Risk is inherent in any organization, and while organizations invest tremendous time, energy and money in managing many aspects of risk, they often underinvest in one major area: their facilities. A risk-based approach to infrastructure management can help answer these questions:
- Where is the greatest risk within the portfolio today and in the future?
- What projects should be the highest priority to address the risk, given limited capital?
- How can the necessary expenditures be justified to management?
Identifying and managing facility condition risks
A wide variety of risks exists within most building portfolios, including life and safety issues; compliance with codes, mandates and regulations; environmental hazards; natural disasters; and potential exposure of an organization’s image, brand and reputation.
The financial impact can be severe, ranging from loss of business continuity, to hefty fines for non-compliance and lawsuits, to the high cost of emergency repairs and unplanned projects. It's important to identify and quantify those risks in order to make intelligent decisions and develop capital plans that can protect organizations from unforeseen events.
An actionable metric
Many organizations want to do more than identify their facility risk — they want to be able to measure the risk of failure so that it can be minimized by addressing deferred maintenance and conducting proactive maintenance. The risk index is an asset metric that combines system criticality and facility condition to present a more accurate measurement of risk. The risk index process has three steps: create risk templates, calculate the risk index and demonstrate the potential impact on the organization.
Step 1: Create risk template
The first step is to create models for all building types and then break them into major systems. Organizations can define various risk factors and assign weights to indicate relative impact, and each system in a building should be rated on these risk factors. The models can then be applied across the full facility portfolio.
Step 2: Calculate risk index
The risk index is defined as the cost of project requirements (generally identified during a facility condition assessment) linked to the area of risk multiplied by the risk factor and then divided by the estimated replacement value for that system or facility.
Step 3: Demonstrate risk impact
Once risk is identified, addressing critical issues prior to failure is vital. Using “what if” funding scenarios to demonstrate the impact of different funding levels on the risk of an individual facility or the entire portfolio can highlight the financial consequences if the work is not completed.
The risk index provides an objective view into facility risk. How can facility managers act on this data? With a prioritization and budget ranking tool, it’s possible to rank capital projects against each other and determine which projects will bring down the level of risk.
With effective risk management, facility managers can pinpoint areas of risk within an organization’s portfolio and systematically prioritize projects to address that risk. A repeatable, consistent process for evaluating and addressing facility risk enables strategic decision making and provides a level of confidence to an organization’s facility staff and management.