Page 243 - Pipeline Risk Management Manual Ideas, Techniques, and Resources

10/220 Service Interruption Risk
dismissal of key personnel or loss ofpolitical support are possi- quence. Note that the total revenues can be for the pipeline
ble in some cases. In some societies, the loss of service to a crit- company as a whole or for a specific region or for specific
ical customer might have the opposite effect. In this case, the products, depending on the type of comparisons desired.
interruption of service might bring emphasis to a need for The revenue is intended to be a measure of the importance of
resources. If the critical customer has her attention brought to the section from a business standpoint. It must be acknowl-
such a need, her power and influence might be favorably edged that this is an imperfect measure since complicated busi-
directed toward the acquisition of those resources. Where such ness arrangements can obscure the actual value of any specific
situations exist, this additional risk may not be well publicized, pipeline section. Within a single pipeline section, there might
but, in the interests ofthoroughness, it should be considered in be product destined for several markets at several prices.
some fashion. Product in the pipeline might be owned by other parties, with
Loss of credibility, loss of shareholder confidence, and the pipeline operator obtaining revenues from the transporta-
imposition of new laws and regulations are all considered to be tion service only. Sales should include all revenue generated by
political costs ofpipeline failure. the pipeline section while in service. When only transportation
It is realistic to assume that in most situations, regulatory fees are received, the annual sales should include those trans-
burdens will increase on a higher incidence of pipeline acci- portation fees and a figure representing the value of the product
dents and perhaps even as a result of severe service intermp- itself.
tions. These burdens might be limited to more regulatory
inspection and oversight or they might also include more Outage period
requirements of the pipeline. Arguably, some regulatory reac-
tions to incidents are somewhat exaggerated and politically The costs associated with a service interruption will usually be
motivated. This can be a reaction forced by an outraged public related to the duration of the outage. For convenience, direct
that insists on the most reliable pipeline operation. Regardless costs that are time dependent are normalized to monthly values.
of the initiating mechanism, regulatory requirements represent While any time frame could be used, a month is chosen as
a real cost to the pipeline operation. appropriate because quarterly or annual figures might over-
In a capitalist economy, loss of shareholder confidence can shadow the one-time costs, and shorterperiods might be incon-
be reflected in a reduced stock price. This in turn might reduce venient to quanti@. Other outage periods may be more
the company’s ability to carry on financial transactions that appropriate depending on product value and magnitude of one-
otherwise might have enhanced its operation. A lower stock time costs. While it is not anticipated that an outage will last for
price might also impact the company’s operating cxts if the a month-most will be for hours or days-this is a time frame
“cost of money” is higher as a result of the stock price change. that will serve to normalize the costs.
This in turn will affect the resources available for pipeline oper-
ations.
Loss of credibility reduces the company’s effectiveness in V. Scoring the cost of service
contract negotiations. The ability to show a superior perform- interruption
ance and reliability record commands a premium to some cus-
tomers. In a competitive market, such a record is especially The costs of a service interruption are grouped as direct costs
valuable because it sets one company apart from others. and indirect costs.
The common denominator in all of these aspects of cost of
service interruption is the cost. This cost can generally be Direct costs
expressed in monetary terms. Even the cost of human safety
can be expressed in monetary terms with some degree of suc- Using the somewhat arbitrary outage period of 1 month, a
cess (see Chapter 14). Some aspects are easily quantifiable and, worksheet can be developed to tabulate the direct costs (see
hence, easy to score in this risk assessment. Other aspects are Table 10.3).
indirect costs and are not easily scored. __instances x $__average cost per incident
A weighting scheme is needed to place the various aspects in Costs ofnot receiving product into pipeline (interruption ofa
proper relation to one another. The evaluator is urged to care- supplier) $ __per month
fully examine the model scheme presented here to see if this Total direct costs $__per month
model is appropriate for the socioeconomic situation of the It can be conservatively assumed that the event that caused
pipeline to be evaluated. Costs are relative and must be the service interruption also caused the loss ofthe product con-
expressed as monetary amounts or as percentages of some
other benchmark.
Table 10.3 Cost of service interruption worksheet-direct costs
Revenues
Monthly revenue from this pipeline
Revenues from the section being evaluated are thought to be a segment $ __per month
reasonable measure of the value of that section. Note that a sec- Direct Costs
tion’s revenues must include revenues from all downstream Loss of sales $ __per month
sections. This automatically values a “header” or larger Value ofproduct in section $-
upstream section higher than a single-delivery downstream Damages to be paid per contract $ __per month
section. Comparing the revenues for the section evaluated with Probable additional damages to be paid $ __
the total revenues provides the basis needed to score the conse-