1. Risk Assessment: A Practical Guide to Assessing Operational Risk
Chapter 19:
Business Aspects of Operational Risk Assessment
Elyce Anne Biddle, PhD West Virginia University
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2. Business Aspects of Operational Risk Assessment
Objectives
Introduce Business Aspects
Present Prevention through Design’s Role in Making the Business Case
Present Case Studies that support the Business Case
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3. Business Aspects of Operational Risk Assessment
Objective
Control the risk of hazards
Process
Risk assessment
hazard id,
risk value,
control
Funding
competition
value
Business Case
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4. Business Case Definition “what’s in it for the company” Outputs
Financial
Net present value (NPV) Internal rate of return (IRR)
Return on investment (ROI) Discounted payback period (DPP)
Non-Financial
Customer satisfaction Corporate Social Responsibility
Product defects Corporate reputation
RISK REDUCTION
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5. HOW ??? WHAT INSTRUMENTS?? WHAT TOOLS?
Business Case
HOW ??? WHAT INSTRUMENTS?? WHAT TOOLS?
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6. The Business Case Development Tool
History
Value Strategy
User’s Guide
TODAY
Business Case Tool-General Industry
Business Case Tool-Specialized Event, Industry, Conditions
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7. The Business Case Development Tool
Figure 19.1 Opening page of the Business Case Developer Tool
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8. The Business Case Development Tool
Figure 19.2 The Business Case Developer Tool - Step 1
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9. The Business Case Development Tool
Step 1--formative background phase
Step 2--current state of risk
Step 3--solution(s)
Step 4--process changes leading to financial/non-financial measures.
Step 5--report
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10. Business Case Examples
Case Example One: Post Incident
In July 1999 three workers were killed in a crane collapse during the construction of a stadium pictured in Figure 19.3 before the incident. A crane was lifting a section of the roof weighing over 450 tons when it collapsed (pictured after the collapse in Figure 19.4) (next slide).
OSHA’s investigation revealed that crane's rated load was exceeded when the roof section was first lifted off the ground; workers were not kept clear of the suspended 450 ton load during the morning of the lift; and personnel platforms were used to lift workers during dangerous weather conditions.
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11. Business Case Examples
Case Example One: Post Incident
Figure 19.3 Stadium Construction before Collapse
Figure 19.4 Extensive Damage to Stadium after Collapse.
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12. Business Case Examples
Cost Categories
Expenses (in millions of dollars)
Construction Costs
413.9
Interest paid on bonds
330.8
Repairs
100.0
Jury Awards
99.0
TOTAL
943.7
Table 19.1 Costs incurred as a result of the stadium collapse
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13. Business Case Examples
Case Example Two: Regulatory Requirement
Tetrachloroethene or Perchloroethylene (also known as PERC - CAS NO ) has long been recognized as an effective cleaning solvent and for the past 60 years has been the most commonly used solvent in the garment cleaning industry.
As a volatile organic solvent, PERC poses serious health hazards if work and environmental exposure is not properly controlled. PERC can affect the body through respiratory and dermal exposure.
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14. Business Case Examples – Case 2
Developing a Business Case began with investigating the financial advantage of each garment cleaning process. Table 19.2 presents a comparison of the initial cost of equipment and installation for five of the more common processes.
Interestingly, these costs confirmed that professional wet-cleaning was a viable option for exploration by those organizations who were interested in reducing the exposure to PERC in the profession garment cleaning industry in the 1990’s.
Process
Machine
Installation
PERC Dry Cleaning
$43,900
$2,500-5,000
Hydrocarbon
$61,000
$5,000-6,000
GreenEarth (Liquid Silicone)
$63,000
CO2
$140,000
$50,000
Wet Cleaning
$40,000
$2,
Table 19.2 Comparison of costs - Source: Fong, Chowdhury, Houghton, Komlenic & Villalobos, 2006
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15. Business Case Examples – Case 2
The differences in operational costs between wet and dry cleaning processes were collected in nine case studies and presented below and the next slide.
Monthly Expense
Firm 1
Firm 2
Firm 3
Firm 4
Firm 5
Firm 6
Firm 7
Firm 8
Firm 9
Solvent 50
100 90 56 66
133
929
200
113
Detergent 53 16 21 39 5 13 83
Water 44 20
n.a. 73
111
Electricity 89
143
187 93
300
244
156
642
364
Gas
278
466
221
267
488
552
438
435
Filters 60 25 11 23 40
882 7
Hazardous Waste 54 35
117
Machine Upkeep
147
239
132
172
158
298
119
Equipment
430
299
270
375
Regulatory Fees
108 81 91 48 74 65
TOTAL
$1,359
$1,470
$1,004
$1,071
$1,577
$1,608
$3,365
$2,247
$1,723
Table 19.3 Monthly Operating Expenses for Dry Cleaning Processes –
Source: Sinsheimer, Grout, Namkoong & Gottlieb, 2004
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16. Business Case Examples – Case 2
Monthly Expense
Firm 1
Firm 2
Firm 3
Firm 4
Firm 5
Firm 6
Firm 7
Firm 8
Firm 9
Solvent
Detergent
121
246 82
167 63 60
300
400
Water 34 30
n.a.
540 91
Electricity 50
115
132 75
120
144
140
324
292
Gas
266
510
255
353
387
334
408
Filters
762
Hazardous Waste
Machine Upkeep 24 83
Equipment
208
280
193
379
Regulatory Fees
TOTAL
$ 703
$1,133
$590
$801
$811
$994
$2,179
$1,379
$1,593
Table 19.4 Monthly Operating Expenses for Wet Cleaning Processes - Source: Sinsheimer, Grout, Namkoong & Gottlieb, 2004
Firm 1
Firm 2
Firm 3
Firm 4
Firm 5
Firm 6
Firm 7
Firm 8
Firm 9
Cost Reduction
$656
$337
$414
$270
$765
$614
$1,185
$867
$130
Average Savings: $582 monthly
Table 19.5 Cost Reductions in Operating Expenses Using Wet Versus Dry Cleaning Processes Source: Sinsheimer, 2008
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17. Business Case Examples – Case 2
Base Versus Comparison
Net Present Value
PERC versus Wet Clean
$29,061
Hydrocarbon versus Wet Clean
$31,924
GreenEarth versus Wet Clean
$53,099
CO2 versus Wet Clean
$170,911
PERC versus Hydrocarbon
($2,863)
PERC versus GreenEarth
($24,038)
PERC versus CO2
($141,850)
Table Net Present Value of Alternative Garment Cleaning Processes
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18. Business Case Examples – Case 2
The results demonstrate that the wet-cleaning process is the best selection from a financial perspective—even without the probable reduction in occupational injury and illnesses or improvements in productivity that are typically included in Net Present Value calculations and could have been easily added using the Business Developer Tool.
The effect on the environment was considered in nearly every wet- cleaning study, regardless of the other issues considered. Furthermore, public presentation often referred to the wet-cleaning process as being a “green” solution—pointing to the associated positive corporate social responsibility of making the change.
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19. Business Case Examples – Case 3
Case Example Three: Operational
The University of California, Davis Agricultural Ergonomics Research Center, AgSafe (a nonprofit occupational safety and health organization), and NIOSH worked collaboratively in two separate efforts to reduce or eliminate ergonomics risks factors for grape harvest workers in the wine grape industry in northern California.
The initial effort conducted the risk assessment, which began with the description of the following work process, illustrated in Figure (next slide)
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20. Business Case Examples – Case 3
Case Example Three: Operational
Figure 19.5 Wine grape harvest process consists of six basic tasks
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21. Business Case Examples – Case 3
Case Example Three: Operational
A robust risk assessment led to recommending a smaller sized tub to minimize injuries from lifting and carrying cut grapes in the original study. Table 19.7 provides the changes in risk assessment associated with implementing this simple PtD solution.
Large Tub
Small Tub
Lifting force
57 lbs (season average)
46 lbs (season average)
Sliding force
19-22 lbs (terrain differences)
13-16 lbs (terrain differences)
NIOSH Lifting Equation
3.4
2.4
Energy Expenditure
47.7% of aerobic capacity
45% of aerobic capacity
Back injury probability
0.64
0.60
Table 19.7 Risk Factor Comparison presented in the 2006 publication by Myers, Miles, Faucett, Fathallah, et al.
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22. Business Case Examples – Case 4
Case Example Four: Post-Operational
Management of a large not-for-profit hospital planned to replace all existing soiled linen and trash collection receptacles with new containers of a single size and shape.
This provided an opportunity for the risk management authority responsible for the safety and health of workers to explore alternative trash bags with the goal of reducing occupational injury and illnesses associated with lifting and carrying bags containing linen and trash.
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23. Business Case Examples – Case 4
Case Example Four: Post-Operational
The decision was to evaluate the ergonomic advantages of Litelift™ ergonomic bags compared to the current bags being used in linen collection and disposal.
Litelift™ bags are specially designed with a handle in the bottom of the bag, and as the employees tie the top of the bag the tie becomes a second handle. Use of two handles allows the carriers to balance the load while lifting and carrying.
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24. Business Case Examples – Case 4
Case Example Four: Post-Operational
The risk assessment of the conventional linen bags began with the description of the following work process, illustrated in Figures 19.6 and 19.7.
Potential Back Injuries
Figure 19.6 Current process for the collection through disposal of soiled linen
Figure 19.7 Hazards and their potential effects recorded
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25. Business Case Examples – Case 4
Case Example Four: Post-Operational
With the hazards identified, the next step involved determining the risk factor (RF) for each of the three potential effects.
RF in this case is the number resulting from multiplying the probability of the potential effect occurring by a number used to measure the severity of the expected loss in case of the occurrence of the potential effect.
The risk to human health is not the only risk associated with workplace hazards. The risk to the continuity of business operations should also be considered. A similar risk assessment matrix was utilized to estimate that risk. Figures 19.8 and 19.9 present the risk assessment results for both types of risk (Next Slide).
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26. Business Case Examples – Case 4
Case Example Four: Post-Operational
Figure Risk of health effects is determined and entered in H&S RAM
Figure Risk of business continuity loss is determined and entered in B RAM
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27. Business Case Examples – Case 4
Case Example Four: Post-Operational
To present a 30,000 ft. view of the current state, hazards and consequences are then presented utilizing a modified Bow-Tie risk assessment methodology shown in Figure The RF numbers are transferred to the modified Bow- Tie risk assessment diagram.
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Figure Modified Bow-Tie diagram Provides Overview

28. Business Case Examples – Case 4
Case Example Four: Post-Operational
As was the case in recording the hazards associated with the current process, consideration of PtD concepts, including the hierarchy of controls, should be discussed and documented even though the solution had already been selected.
Figure PtD Hierarchy of Controls helps select the “best” solution
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29. Business Case Examples – Case 4
Case Example Four: Post-Operational
With the solution being agreed upon, the project continued with a pilot test using the Litelift™ to lift, carry, and dispose of soiled linens. Hazards and consequences for the new bags are presented utilizing a modified Bow-Tie risk assessment methodology again shown in Figure
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Figure Modified Bow-Tie diagram overview of “new” risk assessment associated with the solution

30. Business Case Examples – Case 4
Case Example Four: Post-Operational
Calculating the residual risk and risk reduction scores was the final step in the risk assessment. The calculations showed a 37% risk reduction. The results of this analysis are presented in Figure below. However, management acceptance of a PtD solution is not always based on RA alone. As a result the more detailed financial/non-financial analysis is often necessary.
Figure Risk reduction recorded in the Tool
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31. Business Case Examples – Case 4
Case Example Four: Post-Operational
Completion of the pilot test and the risk assessment portion found in the Tool led to numerous recommendations.
It was determined by the team that smaller sized bags would better control the weight of the bag.
It was also determined that the unique handle on the lower end of the bag allows lifting with two hands and equal weight distribution.
Modification of the training to include two handed lifting techniques using the Litelift™ bags to further reduce the risk of injury or illness was also considered.
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32. Conclusion
SH&E professionals agree that hazard identification and risk assessment are critical to protecting the worker. Insuring that the best outcomes for the health and safety of workers requires attention to selecting appropriate solutions, such as those grounded in Prevention through Design concepts.
Demonstrating the business value that a solution contributes can be challenging for SH&E professionals who do not have the expertise or experience in such efforts. They must learn the world of business and “corporate speak,” and make the case to executive management that SH&E solutions, activities, and programs are not only necessary, they’re good business investments.
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33. "In God we trust, all others bring data." William Edwards Deming
Conclusion (Cont.)
Whether you have a large corporate program, a small department, or single SH&E professional or technician, the Business Case Development Tool makes deriving the Business Case a simple, logical, and easy-to-understand the connection between risk assessment and the bottom line—financial or non-financial.
"In God we trust, all others bring data." William Edwards Deming 
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