Page 244 - Pipeline Risk Management Manual Ideas, Techniques, and Resources

Scoring the cost of service interruption 101221
tained in the pipeline section. The value of the product lost will The impact factor should be constrained to never be less than
then be part ofthe direct costs. This will obviously not hold true 1 .O. A higher number indicates a greater impact. The upset
for most service interruption episodes, but always including it score is divided by the impact factor to amve at the risk of
will ensure consistency in this evaluation. service interruption.

Indirect costs
Example IO. 3: Low indirect costs (Case A)
These costs are difficult to calculate and are very situation spe-
cific. When no better information is available, it is recom- The section of pipeline being evaluated for this example is a
mended that a default percentage of the direct costs be used to gas transmission line serving a single user: a power cogenera-
encompass the total indirect costs. Possible default values for tion plant. This plant has no alternative supplies. The contract
such a qualitative assessment are as follows: with the pipeline company specifies that the pipeline company
is responsible for any and all damages resulting from a service
High profile customers impacted Direct costs x 2 interruption (unless that interruption is caused by force
Large-volume single users, many individual customers. rnujeur-natural disaster, acts of Go4 war, etc.). Damages
Notable or critical (hospital, school, strategic industry, etc.) would include costs to the power plant itself (lost power and
customers impacted. Legal action is probable. Competitors steam sales, cost of restarting) plus damages to the power and
will benefit. Public outrage is possible. High degree of unfa- steam users. The service interruption potential (upset score)
vorable publicity is possible. Additional impacts down- was previously scored as 484 points.
stream of customer being supplied. High political costs Gas sales to the plant are valued at approximately $9,000 per
possible. month. Company-wide gas sales are approximately $72,000
Neutral Direct costs x 1.0 per month. The volume of gas in this section of pressurized pipe
No critical services are interrupted. Public concern would have is valued at approximately $1 1,000. Power plant restan costs
to be addressed. Some negative publicity. Isolated episodes are estimated to be $60,000 (including some possible equip-
of legal action are anticipated. ment damage costs). Damages to power and steam users (cus-
Low Direct costs x 0.5 tomers of the power plant) are estimated to be $0.5 million per
Little or no legal action anticipated. Competition factor is not year. The cost of not getting contracted volumes of gas into the
relevant. No critical services are interrupted. pipeline are estimated at $2,600 per month.
Indirect costs are thought to be low because most costs are
Note that the actual costs can be dramatically higher in a spe- already covered in the direct costs (because they are specified
cific situation. Use of this default provides a convenient in the contract). Also, the customers impacted are all industrial
method to acknowledge the existence of indirect costs even with fewer anticipated repercussions (not already covered by
when they cannot be accurately quantified. Because a relative the contract) from an interruption. Indirect costs are scored as
assessment is being done, absolute accuracy is not critical. 0.5 x direct costs.
Alternatively, when indirect costs can be identified and
quantified, a worksheet can be designed to tabulate these costs Revenue loss = $9,000
(seeTable 10.4). Direct costs = 9,000 + 1 1,000 + 60,000 + 500,000/12 + 2.600 =
We then combine the two worksheets (Tables 10.3 and 10.4): 4125,000
Indirect costs = 0.5 x 125,000 = 463,000
Total costs (direct and indirect) $ - Total costs = -$188,000
Total costsimonthly pipeline revenues $ - Total revenues (company-wide) = $72,000,000 per year = $6,000,000
per month
Impact factor= 10x(188,000L6,000,000)=3.1
Quantifying costs versus revenues in this fashion automati- Risk of service interruption = 484 3.1 = 156
cally weights higher those pipeline sections that are more criti-
cal. A section of pipe near the termination of a major This is seen as a critical pipeline section in terms of risk of
transmission line, for example, carries a high annual sales vol- service interruption, due to the relatively low score of 156.
ume and will score a high cost of service interruption.
The impact factor is then calculated based on the ratio of
service interruption costs to total revenues (as defined earlier). Example 10.4: Low indirect costs (Case B)
This ratio is multiplied by 10 only to make the numbers easier
to handle. The section being evaluated is a high-pressure liquefied
petroleum gas (LPG; propane and ethane mixture) pipeline that
Impact factor = (total costsirevenues) x IO serves an industrial complex. This line scored 391 points in a
previous evaluation for potential for service interruption (upset
Table 10.4 Cost of service interruption worksheet-indirect costs score).
The industrial plant has alternate sources of LPG from
Loss of future sales (includes any reduction nearby storage facilities. The contract with the pipeline com-
in contract negotiating power $ -per month pany allows for some service interruptions with only minor
Loss of financial/legislative support $-per month
Cost of increased regulatory burden $ - month penalties. Value ofproduct sold and transported via this section
per
Total indirect costs $-per month is approximately $2,000,000 per month. All pipeline LPG busi-
ness in this company amounts to approximately $27,000,000