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A quantitative approach to failure of assets

Lookup NU author(s): Professor Christian Hicks

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Abstract

The failure of assets is an important strategic issue for organizations. Failure Mode and Effects Analysis (FMEA) is a commonly used tool for analysing potential failures and predicting their effect on the system. However, FMEA viewed from the perspective of corporate governance, lacks transparency, repeatability and the ability to continuously improve the existing analysis. In this paper a method is proposed to express the probability of the failure of assets as a function of explanatory variables, such as age, utilization, operating environment, maturity of maintenance processes, education level of maintenance personnel or the number of safety violations. This method is based on the way financial economists model the probability of failure of firms. A ranked list of risk is produced that is based upon the probability of failure of an asset combined with the loss associated with failure. The output of the method can be used to support the traditional FMEA analysis as an early warning model by quantitatively predicting the economic loss of failure of an asset. The main theoretical contribution of the paper relates to the application of logit modelling for evaluating risks associated with the failure of physical assets. The method will be demonstrated and evaluated through a case study on the failure of nuclear power plants and is based upon explanatory variables which were available in practice.


Publication metadata

Author(s): Braaksma J, Meddema L, Klingenberg W, Hicks C

Editor(s): Grubbstrom,RW; Hinterhuber,HH;

Publication type: Conference Proceedings (inc. Abstract)

Publication status: Published

Conference Name: Sixteenth International Working Seminar on Production Economics

Year of Conference: 2010

Number of Volumes: 4

Pages: 27-38


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