First Things First? The Difference Between Risk-Based Decisions and Reliability-Based Decisions

In the last number of months I have come across a lot of RFPs that are aimed at some aspect of managing infrastructure. With alarming regularity the terms “reliability-based decision making” and “asset management” are thrown together in the same sentence, implying with little ambiguity that asset management was all about making reliability-based decisions.

This was alarming for several reasons. There seems to be a lack of understanding that asset management is first rooted in making risk-based decisions and that asset management has a far greater reach than just “managing assets”. I am also concerned about the increasing frequency of local government entities releasing these requests, and the financial implications of missing the mark when reliability-based decision-making precedes risk-based decision-making.

Asset management is first about making risk-based decisions, not reliability-based ones. There is a big difference between the two. A risk-based decision is one that selects a course of action to address an area of risk: some realistic and likely event (based on asset condition, proximity, poor design, high failure rate, etc.) that at that time poses an unacceptable risk to the business, or a risk to the Level of Service (LOS). It is important to note that not every asset or system that flounders poses an equal risk – only the ones that significantly affect the objectives of the organization. Reliability-based decisions do have their place and importantly so, but at the right time and with the right focus first identified through risk evaluation. Risk-based decisions are strategic while reliability decisions are tactical and involve assessing options on how to address the overall expected reliability of an asset.

There are several factors that influence risk-based decisions: How important to the overarching organizational objectives is the asset or system (a specific collection of assets)? Conversely, if system performance drops or falters sufficiently, then what is the impact to the overall mission or facility objectives? This is commonly referred to as a criticality rating of systems and assets. The higher the criticality rating the more the system potentially affects the overall facility mission or objectives. It should be noted that criticality is not just production related, but can include environmental, safety, regulatory, commercial issues, and more. Speaking beyond assets, criticality and risk ratings can and should be applied to other organizational structures, including things like internal business processes and external service providers.

When criticality is merged with the likelihood of the impact occurring we derive a risk to the business. At this point we have a clear understanding of which systems and assets pose a risk to the operation, not how reliable they are. Not all assets and systems pose an equal risk, and so should not be treated with equal focus for reliability. Risk-based decisions are rooted in a far more strategic focus. Change the overall objectives or values of an organization, or change the design of part of the plant and you would change the areas that pose a risk to that operation. And you would change the area of focus for reliability.

And here is the idea of first things first. It is strategically very important to know what areas of an operation must never fail unexpectedly. These critical areas are where several options for tactical reliability initiatives and actions should be evaluated first for their effectiveness and cost efficiency. Areas of lesser risk would next receive appropriate attention.  Risk-based decisions prioritize the focus and assign the best use of limited resources. Reliability decisions are then part of managing specific assets in the most economical way to manage the facility’s overall risk profile.

The financial implications of looking at reliability before risk are also potentially significant. Focusing initially on reliability-based decisions can result in trying to spread resources across all assets in an attempt to elevate the reliability of everything to levels simply not warranted by some of those assets.

More importantly, it will direct resources away from assets that are most critical and should be the first focus in funding and risk-mitigation strategies. It is vital to remember that just because an asset is broken does not make it critical or imply that it poses a risk to your operation. It may, but not necessarily.

The goal of a real asset management program, as described in ISO55000 is to garner the maximum benefit from an asset. Money should first be spent on addressing the biggest risks to the business. This can be through some form of capital project, refurbishment, redesign, predictive and preventive maintenance and other forms of risk mitigation, all toward making the most critical assets reliable to the point the optimal reliability benefit is reached for the least overall spend. Once these areas have been addressed, any resources remaining get applied to the next lower risk-to-business (or LOS) and critical systems and assets. This keeps first things first and directs money and resources to the most important areas of an operation. The savings potential can be large depending on the local context, the magnitude of backlog of failures/failing assets, the condition of the infrastructure, and, of course, the discipline to apply the tactical reliability measures on the critical assets and risky areas.

Facing the challenges of crumbling infrastructure and economical and financial constraints, making risk-based decisions is a lot like accident triage. The order of accident triage is the order of greatest risk to life: Breathing, Blood, Bones. Without air all the rest of the efforts to save a life are wasted. Once the greatest risk is dealt with, the medics move to the next level. Similarly, when it comes to infrastructure spending and a desire to move to a real asset management mindset and framework we need to start with the highest risks. Risk-based decisions focus our resources on the most important areas first: those that put the Level of Service or business at risk. It is the air needed to stay alive. When that has been addressed, we can move onto the next level. Reliability-based decisions are akin to which procedure is best used to address a risk under the circumstances.

For the sake of fiscal responsibility, for decisions that apply the best use of constrained resources against increasing need, it is imperative that organizations begin to better understand the concepts and principles behind a robust asset management program reflective of ISO55000, that first correctly sets priorities through risk-based decisions, and then addresses questions of reliability.

There are excellent resources easily accessible for anyone interested in elevating their game from the Institute of Asset Management, the actual ISO 55000 standard, the Asset Leadership Network, and more. It’s actually not that hard, it’s mostly common sense, and putting first things first.