Chemical Engineering November 2011 - 48

Engineering Practice
be made related to an exotic material
grade imparts a high risk.
Meanwhile, design-related risk resulting
from pressure or temperature
changes is lower than metallurgical
change. By definition, piping material
classes use standard pipewall thicknesses.
If a pressure or temperature
change increases the theoretical wall
thickness, it might not impact all components
in a line, as the standard wall
thickness selected previously may still
suffice for the new conditions.
As with metallurgical changes during
the design development, the level
of the risk associated with pressureor
temperature-related changes will
reflect the nature of the risk (that is,
how likely it is that an individual component
will change) and the likelihood
that a given line will be subject to a
pressure or temperature change. For
example, components in " standardized "
piping classes, where higherthan-required
pipewall thickness has
been specified, carry a lower risk than
components in higher-pressure " calc
wall " piping classes, where pipewall
thicknesses are specifically calculated
for the intended use.
Design-related risk from detailed
design changes poses the lowest risk,
in terms of potential financial exposure.
Consider the type of risk that is
associated with the piping that runs
in congested areas in which other lines
may still be at a state of design that is
" soft " (that is, not yet finalized). Such
piping may be subject to re-routing or
change, or a piece of equipment might
be subject to relocation. Individual
component changes of this type would
only occur if a re-route were mandated
to accommodate changes in the already
designed components (for instance,
where a direction change using 90-deg
elbows was replaced with a direction
change using 45-deg elbows). In general,
components not subject to a reroute
change (for instance, pipe, caps,
and so on) have almost no risk, while
those with a function that is related to
direction (elbows, reducers and so on)
have a higher risk.
Design-related risk can be managed
or mitigated at the component level by
assigning a risk factor to each component.
The risk factor reflects the nature
of the three articulated risks, along
with the likelihood that the underlying
piping line will be subject to that
change. Each component is assigned a
risk factor (a numeric value), which is
a product of the three related categories.
The end product relates directly
to a projected likelihood, quantified as
a percentage, that the component will
end up as surplus.These risks are discussed
below.
Assignment of materials-related
risk. Materials-related risk is different
than design-related risk in that it
is static and thus is not associated with
any specific application. Rather, materials-related
risk is tied to the likelihood
that the project can recover its
investment if an individual component
ends up as surplus.
When it comes to piping, materialsrelated
risk generally results from two
attributes: wall thickness and component
function. The wall thickness risk
is directly related to the commonality
of the specified wall thickness, metallurgy
and size (meaning, how widely
used is that component, as this will
impact whether it can be reused elsewhere
or deemed surplus). For example:
2-in. Schedule-40 carbon-steel
pipe is so common that any surplus
can often be offloaded at only minimal
cost. By contrast, a 16-in. Schedule 140
duplex stainless steel alloy is likely to
be so unique that finding a buyer who
is willing to pay more than scrap value
is doubtful.
The risk factor associated with component
function is directly related to
the core function of the component,
which in turn relates to the likelihood
that a change that would make
the item surplus might be able to be
absorbed elsewhere. For instance, pipe
itself (as opposed to, for instance piping
components that are used for direction
changes or piping size changes)
has no risk factor in this category, as
it performs a function that cannot be
replaced by any other component. By
comparison, components used to carry
out simple direction changes, such as
90-deg elbows, carry a relatively low
risk factor, as they tend to be used universally
and widely. Components such
as reducers, which tend to be sizespecific,
tend to carry a higher risk
factor. And other two-size components
- particularly items such as reducing
48 CHEMICAL ENGINEERING WWW.CHE.COM NOVEMBER 2011
flanges - carry a high risk factor.
As with design-related risk, materials-related
risk is imparted at the component
level by assigning a risk factor
to each component that is a combination
of the two attributers. These risks
are multiplied, as noted later in the
section entitled risk-related requisition
plan.
Acquisition-related provisions to
mitigate risk. Proper procurement
procedures can do much to mitigate
or remove the risks associated with
change by negotiating provisions into
the purchase orders that allow for cancellation
or return to the supplier. Such
provisions aim to define a timeframe
early in the delivery sequence during
which the material can still be cancelled
without penalty, and specifies
buy-back provisions at a nominal restocking
fee for components that may
have already been manufactured or
even delivered. The ability to establish
the most advantageous contract terms
- to mitigate risk in this way - is
highly dependent on the uniqueness of
the underlying components and market
conditions when the purchase order is
negotiated. Again, as with design- and
materials-related risks,
acquisitionrelated
risk mitigation is imparted at
the component level and summed as
noted below.
Quantifying risk
Before we get to the requisition plan, we
need to first discuss risk quantification.
Using the static materials-related risk
factors discussed above, each component
is assigned a risk category - low,
medium or high, as well as a risk percentage.
The noted percentage relates
to the value of exposure for the underlying
component, should it end up as surplus.
A low risk designation relates to
value recovery in the range of 10-40%;
medium risk denotes value recovery in
the 40-70% range; high risk relates to
70-100% risk recovery.
The other factors - for instance,
risk factors associated with dynamic
design, and efforts to mitigate acquisition-related
risks - relate not to the
percentage value of exposure, but to
the percentage of quantity exposed.
These need to be quantified at the time
of the purchase-order commitment.
Risk-related requisition plan. The
http://WWW.CHE.COM
Chemical Engineering November 2011

Table of Contents for the Digital Edition of Chemical Engineering November 2011
