DUE DILIGENCE ENGINEERS 22. Operations Due Diligence DUE DILIGENCE ENGINEERS Increasingly organisations are required to demonstrate due diligence for the management of assets. Traditionally this has been done ‘stair-wise’ (bottom up) outside the context of an organisation’s enterprise risk framework. This tends to leave the senior decision makers with an uncertainty as to the precise meaning of the results. Purpose DUE DILIGENCE ENGINEERS Risk is generally divided into two broad types, pure risk or downside risk and speculative risk or upside risk. Operations due diligence primarily addresses downside risk issues. Upside vs Downside DUE DILIGENCE ENGINEERS Three Risk Types DUE DILIGENCE ENGINEERS Context Business 'silo' Enterprise Risk Management Framework Confidently escalate credible, critical risk issues Confidently bury risk dross Common mode or common cause failure outside 'silo' RM processes Organisational Confidence Engine OSH&E 'silo' Project 'silo' Particular Sites DUE DILIGENCE ENGINEERS Operations Due Diligence Low likelihood, high consequence events Criticality Management Critical off site, contextual events Likelihood Consequence Vulnerabilities Reliability Management Frequent, small impact events XXX XX X - Value addeds Major on site common mode events Potential ‘show stoppers’ DUE DILIGENCE ENGINEERS Top Down not Stair-wise Bottom Up Context vulnerability assessment (criticality) Common mode (zonal) vulnerability assessment (risk) Functional availability modelling (reliability) Options review and investment payback DUE DILIGENCE ENGINEERS Three assessments context Primary operating mode i) Context (or boundary) vulnerability assessment iii) Functional availability modelling ii) Common mode (zonal) assessment Alternate operating modes Site boundary Threats (unwanted inputs) Critical success factors (desired outputs) DUE DILIGENCE ENGINEERS This is a high-level context (boundary) vulnerability analysis establishing the risk context for the review. It examines the credible boundary threats to the critical success factors of the organisation, plant or project. This is an established process derived from the security/military intelligence community. i. Functional boundary analysis. DUE DILIGENCE ENGINEERS Context - Functional Vulnerability Analysis - criticality not risk Critical Success Factors >>> (Desired outputs) THREATS (Unwanted inputs) People (Staff, contractors etc) Product Ontime Delivery Product quality & quantity Community Physical Environment Equipment Assets Compliance Shareholder Satisfaction Alcohol / drugs xxx - - - - - xxx xxx Bushfire x - - x x xx - xx Change of ownership x - - - - - - x Critical Equipment Failure xxx xxx xxx xx xxx xxx xxx xxx Discrimination x - - x - - x x Distribution failure - xxx - - - - - xxx Extreme Weather Event xx - - - - x - xx Fire / Explosion xxx xxx xxx xxx xxx xxx xxx xxx Fraud x - - xx - - - xxx Industrial action xxx xxx xxx xx - - - xxx IT Threat - business management system x - - - - - - x Maintenance Outsourcing x - - - - x - Noise / odour / dust xx - - x x - xx xx Non availability of skills x x - - - xx - xx Offsite utilities supply failure (water, gas, electricity, etc) x xxx xxx x x - x xxx Process control failure (IT) xxx x xxx xx xxx xxx xxx xxx Raw Materials Supply failure - xxx xxx - - - - xxx Raw product contamination - x xx - - x - xx Regulatory regime change - - - - - xx xxx xxx Sabotage / terrorism xxx xxx xxx xx x xxx - xxx DUE DILIGENCE ENGINEERS This process identifies the critical common mode and common cause failures such as issues associated with fires/ explosions, pipe failures and power. This is usually done on a geographic and incident history basis. These are typical common mode failures for which organisations purchase insurance, especially for fires and explosions. This process is long established in underwriting and HPR industries. ii. Zonal Vulnerability Assessment DUE DILIGENCE ENGINEERS This focusses on the identified critical elements for each operating mode, consistent with standard reliability modelling techniques. iii. High level functional availability modelling. DUE DILIGENCE ENGINEERSSchematic Layout of a Water Supply Network Operating Modes DUE DILIGENCE ENGINEERS Operating Modes Catchment Storage Treatment Service Pump Reservoir Reservoir Station 92.71% 99.99% 99.90% 95.04% 99.90% 97.75% Water Shut Off Area Source Catchment Diversion Reticulation 99.00% Weir 97.82% 99.99% 81.00% 99.98% Balancing Treatment Service 83.72% Reservoir Reservoir Catchment Storage 89.00% 95.04% 99.00% Reservoir 99.99% 99.90% DUE DILIGENCE ENGINEERS i) Systems operate continuously (including any possible scheduled breaks); ii) Systems are repairable; iii) System availability has reached steady state, that is, enough time has passed from commissioning for the wearing in period to have negligible affect on system availability; and iv) Systems have a constant failure rate (that is, random failures). Systems rather than components DUE DILIGENCE ENGINEERS In order to test the preliminary models and the results of the zonal assessment and context vulnerability assessment, a series of generative interviews should be conducted with representative key stakeholders. This is a worthwhile reality check in most situations and provides the most useful feedback to the proponent organisation. Generative Interviews options review etc DUE DILIGENCE ENGINEERS Summary Functional Availability Model Results Presentation External and off-site Common Mode Failures Site Days Prob Unavail Distribution out (pa) -ability Power Process Sabotage/terrorism 1000 0.001 1.00 External inundation (ﬂood) 90 0.01 0.90 Drought 36 0.10 3.60 Electric Pumping Manufacturing Packaging Road & Power supply failure (grid loss) 7 0.10 0.70 Power Rail 0.9280 Bushﬁre 5 0.10 0.50 Change of government 5 0.25 1.25 0.9992 0.9917 0.9760 Industrial issues 1 0.1 0.10 0.9912 0.9899 Total Days Unavailable: 8.05 Availability: 0.977945 Days unavailable: 8.05 3.20 0.30 3.02 8.77 3.69 26.29 DUE DILIGENCE ENGINEERS ‘Manufacturing’ Availability Model Results Presentation At least 1oo4 0.4000 0.4000 0.4000 Common Mode Failures 0.4000 Days Prob Unavail- 0.8704 out (pa) ability 415V switchroom ﬁre 120 0.01 1.20 MCC ﬁre 120 0.01 1.20 Line 1 At least M’facturing Loss of PCS control supervisory system 2 0.3 0.60 2oo3 availability 0.9000 0.9999 0.9917 Total Days Unavailable 3.00 Availability 0.9918 Line 2 0.9950 DUE DILIGENCE ENGINEERS Comprehension DUE DILIGENCE ENGINEERS Gladstone Area Water Board (GAWB) commissioned R2A to undertake a critical infrastructure due diligence review. Gladstone Area Water Board (GAWB) owns and operates bulk treated (potable) and raw (non-potable) water storage and supply system throughout the Gladstone region of Central Queensland. Gladstone Area Water Board http://www.qca.org.au/files/W-GAWB2010-PriceInvest-Sub2-App16-1209.pdf. Viewed on 15Nov2012. DUE DILIGENCE ENGINEERS HEADING GOES HERE DUE DILIGENCE ENGINEERSGAWB Toolooa Reservoir (50 Ml) Fitzsimmons Street Reservoir (50 Ml) 16 Ml CSE & CPM Boyne Smelter QAL Gladstone WTP Hansen Road pipeline (450 / 375 mm) Yarwun WTP GPC Hansen Rd & Mt Miller cross connection (300mm) Bypass Mt Miller pipeline (900mm) Fishermans Landing pipeline (500mm) Serrant Road pipeline (300mm) Awoonga Dam Awoonga Dam Catchment Awoonga Dam Pumping Station (3 pumps) Sun Water pump station & transfer pipes 300mm Orica RTA Transpac 300mm 500mm 150mm CA QER Orica Study boundary 200 & 250mm 150mm GPC RTA Bulk transfer pipes (1440 & 700mm) Fishermans Landing pipeline (450mm) 2x250mm Yarwun TW pumping, storage, pipelines Gladstone TW pumping, storage, pipelines GRC & Yarwun TW customers GRC & Gladstone TW customers DUE DILIGENCE ENGINEERS Boundary Vulnerability Assessment GAWB Delivery Critical Success Factors Boyne Smelter Cement Australia Gladstone Port Corp. Orica QAL QER RTA Transpaciﬁc GRC CSE & CPM Raw water (Ml pa) 650 230 580 1,120 10,775 10 3,700 25 - Treated water (Ml pa) 80 40 - 570 6 - 515 - 9,000 Credible Threats 1 Dam failure (earthquake, ﬂood) xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 2 Bushﬁre (catchment) x x x x x x x x x x 3 Power failure (cyclone/storm, supply failure, switchyard failure) xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 4 Regulatory changes incl. reduced allocation x x x x x x x x x x 5 Inundation / ﬂood (tailwater) xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 6 Industrial issues incl. contractors esp treated water xxx xxx - xxx xxx - xxx - xxx 7 External comms failure eg backup comms, modems x x x x x x x x x x 8 Drought xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 9 Contamination x x x x x x x x x x 10 Sabotage / Terrorism xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 11 Sun Water infrastructure failure xx xx xx xx xx xx xx xx xx xxx DUE DILIGENCE ENGINEERS High Level System Availability Model External Threats Awoonga Pump Station Bulk Transfer Storage Bulk Distribution Bulk Raw Water Customer Bulk Treated Water Customer DUE DILIGENCE ENGINEERS Results DUE DILIGENCE ENGINEERS Results DUE DILIGENCE ENGINEERS R2A were commissioned by the APA Group to complete a review of the security of supply of the Victorian Transmission System (VTS) with particular regard to the economic benefits to existing and long-term customers of the proposed Western Outer Ring Main (WORM) Project in Victoria Western Outer Ring Main (WORM) http://www.aer.gov.au/sites/default/ﬁles/ C-5%20R2A%20WORM%20Security%20Supply%20Report.pdf Viewed 18 Oct. 2012. DUE DILIGENCE ENGINEERS Functional Model Wollert LongfordIona Culcairn Pressure constrained Melbourne gas market (approx 80% of Victorian market or 800 TJ for average winter peak) NSW 353 TJ per day max limit 92 TJ per day max limit Proposed WORM 970 TJ per day max limit (Longford and Bass gas) W W L DB C 30% 20% 50% Pakenham Bass gas 60 TJ per day max limit P West North East DUE DILIGENCE ENGINEERS East Supply Model Credible External and off-site Common Mode Failures East Supply Model Boundary Days Prob Unavail out (pa) -ability East supply failure (accidental) 14 0.025 0.35 East supply sabotage/terrorism 7 0.010 0.07 Longford Off shore plant failure 14 0.03 0.47 Dandenong Dandenong Operator Bushfire 5 0.10 0.50 pipeline City gate 0.9840 Industrial issues 1 0.1 0.10 0 0.01 0.00 0.00 0.9900 0.9990 0.9990 Total Days Unavailable: 1.49 Availability: 0.995927 DUE DILIGENCE ENGINEERS East Supply Interruption Season Victorian, market,average, demand,,(TJ,per, day) Surplus/deficit, with,total,East, failure,?,(TJ,per, day) Surplus/deficit, with,total,East, failure,plus, WORM,?,,(TJ,per, day) Extra,gas, available,to, market,due,to, WORM,,(TJ,per, day) Summer 331 216 296 ? Shoulder 633 ?84, ?6, 78 Winter 995 ?443, ?368, 75 DUE DILIGENCE ENGINEERS Winter Season Interruption Costs East%supply%failure%duration (days) $%per%TJ Without%WORM with%WORM Difference 5 $106,300 D$235,454,500 D$195,592,000 $39,862,500 10 $89,750 D$397,592,500 D$330,280,000 $67,312,500 15 $81,460 D$541,301,700 D$449,659,200 $91,642,500 DUE DILIGENCE ENGINEERS In the immediate term, the WORM Project was determined to be economically viable to existing customers on the basis of the reduced cost of risk in the shoulder and winter seasonal markets. Additionally, the WORM Project is a vital element to support an augmentation of the supply transmission capacity to the Victorian gas market, facilitating long-term market expansion benefits. Findings DUE DILIGENCE ENGINEERS In these times of "due diligence" the need to explain "everything" in ways that senior decision makers understand has become paramount. Operations due diligence addresses this concern by placing reliability of systems into the downside risk context of major enterprises. This requires the convergence of existing risk and reliability skills. Explaining “Everything” DUE DILIGENCE ENGINEERS Goats R2A Due Diligence Engineers R2A Pty Ltd Level 1 55 Hardware Lane Melbourne VIC 3000 Australia P +61 1300 772 333 F +61 3 9670 6360 E [email protected] W www.r2a.com.au ABN 66 115 818 338