Daily Archives: July 20, 2008

Equipment Breakdown Risk Management

At risk of sounding like a broken record (or a scratched CD, for you young twitterers), your supply chain is fraught with risk! However, the more risks you’re aware of, the more risks you can mitigate, especially if someone gives you some tips on how to identify and mitigate those risks. That’s why I enjoyed a recent article in Industry Week by Anthony J. Trivella of The Hartford Steam Boiler Inspection and Insurance Company on Mitigating Equipment Breakdown Risks.

In his article, Anthony notes that the most vulnerable part of many businesses is the equipment that keeps them up and running — and if the equipment, or the underlying infrastructure that supports it, breaks down, commerce usually comes to a stop and profits vanish as customers go elsewhere for their products and services. Furthermore, risks are being exacerbated as four trends are converging to drive risk to higher levels than ever before: infrastructure is aging; demand for equipment is increasing globally; energy demands, and costs, are rising rapidly; and technology is proliferating faster than Fibonacci’s rabbits.

The Aging Infrastructure and the Data Explosion

The U.S. infrastructure, and the power grid in particular, is being strained by the proliferation of power-hungry technology. (Data centers are now sucking up close to 20% of all energy produced in the US! [IT: The Biggest Threat to Our Energy Future]) Much of the current system was developed over half-a-century ago, and was not designed for today’s energy needs. In addition, many equipment owners neglect to install adequate surge protection, and place their business activities at increased, unnecessary, risk.

The Global Battleground for New Equipment

As the GDP of developing nations that we have been outsourcing to for most of the decade continues to grow, so do their middle class – who now want what Americans want. China and India account for 40% of the global population, and by some estimates, their middle class is now larger than the US population. However, worldwide production hasn’t increased at the same pace, so in addition to a fight for easily made DVD players, there’s also a fight for the modern equipment needed to build skyscrapers, road, bridges, and power grids.

Rising Energy Demands and Costs

Peak demand for electricity in the US is expected to increase by 18% in the next 10 years while committed power generation is projected to rise a mere 8.4%. Considering the total annual energy demand of the US, that’s a huge differential. Can you say “rolling blackouts”? I hope so, because that’s looking more and more likely every year! (So, start greening your roofs, using geothermal to cool your buildings, installing those solar panels and wind mills, and watching that fuel cell technology … because, if uninterrupted power is critical to your business, generating your own power is the only way you’re going to insure you have power when you need it.)

Technology Proliferation

Just look at your average worker who needs a utility belt to hold all of his iPhones, iPods, iFaxes, iBooks, etc. etc. etc. and you can see that we have become slaves to technology. (It’s a damn good thing we’re still not close to achieving artificial intelligence!) How many computer systems do you have? Really? Better count again … between desktops, laptops, servers, backup-servers, backup machines, machines in repair, etc. – I bet you have three times as many machines as you think you have. (And yes, that’s one of the reasons your energy bill is going through the roof!) Then there are all of the different enterprise software systems that you use to manage your business. And your mobile devices. Point of Sale devices. etc. etc. etc.

This widespread use of electrical and electronic equipment, which is highly vulnerable to power surges and other disturbances, is creating equipment and business risks for commercial operations whose owners may not understand their exposures. Moreover, technology is advancing so rapidly that much of it becomes obsolete quickly, making it difficult to repair or find replacement parts. In many cases, if key components are unavailable, it must be completely replaced.

Unprecedented Risks Require Unprecedented Mitigations

Equipment owners need to assess their risk exposure, improve maintenance and operation procedures accordingly, develop contingency plans, and insure they have appropriate insurance protection. Some specific things that can be done include:

  • the life-span of large transformers can be maximized via dissolved gas analysis and other tests that can identify defects and necessary repairs before the transformer breaks down
  • key data systems and servers can be backed up by redundant surge-protected uninterruptable power supplies
  • on-site power generation systems can be installed to not only provide emergency backup, but reduce the amount of power the business needs to draw from the grid at peak times