemanage
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Risk Classification : Risk Classification :
1. Personal, Property 1. Personal, Property or Liability Riskor Liability Risk
Personal:Personal: Potential Potential
loss to the persons loss to the persons
Property:Property: Potential Potential
loss to the propertyloss to the property
Liability Liability : Potential : Potential
liability for any liability for any
individual orindividual or
institution.institution.
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2. 2. Physical, Physical, Social or Market Social or Market RiskRisk
Physical :Physical : Storm, Storm, Tempest, Flood, Tempest, Flood, Hurricane and such other Hurricane and such other natural phenomena.natural phenomena.
Social :Social : Riot, Strike, Civil Riot, Strike, Civil Commotion, Burglary, Commotion, Burglary, Theft etc.Theft etc.
Market :Market : The price The price reduction or the reduction or the purchase and sale purchase and sale constraints are involved.constraints are involved.
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3. 3. Pure or Pure or Speculative Risk Speculative Risk
Pure Risk:Pure Risk: is considered is considered
in the context of the in the context of the
existence of a chance of existence of a chance of
loss only, but not the loss only, but not the
chance of gain at all.chance of gain at all.
Speculative Risk:Speculative Risk: When When
there is a chance of gain there is a chance of gain
as well a chance of loss.as well a chance of loss.
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4. Static or 4. Static or Dynamic Risk Dynamic Risk
Static Risk:Static Risk: Which are Which are connected with losses connected with losses caused by the irregular caused by the irregular action of the forces of action of the forces of the nature or the the nature or the mistakes and misdeeds mistakes and misdeeds of human beings.of human beings.
Dyanamic Risk:Dyanamic Risk: Which Which
are associated with are associated with
changes in human wants changes in human wants
and improvements in and improvements in
Machinery or Machinery or
Technological Technological
innovationsinnovations..
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5. Fundamental or 5. Fundamental or Particular RiskParticular Risk
Fundamental Risk:Fundamental Risk:
Risks associated with Risks associated with
groups, impersonal in groups, impersonal in
original and effect. original and effect.
These fundamental These fundamental
risks are in the form risks are in the form
of Political or of Political or
Economic changes Economic changes
happening to a happening to a
group.group.
Particular Risk:Particular Risk:
Which are associated Which are associated
with individuals.with individuals.
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Fire,explosion,collapseMachinery breakdown
Electrical/electronicdamage
Negligence of employeesStrike
Transport accident
Criminal acts
Accidents
Effects of fire orexplosion from outsideLightning
Environmental damageCriminal actsPolitical risks
Insolvency ofdebtors
Defectiveproducts
Natural hazards
Internal fireExplosion
Impact ofvechicles,falling aircraft
Risk Risk ThreatsThreatsRisk Risk ThreatsThreats
Damage toproperty orhealth ofthird party
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Classification of Risks (Threats)Classification of Risks (Threats)
■ Physical Loss or Damage to PropertyPhysical Loss or Damage to Property● LiabilityLiability● Business InterruptionBusiness Interruption● Management Management ● WastageWastage● TechnologicalTechnological● SocialSocial● PoliticalPolitical● Physical EnvironmentPhysical Environment
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FinancialFinancialExch. RateExch. RateCreditCreditForeign Exch.Foreign Exch.TradingTradingMarketMarketNegat. EqtyNegat. EqtyCounterpartyCounterpartyReputationReputation
OperationalOperationalFire/ExplFire/ExplM/C BrkdwnM/C BrkdwnComputer/ITComputer/ITContigencyContigencyH S & EH S & ETheftTheftFraudFraudSRCCSRCCBIBI
RegulatoryRegulatoryLegalLegalComplianceCompliancePubl.RelationPubl.RelationContractContractSettlementSettlementInsuranceInsurance
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Management of RisksManagement of Risks
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Risk ConceptsRisk Concepts
Risks can be Risks can be
This is the fundamental principle ofThis is the fundamental principle of
the discipline of ‘Risk Management’.the discipline of ‘Risk Management’.
• Identified,Identified,• Measured, Measured, • Controlled and Controlled and • Financed ;Financed ;
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A
S CAT
MAJOR
MEDIUM
MODERATE
MINOR
DEGREE OF DEGREE OF RISKSRISKSDEGREE OF DEGREE OF RISKSRISKS
A : INCIDENCE OF LOSS EVENTS S : SIZE OF LOSS
IMPOSSIBLE TO ACHIEVE ANY TARGETS
IMPOSSIBLE TO ACHIEVE SOME TARGETS
PARTIAL EFFECTS ON TARGETS
NO TARGETS AFFECTED BUT MODIFICATION NECESSARY
NO EFFECT ON TARGETS
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Formal System of Risk Threat :Formal System of Risk Threat :
• Identification/ AnticipationIdentification/ Anticipation
• Measurement/ EvaluationMeasurement/ Evaluation
• ControlControl
• Treatment of Residual RiskTreatment of Residual Risk
• Monitoring ResultsMonitoring Results
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It’ll Never Happen to It’ll Never Happen to MeMeIt’ll Never Happen to It’ll Never Happen to MeMe
Risks – General Attitude Risks – General Attitude
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Risk Attitudes : Risk Attitudes : Risk attitudes can be defined as the ways Risk attitudes can be defined as the ways
in in
which a person behaves in an uncertain which a person behaves in an uncertain
situation and vary from person to person situation and vary from person to person
because of their personalities, economic because of their personalities, economic
status, status, potential gains/ losses. potential gains/ losses.
Attitude Categories ;Attitude Categories ;
• Risk neutral,Risk neutral,• Risk preferer ,Risk preferer ,• Risk averter.Risk averter.
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Cost of Risk :Cost of Risk :
Cost of the loss ,Cost of the loss ,
Costs of handling risk,Costs of handling risk,
Costs imposed by risk : Costs imposed by risk :
• Risk control Risk control measures,measures,
• Uninsured lossesUninsured losses
• InsuranceInsurance
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Adopting Measures for Economic ControlAdopting Measures for Economic Control
• Produce Measurable Reduction in Produce Measurable Reduction in Overall Overall Cost of Risk Cost of Risk
Insurance PlusInsurance PlusLoss control Plus Loss control Plus Self Insured LossesSelf Insured Losses
● Reduce Possibility of Catastrophe LossReduce Possibility of Catastrophe Loss
• Help to Ensure the Company's Survival Help to Ensure the Company's Survival whilst Minimising the Overall Cost of whilst Minimising the Overall Cost of Risk ControlRisk Control
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Organization needs to build an enabling Organization needs to build an enabling risk management framework that ...risk management framework that ...
IdentifyIdentify
MeasureMeasure
ManageManage
MonitorMonitor
Risk strategy
Risk organization
Risk process & information
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Risk Management : Risk Management :
A structured programme:A structured programme:
Aimed at coming to Terms withAimed at coming to Terms with
• The risks and dangers that threaten The risks and dangers that threaten - A person,- A person,
- An industrial facility or- An industrial facility or - Any Other System and- Any Other System and
• Arise from the Interplay of SystemArise from the Interplay of System - with its environment or- with its environment or
- are intrinsic to the System - are intrinsic to the System
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Risk Management : Risk Management :
Essentially a Multi-disciplinary Process: Essentially a Multi-disciplinary Process:
Where Different Skills Are Brought Where Different Skills Are Brought
Together in Risk Problem Solving.Together in Risk Problem Solving.
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Role of Role of
Risk Management Specialist Risk Management Specialist
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Risks Result in Injury & Loss forRisks Result in Injury & Loss forNumber of ReasonsNumber of Reasons
● Lack of AwarenessLack of Awareness
● Lack of Capability : Lack of Capability : * Lack of * Lack of
knowledgeknowledge * Lack of Skill or* Lack of Skill or CompetenceCompetence * Lack of Resources* Lack of Resources * Lack of Practical* Lack of Practical Training Training ● Lack of Motivation Lack of Motivation
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Having seen the Rationale for Risk Mgt Having seen the Rationale for Risk Mgt
& Targets against which Risk & Targets against which Risk
Management Performance Can be Management Performance Can be
Measured, Let us Look at What is Measured, Let us Look at What is
already Happening. An Industry may already Happening. An Industry may
have many Specialists in the Areas of have many Specialists in the Areas of
Manufacturing, Finance, Manufacturing, Finance,
Fire Fighting, Safety, Legal Control etc. Fire Fighting, Safety, Legal Control etc.
However, priorities of Line Managers However, priorities of Line Managers
are much different & under are much different & under
considerable work pressure. considerable work pressure.
=> =>
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Functional Management may be Functional Management may be
under considerable pressure and under considerable pressure and
the three factors of the three factors of
• Lack of Awareness, Lack of Awareness, • Lack of Capability & Lack of Capability & • Lack of MotivationLack of Motivation
Provide the Basis for a Provide the Basis for a
Risk Management Specialist. Risk Management Specialist.
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Risk Management SpecialistRisk Management Specialist
must be capable of dealing with must be capable of dealing with
these shortcomings in a practical these shortcomings in a practical
way without seriously disrupting way without seriously disrupting
the company’s operations or the company’s operations or
adding substantially to cost.adding substantially to cost.
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Risk Manager’s “value add” comes from Risk Manager’s “value add” comes from being Realistic, Cost Effective, hisbeing Realistic, Cost Effective, his Ability Ability & Insight to achieve Substantial & Insight to achieve Substantial Improvement throughImprovement through
• Understanding Understanding : Careful & : Careful & Multidisciplinary Multidisciplinary Analysis including Analysis including Human BehaviourHuman Behaviour,,
• Practical AbilityPractical Ability : Stydy, Experience, : Stydy, Experience, Wider View points,Wider View points,• Communication SkillsCommunication Skills : : Effective Use of Effective Use of Illustrations and Illustrations and Presentations Presentations
04/12/23 A S Chaubal 39
Managing RisksManaging Risks
Three-Fold ApproachThree-Fold Approach
04/12/23 A S Chaubal 40
Risk
ManagementApproaches
TraditionalTraditional
IntegretedIntegreted
EnterpriseEnterprise
04/12/23 A S Chaubal 41
Risk managementRisk managementTraditional ApproachTraditional Approach
Risks Risks
Detection :Detection : Ad-hoc Ad-hoc
Dept.wise Dept.wise
Measurement :Measurement : Often not Done Often not Done
Finance :Finance : Separate Separate
Consideration :Consideration : Not in Decision MakingNot in Decision Making
04/12/23 A S Chaubal 42
Risk management Risk management Integrated Integrated ApproachApproach
Risks Risks
Detection :Detection : Partially Integrated Across Partially Integrated Across Depts.Depts.Measurement :Measurement : Mostly Done but Mostly Done but Co-relation & ConcentrationCo-relation & Concentration not examinednot examinedFinance :Finance : Integrated Across Some Integrated Across Some Risks Risks Consideration : Consideration : IIn Some Decisions but not n Some Decisions but not FormallyFormally
04/12/23 A S Chaubal 43
Risk management Enterprise Approach
Annual Comprehensive Risk DetectionAnnual Comprehensive Risk Detection
Including Scenario Planning,Including Scenario Planning,
Total Risk Profile is Examined, IncludingTotal Risk Profile is Examined, IncludingConcentration & Co-relation between Risks,Concentration & Co-relation between Risks,Risk financing is Integrated Across Depts.Risk financing is Integrated Across Depts.( e.g. Integrated Financing of HAZARD &( e.g. Integrated Financing of HAZARD & FINANCIAL Risks )FINANCIAL Risks )Risks Are Formally Incorporated intoRisks Are Formally Incorporated into
Strategic Planning, Strategic Planning, Performance Measurement & PricingPerformance Measurement & Pricing
04/12/23 A S Chaubal 44
Risk ManagementRisk Management
The Emerging EnvironmentThe Emerging Environment
Strategic Risk ManagementStrategic Risk Management
Enterprise Risk ManagementEnterprise Risk Management
04/12/23 A S Chaubal 45
Strategic Risk Management
OBJECTIVESOBJECTIVES Reduce Insurance Cost/ Improve Reduce Insurance Cost/ Improve Effcncy Effcncy
Improved Insurance CoverageImproved Insurance Coverage
Development of Risk Mgt.Dept. SkillsDevelopment of Risk Mgt.Dept. Skills
Apply Measurement to Decision Apply Measurement to Decision MakingMaking
Advantage Through InnovationAdvantage Through Innovation
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Enterprise Risk Management
The discipline of systematically The discipline of systematically
and comprehensively identifying, and comprehensively identifying,
quantifying and addressing the quantifying and addressing the
collective impact of critical collective impact of critical
business risks to maximize business risks to maximize
shareholder value.shareholder value.
04/12/23 A S Chaubal 47
FinancialRisks
HazardRisks
OperationalRisks
StrategicRisks
•Brand / Brand / intellectual intellectual property risksproperty risks
•Customer / Customer / product / product / competitor riskscompetitor risks
•Geopolitical/Geopolitical/regulatory risksregulatory risks
•Supply Supply chain/business chain/business interruption risksinterruption risks
•Human resourcesHuman resources•IT systemsIT systems•QualityQuality•Control systemsControl systems
•Market riskMarket risk•Asset price Asset price volatility (currency, volatility (currency, interest rates, interest rates, commodities)commodities)
•Credit riskCredit risk
•Natural Natural catastrophescatastrophes
•Legal / complianceLegal / compliance•Property / physical Property / physical assetsassets
•Health & safetyHealth & safety•EnvironmentalEnvironmental
CorporateObjectives
Risk Radar Risk Radar
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To manage risks, enterprises needTo manage risks, enterprises need
to look beyondto look beyond
hazard and financial riskshazard and financial risks
to include to include
Operational and strategic risks –Operational and strategic risks –
i.e. The Risks that are thei.e. The Risks that are the
• Most often overlooked andMost often overlooked and• Least well managed today.Least well managed today.
Enterprise Risk Management
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Benefits of Enterprise Risk Management
RISK PROFILERISK PROFILE
• ProfitabilityProfitability
• Capital allocationCapital allocation
• Financial stabilityFinancial stability
• Risk Management CommunicationsRisk Management Communications
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Monitoring ProcessMonitoring Process • Coordinated and integrated decisions forCoordinated and integrated decisions for retaining and transferring risk retaining and transferring risk • A better understanding of enterprise’sA better understanding of enterprise’s forecasted loss activityforecasted loss activity• Maximum efficiency of risk financingMaximum efficiency of risk financing and risk transfer and risk transfer • Strengthened risk prevention & claimsStrengthened risk prevention & claims management controls in respect of themanagement controls in respect of the underlying loss exposuresunderlying loss exposures
Benefits of E R M
04/12/23 A S Chaubal 51
Loss Prevention IdeasLoss Prevention Ideas
• From Risk Analysis,From Risk Analysis,
• From Experience on From Experience on
Specific LossesSpecific Losses
04/12/23 A S Chaubal 52
Safety & Loss Prevention Safety & Loss Prevention
• Safety Safety : Oldest Risk Management : Oldest Risk Management FunctionFunction
• Loss prevention: Developed from Risk Loss prevention: Developed from Risk Evaluation & ControlEvaluation & Control
SafetySafety++
Loss PreventionLoss Prevention
ImprovedImprovedRisk FeaturesRisk Features==
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Risk Management TasksRisk Management Tasks
• Preparing a Risk Profile Preparing a Risk Profile • Formulating a Series of Key Risk anagement Formulating a Series of Key Risk anagement
ObjectivesObjectives• Carrying out an Audit of Present Risk Carrying out an Audit of Present Risk
Management CapabilityManagement Capability• Defining the Responsibility of Different Defining the Responsibility of Different
Members of ManagementMembers of Management• Provide Appropriate Training for ThoseProvide Appropriate Training for Those
Involved in Risk ManagementInvolved in Risk Management
• Establishing a System for Monitoring the Establishing a System for Monitoring the
Effectiveness of Risk Management WorkEffectiveness of Risk Management Work
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Monitoring Monitoring
● Objectives : -Objectives : - Compliance With Overall Risk Compliance With Overall Risk Management ObjectivesManagement Objectives To Conserve Resources & To Conserve Resources & Maintain/Improve ProfitabilityMaintain/Improve Profitability● Timing : -Timing : - At Regular Intervals Related to At Regular Intervals Related to Budget & Other ReviewsBudget & Other Reviews After Serious Incidents After Serious Incidents ● Method : -Method : - Risk Inspection (Physical Risk Inspection (Physical Study)Study) Evaluation (Reports Evaluation (Reports Supplemented Supplemented as Necessary by Visits)as Necessary by Visits) Special Investigation Special Investigation (e.g. Accidents)(e.g. Accidents)
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Risk Management is Simply a PracticeRisk Management is Simply a PracticeOf Systematically Selecting Cost EffectiveOf Systematically Selecting Cost Effective
Approaches for Minimising the Effect of Approaches for Minimising the Effect of
Threat Realisation to the Organisation.Threat Realisation to the Organisation.
All Risks can never be fully avoided or All Risks can never be fully avoided or
Mitigated simply because of Financial & Mitigated simply because of Financial &
Practical Limitations of the Real World.Practical Limitations of the Real World.
All Organisations have to Accept some All Organisations have to Accept some
level of Residual Risks which still may level of Residual Risks which still may
realise despite their Efforts.realise despite their Efforts.
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Risk Management Risk Management
Contributions to Business : Contributions to Business :
• Risk Management may make the Risk Management may make the Difference between survival and failure.Difference between survival and failure.
• Contribute directly to business profits , Contribute directly to business profits ,
• Reduce the fluctuations in annual Reduce the fluctuations in annual profits and cash flows.profits and cash flows.
• Business continuity Planning (BCIP), Business continuity Planning (BCIP),
• Continued growth , Continued growth ,
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Integrated Risk Management- aiming to reduce the
total cost of risk.
Risk Engineers
Brokers /Underwriters
Auditors
InvestmentBankers
FinancialAnalysts
Actuaries
Multi-functional skills required to manage risks better
Brokers well placed to manage risks as they possess Brokers well placed to manage risks as they possess multifunctional skillsmultifunctional skills
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Risk Analysis Risk Analysis
Entire Task of Identifying & Measuring Entire Task of Identifying & Measuring
Potential Impact of RiskPotential Impact of Risk
• One Particular Method may not be One Particular Method may not be Sufficient to Identify All Risk problems,Sufficient to Identify All Risk problems,
• Certain Methods may be more useful some,Certain Methods may be more useful some,• It should not be ‘One Off’ Exercise,It should not be ‘One Off’ Exercise,
• Accurate Record Keeping – a Must,Accurate Record Keeping – a Must,
• Element of Imagination – by Experience. Element of Imagination – by Experience.
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Risk Analysis Chain Risk Analysis Chain Every Risk is Caused by Some Factor(s) &Every Risk is Caused by Some Factor(s) &
Result in Some EffectResult in Some Effect
CauseCause RiskRisk EffectEffect
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Is there a Is there a risk ?risk ?
yesNoHas it been Has it been measured?measured?
No
yes
MeasureSignificant?
No Yes
Can it be avoided or Can it be avoided or eliminated?eliminated?
Disregard
Avoid/EliminateYes No
Can it be Can it be Reduced?Reduced?
No Yes
Yes
Is residual risk significant?Is residual risk significant?
No
Is it catastrophic?Is it catastrophic?
Disregard
YesCan it be Can it be retained?retained?
No
Yes No
TRANSFERTRANSFER
IgnoreInsureInsure Other
s
Ignore
Interrelationship of Interrelationship of Risk analysis, Risk control and Risk financingRisk analysis, Risk control and Risk financing
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Task of Risk Analysis must be carried Task of Risk Analysis must be carried
out with Realism and Proper Perspective out with Realism and Proper Perspective
of Risks & Costs involved in Analysis.of Risks & Costs involved in Analysis.
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RISK ANALYSIS METHODOLOGIES RISK ANALYSIS METHODOLOGIES
1.1. Qualitative Methodologies Qualitative Methodologies
2.2. Tree Based Techniques Tree Based Techniques
3.3. Techniques for Dynamic Techniques for Dynamic
SystemSystem
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1. Qualitative Methodologies : 1. Qualitative Methodologies :
• Preliminary Risk Analysis Preliminary Risk Analysis
• Hazard and Operability studies (HAZOP) Hazard and Operability studies (HAZOP)
• Failure Mode and Effects AnalysisFailure Mode and Effects Analysis (FMEA/FMECA)(FMEA/FMECA)
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Preliminary Risk / Hazard Analysis (PHA):Preliminary Risk / Hazard Analysis (PHA): Qualitative Technique Qualitative Technique
• The possible Undesirable Events are Identified The possible Undesirable Events are Identified first & then Analysed, first & then Analysed,
• For each Undesirable Event Possible For each Undesirable Event Possible Improvements or Preventive Measures Improvements or Preventive Measures formulated formulated
o Inspections,Inspections,
o Check Lists,Check Lists,
o Flow Diagrams,Flow Diagrams,
o Organisation Charts Organisation Charts
Provides Basis to decide which Provides Basis to decide which
Categories of Hazard should be Categories of Hazard should be
Looked into more closely & whichLooked into more closely & which
Analysis methods are most suitableAnalysis methods are most suitable
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What is a HAZOP?What is a HAZOP?
HAZOP is an abbreviated term for HAZOP is an abbreviated term for
HAZHAZard and ard and OPOPerability study. erability study. Developed by ICI in1970 to Assess Effects of Developed by ICI in1970 to Assess Effects of
DeviationsDeviations in Design Specifications. in Design Specifications.
It is a technique that identifies the It is a technique that identifies the
potential hazards and operating issuespotential hazards and operating issues
with the design and construction of with the design and construction of
equipment and plant and involves theequipment and plant and involves the
interaction of a multi-disciplinary team.interaction of a multi-disciplinary team.
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HAZOP Objectives :The purpose and scope of the study The purpose and scope of the study should be determined before a HAZOP. should be determined before a HAZOP. Study objectives may be to:Study objectives may be to:
• Check the safety of the design,Check the safety of the design,
• Decide whether and where to build,Decide whether and where to build,
• Check operating and safety procedures,Check operating and safety procedures,
• Improve the safety of an existing and or Improve the safety of an existing and or modified facility, andmodified facility, and
• Verify that safety instrumentation is Verify that safety instrumentation is working optimallyworking optimally
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Setting up a HAZOP Setting up a HAZOP
The HAZOP technique reviews the The HAZOP technique reviews the operational progress of plant and Equptoperational progress of plant and Equpt
at various stages, including: at various stages, including:
• At the initial concept stage At the initial concept stage
• When the (PID) are available When the (PID) are available
• During construction and installation During construction and installation
• During commissioning, andDuring commissioning, and
• During operation to ensure that During operation to ensure that procedures are reviewed and updated.procedures are reviewed and updated.
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The HAZOPThe HAZOP study concentrates on how the study concentrates on how thedesign will cope with abnormal conditions,design will cope with abnormal conditions,and is based on the assumptions that the and is based on the assumptions that the plant or process will:plant or process will:
• Perform as designed in the absence of Perform as designed in the absence of
unintended eventsunintended events
• Be managed in a competent mannerBe managed in a competent manner• Be maintained in accord with design Be maintained in accord with design
intent, andintent, and
• Have regular safety systems tests.Have regular safety systems tests.
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HAZOP Information RequiredHAZOP Information RequiredIt is imperative that accurate information It is imperative that accurate information associated with the project is sourced and associated with the project is sourced and included in the study. included in the study.
• provisional layoutsprovisional layouts• material safety data material safety data sheets (MSDS)sheets (MSDS)• process flow diagramsprocess flow diagrams• plant modelplant model• eqpt arrangement drgseqpt arrangement drgs• provisional operating instr.provisional operating instr.
• heat and material heat and material balancesbalances• layoutslayouts• logic diagramslogic diagrams• equipment datasheetsequipment datasheets• hazardous area layouts, &hazardous area layouts, &• start-up and emergency start-up and emergency • shutdown procedures.shutdown procedures.
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When to Perform a HAZOP When to Perform a HAZOP
Traditionally, HAZOPs were incorporatedTraditionally, HAZOPs were incorporated
in the design process of new facilities in the design process of new facilities
within the petrochemical industry. within the petrochemical industry.
However, as employers take a more However, as employers take a more
performance-based approach to safety, performance-based approach to safety,
there has been significant interest in there has been significant interest in
applying applying HAZOP as a Risk Management HAZOP as a Risk Management
ToolTool for a diverse range of work for a diverse range of work
situations, across an array of industries. situations, across an array of industries.
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Simple HAZOP (HAZID)Simple HAZOP (HAZID)
A simple HAZOP is conducted at the A simple HAZOP is conducted at the
preliminary design stage prior to the preliminary design stage prior to the
development of detailed designs for a development of detailed designs for a
small-scale rig, experimental set-up or small-scale rig, experimental set-up or
simple equipment. It does not outline simple equipment. It does not outline
detailed specifications and detailed specifications and
modifications but rather identifies key modifications but rather identifies key
issues relating to the hazard and issues relating to the hazard and
operability that need to be considered operability that need to be considered
when developing the detailed designs. when developing the detailed designs.
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Detailed HAZOP Detailed HAZOP
A detailed HAZOP is the full application A detailed HAZOP is the full application
of the HAZOP technique. It is conducted of the HAZOP technique. It is conducted
as the final check when the detailed as the final check when the detailed
design has been completed for more design has been completed for more
complex engineered plants or equipment.complex engineered plants or equipment.
It analyses the plant as a whole and It analyses the plant as a whole and
enables a detailed review of the reqd. enables a detailed review of the reqd.
specifications. A detailed HAZOP can specifications. A detailed HAZOP can
also be conducted on an existing facilityalso be conducted on an existing facility
by reviewing the modifications requiredby reviewing the modifications required
to be implemented. to be implemented.
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HAZOP Study ProcedureHAZOP Study Procedure
The design drawings are to be divided into The design drawings are to be divided into
sections and each section is divided into study sections and each section is divided into study
lines that are assessed by a combination of lines that are assessed by a combination of
primary and secondary keywords. Questions for primary and secondary keywords. Questions for
each keyword each keyword must be asked in order to identify problems, e.g. :must be asked in order to identify problems, e.g. :• What might cause a deviation with What might cause a deviation with reference to the keyword;reference to the keyword;
• What are the consequences resulting What are the consequences resulting from the keyword; andfrom the keyword; and
• What actions are required to prevent What actions are required to prevent unacceptable effects. unacceptable effects.
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Divide Sections into Divide Sections into Study Lines Study Lines
Select a Study Line Select a Study Line
Apply all Appropriate Apply all Appropriate Primary & Secondary KeywordPrimary & Secondary Keyword
Combinations. Combinations.
Any Hazards / Operating ProblemsAny Hazards / Operating Problems
Need More Info Need More Info
Record ConsequencesRecord Consequences& Causes & Causes
Suggest Remedies Suggest Remedies
NONOYes Yes
Not Sure Not Sure
HAZOP Procedure HAZOP Procedure Methodology Methodology
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HAZOP KeywordsHAZOP Keywords
An important feature of the HAZOP An important feature of the HAZOP methodology is the use of keywords. methodology is the use of keywords.
(i) Primary Keywords (Parameters) (i) Primary Keywords (Parameters)
Primary Keywords focus the attention Primary Keywords focus the attention
upon a particular aspect of the design upon a particular aspect of the design
Intent or a process parameter / condition. Intent or a process parameter / condition.
FLOW, TEMPERATURE, PRESSURE, FLOW, TEMPERATURE, PRESSURE,
LEVEL, REACT, MIX, ISOLATE, DRAIN, LEVEL, REACT, MIX, ISOLATE, DRAIN,
INSPECT, MAINTAIN, START-UP, INSPECT, MAINTAIN, START-UP,
SHUTDOWNSHUTDOWN
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(ii) Secondary Keywords (Guidewords)(ii) Secondary Keywords (Guidewords)
When Secondary Keywords are applied When Secondary Keywords are applied
in conjunction with a Primary Keyword, in conjunction with a Primary Keyword,
potential deviation and problems are potential deviation and problems are
identified. identified.
HIGH, LOW, ZERO, EMPTY, REVERSE, HIGH, LOW, ZERO, EMPTY, REVERSE,
ALSO, OTHER, TESTING, PLANT ITEMS, ALSO, OTHER, TESTING, PLANT ITEMS,
ELECTRICAL, COMPOSITIONELECTRICAL, COMPOSITION
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HazHazard ard & & OpOperability Studieserability Studies (HAZOP) (HAZOP)
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
A Process Flow Technique A Process Flow Technique
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Failure Mode and Effects Analysis (Failure Mode and Effects Analysis (FMEA/FMECA)FMEA/FMECA)
This method was developed in the 1950s by This method was developed in the 1950s by
reliability engineers to determine problems reliability engineers to determine problems
that could arise from malfunctions of military that could arise from malfunctions of military
system. system.
Failure mode and effects analys is a Failure mode and effects analys is a procedure by which each potential failure procedure by which each potential failure
mode in a system is analysed to determine mode in a system is analysed to determine
its effect on the system and to classify it its effect on the system and to classify it
according to its severity.according to its severity.
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When the FMEA is extended by a When the FMEA is extended by a
Criticality analysis, the technique is then Criticality analysis, the technique is then called called
Failure Mode And Effects Criticality Analysis Failure Mode And Effects Criticality Analysis
(FMECA).(FMECA).
Failure mode and effects analysis has Failure mode and effects analysis has
gained wide acceptance by the aerospace gained wide acceptance by the aerospace
and the and the
military industries military industries
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2. Tree Based Techniques : 2. Tree Based Techniques :
• Fault tree analysis Fault tree analysis
• Event tree analysis Event tree analysis
• Cause Consequence Analysis Cause Consequence Analysis
• Management Oversight Risk Management Oversight Risk
Tree Tree
• Safety Management Safety Management
OrganizationOrganization
Review Technique Review Technique
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Fault Tree Analysis ( FTA ):Fault Tree Analysis ( FTA ):
• A Top Down Analysis that starts with the A Top Down Analysis that starts with the
Effect and Evaluates All the Potential Effect and Evaluates All the Potential
Causes ( Faults ) of that EventCauses ( Faults ) of that Event
• Creates a Logical “Tree” of EventsCreates a Logical “Tree” of Events
• Lowest “Root” is the root cause or TransferLowest “Root” is the root cause or Transfer
to another Analysis,to another Analysis,
• Forces Analysis of Interactions.Forces Analysis of Interactions.
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Symbols Used in FTA : Symbols Used in FTA :
Event : Primary Or Intermediate Failure or Event
Cause : Events that Drive the Failure
OR Gate : Failure occurs if ANY of the Input Event
Occurs
AND Gate : Failure occurs if ALL of the Input Event
Occurs
Transfer Point : To another Page or Analysis
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The FTA ProcessThe FTA Process
1.1. Determine & Document the TOP EventDetermine & Document the TOP Event
2.2. Build the Tree by Considering “ Whys” to the Build the Tree by Considering “ Whys” to the
Top Event ( Use Process Flows & any FMEA Top Event ( Use Process Flows & any FMEA
already performed as supporting info )already performed as supporting info )
3.3. Continue to Build based on Preconditions that Continue to Build based on Preconditions that
Exist or co-exist to create the EventExist or co-exist to create the Event
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Fault Tree for Event – Fire Breaks Out Fault Tree for Event – Fire Breaks Out
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Benefits of FTA Benefits of FTA • Helps to Identify Many to All Causes of a Helps to Identify Many to All Causes of a Failure ModeFailure Mode• Helps to Identify Interrelationships betweenHelps to Identify Interrelationships between Multiple CausesMultiple Causes• Allows to Determine the Most Effective AreaAllows to Determine the Most Effective Area to put a Control Measureto put a Control Measure
Limitations of FTALimitations of FTA• Each Tree has a Narrow FocusEach Tree has a Narrow Focus• It is an Art in addition to ScienceIt is an Art in addition to Science• Quantification would require DataQuantification would require Data• Human FactorsHuman Factors• When to Stop?When to Stop?
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Event Tree Analysis ( ETA ) Event Tree Analysis ( ETA )
• This is a Method for illustrating the This is a Method for illustrating the Sequence of Outcomes that may arise Sequence of Outcomes that may arise
after Occurrence of a Selected Initial after Occurrence of a Selected Initial
Event.Event.
• Mainly used in Consequence Analysis Mainly used in Consequence Analysis
for Pre-incident & Post-incident for Pre-incident & Post-incident
ApplicationApplication
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Cause – Consequence Analysis (CCA)Cause – Consequence Analysis (CCA)This Technique Combines This Technique Combines Cause Analysis (FTA) - deductive, &Cause Analysis (FTA) - deductive, &Consequence Analysis (ETA) – inductive.Consequence Analysis (ETA) – inductive.
Purpose is to Identify Chain of Events that Purpose is to Identify Chain of Events that Can result in undesirable consequencesCan result in undesirable consequences
Management Oversight Risk Tree (MORT)Management Oversight Risk Tree (MORT)Primarily a FTA with Top Event as “ Damage,Primarily a FTA with Top Event as “ Damage,Destruction, Other Costs, Lost ProductionDestruction, Other Costs, Lost ProductionOr Reduced Credibility. The Tree gives an Or Reduced Credibility. The Tree gives an Overview of the causes of Top Event from Overview of the causes of Top Event from Management Oversights & Omissions.Management Oversights & Omissions.
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Safety Management Organisation Review Safety Management Organisation Review Technique (SMORT)Technique (SMORT)
Simplified modification of MORT.Simplified modification of MORT.
This Analysis is structured by means of This Analysis is structured by means of
Analysis Levels with Check Lists while Analysis Levels with Check Lists while
MORT is based on Tree Structure.MORT is based on Tree Structure.
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3. Techniques for Dynamic System 3. Techniques for Dynamic System
• GO method GO method
• Digraph/Fault Graph Digraph/Fault Graph
• Markov Modelling Markov Modelling
• Dynamic Event Logic Analytical Dynamic Event Logic Analytical Methodology Methodology
• Dynamic Event Tree Analysis Method Dynamic Event Tree Analysis Method
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Case Study – FTA :Case Study – FTA :
Top EventTop Event
Incorrect Patient Results Given To PhysicianIncorrect Patient Results Given To Physician
Build FTA for This EventBuild FTA for This Event
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Group ExerciseGroup Exercise
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Risk Management Risk Management Practical Aspects for InsurersPractical Aspects for Insurers
1.1. Identification : Physical InspectionsIdentification : Physical Inspections
2.2. Evaluation : PML, Loss Control MethodsEvaluation : PML, Loss Control Methods
3.3. Minimise : Risk Improvement MethodsMinimise : Risk Improvement Methods
Analysis & TrendsAnalysis & Trends
4.4. Transfer : Reinsurance, ART Methods Transfer : Reinsurance, ART Methods
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Risk InspectionsRisk Inspections
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Place of inspections in Place of inspections in Risk Management ProcessRisk Management Process
Predominant Place inPredominant Place in
* Risk Identification,* Risk Identification,* Risk Assessment,* Risk Assessment,* Risk Control. * Risk Control.
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Property Insurance Inspections Property Insurance Inspections
Risk Appraisals ( Pre-acceptance )Risk Appraisals ( Pre-acceptance )• Rating - Basic RatesRating - Basic Rates - Discounts - Discounts • Loss Prevention - Risk ImprovementLoss Prevention - Risk Improvement - Safety- Safety• Matl. Damage ExposuresMatl. Damage Exposures
• Business Interruption ExposuresBusiness Interruption Exposures
• Liability ExposureLiability Exposure• Project Site Monitoring etc. Project Site Monitoring etc.
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Purpose of InspectionsPurpose of Inspections
• Provide Adequate Info.To U/W rProvide Adequate Info.To U/W r Assmnt. of Risk for Purpose ofAssmnt. of Risk for Purpose of Decision Making onDecision Making on
. Acceptance . Acceptance
. Rating. Rating
. Retentions / Reinsurance. Retentions / Reinsurance
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Underwriter’s Main NeedsUnderwriter’s Main Needs
• A Summary of the Risk as a WholeA Summary of the Risk as a Whole & Its Hazards in General& Its Hazards in General• Summarised Details Under SeparateSummarised Details Under Separate Headings for Various Risk Features,Headings for Various Risk Features, Protection/ Prevention Features,Protection/ Prevention Features, External Exposures, DependencyExternal Exposures, Dependency Factors & Lead Time for BI etc.Factors & Lead Time for BI etc.• RecommendationsRecommendations• Loss EstimatesLoss Estimates• Claims HistoryClaims History
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Inspection Report - ContentsInspection Report - Contents• Executive SummaryExecutive Summary• Purpose of InspectionPurpose of Inspection• Date/Inspection Team/ParticipantsDate/Inspection Team/Participants• Name /Address/LocationName /Address/Location• Business Activities of InsuredBusiness Activities of Insured• Plant- Age,Capacity, History,ExpansionsPlant- Age,Capacity, History,Expansions• Workforce-Dept.wiseWorkforce-Dept.wise• Location - Access by Rail/Road/Air Location - Access by Rail/Road/Air
Dist. Public Fire BrigadeDist. Public Fire Brigade Neighbouring OccupanciesNeighbouring Occupancies Geological/MeteorologicalGeological/Meteorological Design/ Construction CodesDesign/ Construction Codes
Contd.Contd.
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Inspection Report - ContentsInspection Report - Contents• The Compound -Plot / Area OccupiedThe Compound -Plot / Area Occupied
Spread of UnitsSpread of Units Internal Roads/ DrainsInternal Roads/ Drains Fencing / GatesFencing / Gates Watch n WardWatch n Ward
• Plant Operations / ProcessesPlant Operations / Processes• Plan & Block DiagramPlan & Block Diagram• Raw Matls./Operating Parameters/OutputsRaw Matls./Operating Parameters/Outputs• Utilities & Plant ServicesUtilities & Plant Services• Working SystemWorking System• Electrical InstallationsElectrical Installations• Matls. & Goods - Storage DetailsMatls. & Goods - Storage Details
Contd.Contd.
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Inspection Report - Contents Inspection Report - Contents contd.contd.• Bldg.Details -Const./ Height/SeparationBldg.Details -Const./ Height/Separation Protected/Unprotected/OpenProtected/Unprotected/Open• Loss Prevention MeasuresLoss Prevention Measures
Alarms/Auto.DetectionAlarms/Auto.DetectionPush ButtonPush ButtonTelephone / Wireless etc.Telephone / Wireless etc.
• Safety Organisation & SystemsSafety Organisation & Systems• Fire Protection & Fire FightingFire Protection & Fire Fighting
OrganisationOrganisationPortable AppliancesPortable AppliancesHydrants & Fixed SystemsHydrants & Fixed SystemsFire Water/Pumps/Fire Water/Pumps/Hoses/NozzlesHoses/Nozzles
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Inspection Report - Contents Inspection Report - Contents contd.contd.• Mutual Aid Mutual Aid • Emergency Procedures-Onsite/OffsiteEmergency Procedures-Onsite/Offsite• Maint./Inspection ProgrammesMaint./Inspection Programmes• Housekeeping - General & InplantHousekeeping - General & Inplant• Management Systems in PlaceManagement Systems in Place• Management Attitude ON Risk IssuesManagement Attitude ON Risk Issues• BI - DowntimeBI - Downtime
Local Facilities for RepairsLocal Facilities for Repairs Spares / Stand-bySpares / Stand-by Dependencies/InterdependenciesDependencies/Interdependencies Alternate WorkingAlternate Working Reserve Stocks etc.Reserve Stocks etc.
• Insurance Details & Claims RecordsInsurance Details & Claims Records
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Inspections - Site MonitoringInspections - Site Monitoring
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Examination of & Discussions onExamination of & Discussions onMunich Re’s Munich Re’s
Risk Assement Questionnaire Risk Assement Questionnaire ForFor
Fire & Allied PerilsFire & Allied Perils
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Risk Management Risk Management
Practical Approach For Practical Approach For Fire Risk ControlFire Risk Control
• Pre Event Pre Event
• During Event,During Event,
• Post Event Post Event
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Pre Event : Seperation & Reduced EnergyPre Event : Seperation & Reduced Energya)a) Ignition Control – Ignition Control –
b)b) Fire Load Control -Fire Load Control -
• Flameproof equpt.Flameproof equpt.• Process EnclosureProcess Enclosure• Matches/LightersMatches/Lighters• Review Operating ParametersReview Operating Parameters
• Reduce Stored VolumeReduce Stored Volume• Review Materials UsedReview Materials Used• Separate Process from Storage Separate Process from Storage • Limit Storage AreaLimit Storage Area
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During Event : Reduced Energy & Cost During Event : Reduced Energy & Cost
a)a) Detection SystemsDetection Systems
b)b) Fire Fighting –Fire Fighting –
c)c) Review Routes for Growth of FireReview Routes for Growth of Fire
• Manual / Automatic Manual / Automatic • Removal of Goods / Equpt. Removal of Goods / Equpt. • Smoke Removal Smoke Removal • Protection Against Water Protection Against Water
• Fire Doors Fire Doors • Roofs Roofs • Any Connecting Routes Any Connecting Routes
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Post Event :Post Event :Emergency Treatment- Emergency Treatment-
Protect Assets ExposedProtect Assets Exposed to Further Damage to Further Damage
&&Contingency Planning-Contingency Planning-
- Alternative Means for Temp. ProductionAlternative Means for Temp. Production
- Steps to Restore Normal WorkingSteps to Restore Normal Working
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All risk control and financing measures cost money All risk control and financing measures cost money
but some are more cost effective at minimising the but some are more cost effective at minimising the
total cost of risk than others. total cost of risk than others.
Risk control measures can be divided into :Risk control measures can be divided into :
(a)(a) eliminate or reduce the risk;eliminate or reduce the risk;
(b)(b) prevent loss i.e. the risk exists but no loss occurs;prevent loss i.e. the risk exists but no loss occurs;
(c) (c) detect and reduce the extent of the loss;detect and reduce the extent of the loss;
(d)(d) rehabilitate, restore and recover.rehabilitate, restore and recover.
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Loss Control ManagementLoss Control Management
The purpose of Loss Control Management is to limit The purpose of Loss Control Management is to limit the total cost of losses to the lowest possible level by the total cost of losses to the lowest possible level by implementing measures whichimplementing measures which: :
(a)(a) Prevent losses from occurring i.e. eliminating Prevent losses from occurring i.e. eliminating the cause of loss; the cause of loss;
(b)(b) Protect people and/or property from loss; Protect people and/or property from loss;
(c) Limit the extent of any loss that may occur; (c) Limit the extent of any loss that may occur;
(d) Maximise recovery from any loss that occurred (d) Maximise recovery from any loss that occurred
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Measures to limit extent of any loss and to Measures to limit extent of any loss and to maximise recovery from loss are of two basic types:maximise recovery from loss are of two basic types:
a)a) Passive : Passive :
b)b) Proactive : Proactive :
Nature of the measure itself limits the loss or Nature of the measure itself limits the loss or
facilitates recovery without any change in state facilitates recovery without any change in state
e.g. walls, automatic fire doors, curtain boards e.g. walls, automatic fire doors, curtain boards
and the contingency plan.and the contingency plan.
the measure involves taking steps to limit the the measure involves taking steps to limit the
loss or maximise the recovery e.g. sprinklers, loss or maximise the recovery e.g. sprinklers,
burglar alarms and salvage operations burglar alarms and salvage operations
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The measures can also be classified in terms of: The measures can also be classified in terms of:
• Reducing the probability of loss such as fitting Reducing the probability of loss such as fitting
safety guards to machines and removing possible safety guards to machines and removing possible
sources of ignition.sources of ignition.
• Reducing the severity of loss such as sprinklers, Reducing the severity of loss such as sprinklers,
storage of goods susceptible to water damage above storage of goods susceptible to water damage above
ground floor level and providing first aid facilities; ground floor level and providing first aid facilities;
• Reducing both the probability and the severity of Reducing both the probability and the severity of
loss such as education and training of management loss such as education and training of management
and employees and the use of fire resistant building and employees and the use of fire resistant building
materials.materials.
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Risks Result in Injury & Loss forRisks Result in Injury & Loss forNumber of ReasonsNumber of Reasons
● Lack of AwarenessLack of Awareness
● Lack of Capability : Lack of Capability : * Lack of * Lack of
knowledgeknowledge * Lack of Skill or* Lack of Skill or CompetenceCompetence * Lack of Resources* Lack of Resources * Lack of Practical* Lack of Practical Training Training ● Lack of Motivation Lack of Motivation
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Education and Training :Education and Training :
The Human Factor is never absent & hence The Human Factor is never absent & hence
education and training have a major role to play in education and training have a major role to play in
loss reduction programmes and should cover loss reduction programmes and should cover
everyone employed by or associated with the work everyone employed by or associated with the work
of an organisation. of an organisation.
Risk Reduction Risk Reduction
Risk avoidance Risk avoidance
Risk Spreading Risk Spreading
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Risk Financing & Transfer : Risk Financing & Transfer :
Risk Mgt decisions lead to choice between insuranceRisk Mgt decisions lead to choice between insurance
& non-insce.& non-insce.
Among the options of insurance, contract and Among the options of insurance, contract and
captive-insurance Risk transfer by insurance is captive-insurance Risk transfer by insurance is
most common,most common,
Benefits of Insurance : Benefits of Insurance :
• Reduction of uncertainity,Reduction of uncertainity,
• Loss control & risk improvement,Loss control & risk improvement,
• Indemnification,Indemnification,
• Funds for investment.Funds for investment.
Disadvantage :Disadvantage :
• Operating Expns. of insurer,Operating Expns. of insurer,
• Moral hazard. Moral hazard.
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Risk Financing :Risk Financing :
In the long run one pays for his own losses & hence In the long run one pays for his own losses & hence
PrimaryPrimary objective of Risk Financing is to spread cost objective of Risk Financing is to spread cost
of risk more evenly over a period of time to reduce of risk more evenly over a period of time to reduce
Financial strain and likely insolvency due to Financial strain and likely insolvency due to
random large losses, random large losses,
SecondarySecondary objective is to minimise risk costs. objective is to minimise risk costs.
An organisation can finance the risk costs by :An organisation can finance the risk costs by :
• Payment out of current expenses,Payment out of current expenses,
• Thro’ funded or non-funded reserves,Thro’ funded or non-funded reserves,
• Debt or equity financing,Debt or equity financing,
• Pre or post-loss credit. Pre or post-loss credit.
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Risk Retentions :Risk Retentions :
Primarily based on the ability to afford financial Primarily based on the ability to afford financial
Consequences and not based on inability to affordConsequences and not based on inability to afford
suitable cover. suitable cover.
Monitoring the strategy : Monitoring the strategy :
Final but most important step to keep the whole Final but most important step to keep the whole
process going. process going.
Overall objectiveOverall objective is to improve financial performance is to improve financial performance
By helping to reduce expenditure and avoid By helping to reduce expenditure and avoid
potential loss situations. potential loss situations.
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Risk Management ApplicationRisk Management ApplicationAnalysis of LossesAnalysis of Losses
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Analysis of Analysis of Worldwide Losses Worldwide Losses
Over Over Last 25 YearsLast 25 Years
Risk Management ApplicationRisk Management ApplicationRefinery/Petrochemical LossesRefinery/Petrochemical Losses
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• Site / Facility TypeSite / Facility Type• Plant TypePlant Type• Process Unit TypeProcess Unit Type• Status of PlantStatus of Plant• Loss TypeLoss Type
• Material ReleasedMaterial Released• Cause of LossCause of Loss
• Source of IgnitionSource of Ignition
Parameters of AnalysisParameters of Analysis
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Site / Facility TypeSite / Facility Type
Refinery Site 48%Refinery Site 48%
Petrochemicals Facility 20%Petrochemicals Facility 20%
General Properties 10%General Properties 10%
Storage Terminals 8%Storage Terminals 8%
Onshore Production Plant 7%Onshore Production Plant 7%
Jetty Installations 3%Jetty Installations 3%
Other 4%Other 4%
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Plant TypePlant Type
Storage Tanks and Pipeline 23%Storage Tanks and Pipeline 23% Refineries 22%Refineries 22% Oil/Gas Production 13%Oil/Gas Production 13% Offsites 10%Offsites 10% Monomer and Polymer 6%Monomer and Polymer 6%
Petrochemical 6%Petrochemical 6% Fertilisers 5%Fertilisers 5%
Gas Processing 3%Gas Processing 3%
Others 12%Others 12%
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Process Unit Type
Furnace or Heater 10%Furnace or Heater 10% Pipework 9%Pipework 9% Storage Tanks 7%Storage Tanks 7% Drill, Pump, Compressor & 5% eachDrill, Pump, Compressor & 5% each BoilerBoiler Heat Exchanger & 4% eachHeat Exchanger & 4% each Cone Roof TankCone Roof Tank Column, Vessel, Column, Vessel, Flat Roof Tank & Reformer 3% eachFlat Roof Tank & Reformer 3% each Others <2% eachOthers <2% each
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Status of PlantStatus of Plant• Normal Operation 50%Normal Operation 50%
• Start Up 15%Start Up 15%
• Under Maintenance 10%Under Maintenance 10%
• Filling Tanks or Vessels 6%Filling Tanks or Vessels 6%
• Well Drilling 5%Well Drilling 5%
• Plant Shut Down 3%Plant Shut Down 3%
• Process Upset 2%Process Upset 2%
• Emptying Tanks or Vessels 2%Emptying Tanks or Vessels 2%
• Construction 2%Construction 2%
• Others <2% eachOthers <2% each
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Loss TypeLoss Type
• Fire 33%Fire 33%• Explosion 12%Explosion 12%• Explosion With Fire 10%Explosion With Fire 10%• Wind Storm and Flood 10%Wind Storm and Flood 10%• Blowout, MechanicalBlowout, Mechanical & Ship Impact 5% (Each)& Ship Impact 5% (Each)• ContaminationContamination & Mach. Breakdown 4% (Each) & Mach. Breakdown 4% (Each) • Product Loss, Cable Fire 3% (Each) Product Loss, Cable Fire 3% (Each) • Construction Defect < 1%Construction Defect < 1%• Vapour Cloud Explosion < 1%Vapour Cloud Explosion < 1%• Earthquake < 1%Earthquake < 1%• Others < 1% EachOthers < 1% Each
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Material ReleasedMaterial Released
• Feedstocks and Products 41%Feedstocks and Products 41%
• Petrochemicals 31%Petrochemicals 31%
• Gas Processing 13%Gas Processing 13%
• Acids, Glycols, Additives 6%Acids, Glycols, Additives 6%
• Monomers and Polymers 3%Monomers and Polymers 3%
• Others (each) < 1% Others (each) < 1%
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Cause of LossCause of Loss• Operation Error 17%Operation Error 17%• Wind Storm and Flood 16%Wind Storm and Flood 16%• Pipe/Weld Failure 7%Pipe/Weld Failure 7%• Tube Failure 4%Tube Failure 4%• Machinery Breakdown 7%Machinery Breakdown 7%• Electrical Short Circuit 4%Electrical Short Circuit 4%• Valve Leakage 4%Valve Leakage 4%• Pipe Flange Leakage 4%Pipe Flange Leakage 4%• Instrument Failure 4%Instrument Failure 4%• Others < 3% eachOthers < 3% each
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Sources of IgnitionSources of Ignition
• Material Not Ignited 35%Material Not Ignited 35%• Furnace 12%Furnace 12%• Hot Surface 12%Hot Surface 12%• Autoignition 7%Autoignition 7%• Electrical Arcing 3%Electrical Arcing 3%• Operator Error 3%Operator Error 3%• Other Electrical Apparatus 3%Other Electrical Apparatus 3%• Welding 3%Welding 3%• Others < 3% eachOthers < 3% each
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ConclusionsConclusions
Less Incidents Bigger Loss per Incident.Less Incidents Bigger Loss per Incident.
Half of Losses Occur at Refinery Sites.Half of Losses Occur at Refinery Sites.
Losses Evenly Spread Between:Losses Evenly Spread Between: Storage and Pipeline Equipt.Storage and Pipeline Equipt. Processing Plant.Processing Plant.
High Loss Frequency For:High Loss Frequency For: Furnaces/Heaters/Pipework/Furnaces/Heaters/Pipework/ Storage Tanks.Storage Tanks.
Only Half of Losses During Normal Oprn.Only Half of Losses During Normal Oprn.
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Case Studies : (3)Case Studies : (3)
Hazards, Effects & Prevention forHazards, Effects & Prevention for
a)a)Combustible Solids,Combustible Solids,
b)b) Flammable Liquids,Flammable Liquids,
c)c) Flammable GasesFlammable Gases
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Illustrative Case Studies on Illustrative Case Studies on
Risk Characteristics & Underwriting CriteriaRisk Characteristics & Underwriting Criteria
ForFor
Roads, Railways & Bridges Roads, Railways & Bridges
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Next to Follow Next to Follow
Risk Management Policy,Risk Management Policy,
Self Insurance & Captives,Self Insurance & Captives,
PML Role & significance.PML Role & significance.
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THANK YOU THANK YOU