Risk Management for Planning and Decision Making of Pipeline Projects

The goal of risk management is to minimize expected costs over time where the costs are defined in some probabilistic fashion. Traditionally, total expected costs due to failure are summed for planning purposes over a meaningful spatial and temporal domain and assigned a weight based on the likelihood of occurrence. Expected costs are the product of the consequence of an event (e.g. failure) and the probability of the event occurring. This is the commonly applied definition of infrastructure risk; Risk = criticality x vulnerability. The total risk-based cost is then compared with expected life-cycle costs to take mitigation action to reduce risk. Actions may include insurance, inspection, monitoring, improved construction, or increased maintenance. Action is taken if the benefits in terms of avoided costs exceed the costs associated with risk reduction. Unfortunately the probability of occurrence of specific events is uncertain at best, and at worst the decision-maker is in total ignorance about the likelihood of an event occurring. In the face of uncertainty with respect to the probability of these events, guidance for prioritization of projects may be gained from ideas developed in portfolio investment theory, which is concerned with decision making under uncertainty. Common methods of benefit/cost-based decision criteria fail to account for uncertainty. An example risk-based calculation from the sanitary sewer field will be used to illustrate risk management at the planning level for pipeline rehabilitation projects using risk based decision criteria.