Shut down equipment failure before it shuts you down

New research from FM Global reveals equipment breakdown is growing in Australia, as it is globally, to now rival fire as a major cause of insurance losses. Globally more than half of all losses greater than $10 million dollars are the result of equipment failure. Of 17 sizeable losses among FM Global’s Australian clients in the past year, around half were equipment-related.

The impact is significant. FM Global clients in Australia have suffered 18 equipment failure losses valued at over $1 million in the past two years Over a quarter of losses across all industries are due to equipment failure, and 70% of these occurred in the high hazard industries of mining, chemical production, power generation and paper manufacturing.

Incidents in Australia included switchgear failure at a manufacturing plant that shut down production for more than two months; two cool room failures that resulted in product loss; and a fire in a processing plant that occurred after a pipe carrying flammable gases ruptured. The average loss often exceeds millions of dollars, while other impacts extend beyond what insurance can cover.

As widely reported in media, in one of the more high-profile incidents nationally, one of the largest hospitals in Melbourne cancelled more than 500 surgeries in September due to equipment malfunction. The issue: a rubber seal disintegrated on a machine used to wash surgical equipment.

Awareness

Equipment risk permeates across all kinds of industries. In Australia, the power generation, mining and chemical industries are most significantly exposed. Power intensive industries such as manufacturing are also badly impacted.

Awareness of the problem and how to address it varies. Support services found in almost every facility, like electrical power and water distribution are not always top of mind, as the focus is often on day-to-day operations. However, in mining, power generation and chemical plants, where large equipment is critical to production, there are generally more engineers on site who are aware of the risk of this type of equipment failing. Manufacturing sites are often less aware of this particular type of equipment breakdown risk.

The impact

Equipment is a support system for any business and breakdowns can cause significant business interruption. It can mean the business can’t make money – or in the case of the Melbourne hospital, perform surgeries.

The longer-term impacts of equipment failure can be extensive yet less obvious at first glance. A loss of market share and reputation that insurance doesn’t cover. A loss of shelf space for consumer goods. Staff time becoming focused on recovery instead of longer-term initiatives such as new product development, efficiency enhancements or growth opportunities.

The causes

Most businesses could be doing more to mitigate against equipment failure. In order to provide the best advice possible around this issue, FM Global engineers analyse seven factors that contribute to equipment loss: maintenance, operating conditions, age and history, safety devices, operator training, contingency planning, and environment. Recently we analysed our losses to see which factors are most significant.

One of the main findings is that the increase in equipment failure-related losses is often due to equipment being worked harder and longer, combined with lack of maintenance. In fact, our study shows that 62 per cent of equipment failure losses were due to lack of maintenance. More than a third of losses are due to a lack of operator training leading to operators making wrong decisions or missing a step, while inadequate safety devices are another top cause.

Certain equipment types fail more commonly than others. At a power station, major issues are generally focused on the gas or steam turbines, generators and step-up transformers, which can cost tens of millions of dollars to repair or replace. Turbine losses alone worldwide have led to $1.1 billion in losses. In mining, large mills are a challenge; in chemical plants, heat exchangers, reformers, recovery vessels and boilers are regularly impacted; while in the manufacturing industry large mixers and chillers may be impacted. In every industry support equipment like transformers and switchgears are important.

Minimising risk

To minimise potential risk of equipment failure it is key to ensure equipment is being maintained in accordance with relevant codes, standards, manufacturers’ guidance and data sheets. Businesses may need to increase the frequency, and sometimes the types, of tests that are being done on equipment. Exactly how often and what type of maintenance should be done depends on the equipment involved.

Types of maintenance schemes include: run-to-failure, preventative or time-based maintenance, and condition-based maintenance. Condition-based maintenance is growing in popularity, however making it effective needs established procedures and action when trends indicate something is going wrong. Using condition-based maintenance to extend preventative maintenance can be problematic.

FM Global recommends that C-suite leaders incorporate equipment risk management into their financial planning. Many losses come down to human error and prioritising production over preventative maintenance. There is often a lack of testing of contingency business continuity planning.

It’s also key to drive the right company culture, providing enough time and resources to do maintenance and asset management. C-suite leaders should ensure responsible staff receive appropriate training. Too often there’s an over-reliance on contract providers to do maintenance. With a skills gap emerging as a generation of operators and engineers head towards retirement, it’s also important to look into succession planning.

Unplanned breakdowns can have unpredictable consequences. These range from decreased revenue, to an inability to deliver on your contractual obligations, or a total business shutdown. Planning ahead for repairs is typically less costly and more responsible than risking a surprise meltdown.