It is a fact that maintaining the integrity of your assets would probably (most certainly) increase your operability, reduce your unexpected down time, reduce your operational interruptions, and reduce your overall risk to safety, environment, and asset damage.
All this is associated with the occurrence of a probable event, and a probable consequence. These two probabilities define the risk of a sever impact. The probability of occurrence as one may know form media and previous data is higher than the probability of a severe impact. This may be due to various factors, but generally since on shore operation is inherently safer and offshore. In the case of Canadian Basin, the vastness of land in Canada, the disperse population and the spread of operations may be factors that reduce the inherent risk of operations.
This may lead one to conclude that money spent on integrity is getting harder and harder to justify to shareholders, and appears to be more like a sunk cost.
Current regulations and even criminal codes are properly in place. These are not as exhaustive as the other industries, such as the nuclear industry, but none the less, are in place. However, these define the minimum standards, not current best practices. One may still be found guilty even if all regulatory requirements are in place if it can be proven that sufficient risk reduction could have been achieved with additional protection / mitigation activities in place. However, such activities are very difficult to justify to shareholders, especially when they are non-profit producing activities.
In the financial world and in certain countries, risk reduction activities that meet the regulatory requirements, are projects that have to be done. They don’t have a positive net present value as they are merely projects, the cost for which is not expected to be recovered, unless an incident takes place. Otherwise, these activities are considered part of operational costs and expensed as incurred.
In cases where implementing integrity strategies that strictly meet the regulatory requirements does not justify reducing the risk to acceptable levels, one may chose to go beyond minimum requirements. There is no limitation of what one may do to reduce the chances of occurrence of an event that could result in undesirable consequences. In such a case, one may chose to apply the ALARP concept, and follow current best practices and procedures, such that risk is properly reduced and due diligence is met. This is often associated with an integrity cost, which falls on the ears of non-integrity professionals as “sunk cost”.
The challenge arises when one tries to justify such a cost. In spite of proper risk assessment tools that are currently available to justify the level of risk requiring cost associated with integrity mitigation actions, one can argue against it. One can and will find holes in the presented argument to justify the prevailing non-spending mentality on integrity and profit culture that currently rules Western Canada.
How can a manager of integrity justify to his VP that the cost of integrity is not a sunk cost? Given the operating experience, one incident will justify all money spent on integrity. How can Integrity costs be correctly accounted for in the company’s financial statements? How can a correct estimate of the design life and integrity cost along the life of the asset actually be reflected in the company’s financial statements and positively impact the estimated earnings per share EPS? How can a quantified probability estimate of possible threats lead to a justifiable expense item on the financial statement which will pay for the integrity mitigation option that is awaiting one’s signature?