Reliability, Availability and Maintainability (RAM) Analysis For Repairable Items

On boarding Programme for Engineers
Module IX: Risk & Reliability Engineering
Reliability, Availability and

Maintainability (RAM) Analysis for
Repairable Items
Copyright © Reliability and Risk Management

On boarding Programme for Engineers Principles of
Module IX: Risk & Reliability Engineering Reliability Analysis
Data for Reliability and Availability Analysis of Repairable items (Up-Times)
OPERATING Operative Time Operation Time before Censored

(UP – TIME) between failures Maintenance tUP(n-1) Time
0 t
Operative Time between Failure (TBF): Equipment Operating Time between two
successive Failures.
Operation Time to Planned Maintenance (TPM): Time between equipment start up and
equipment stoppage to execute a planned maintenance activity.
Censored Time (CT): Operation Time from last Failure
n m w n= TBF sample values number

Uptime  TBFi  TPM j   CTk m= TPM sample values number
i 1 j 1 k 1 w= CT sample values number

Data for Maintainability and Availability Analysis of Repairable items (Down Times)
OPERATING
(UP – TIME) OPERATIVE TIME OPERATION TIME tUP(n-1) CENSORED
BETWEEN FAILURES BEFORE MAINTENANCE TIME
0 t
OUT OF SERVICE
(DOWN-TIME)
tDOWN1 tDOWN2 tDOWN(m-1) tDOWN(m)
TIME TO TIME TO
REPAIR MAINTENANCE
Time To Maintenance (TTM) : Time that passes from the moment in which the equipment is
shutdown for maintenance to the moment when it´s put back to availability state or ready to
operate
Time To Repair (TTR): Time that passes from the moment in which the failure occurs to the
moment when repair is finished and the equipment is available to operate.
n m
Downtime  TTR  TTM
i 1
i
j 1
j
n= number of TTR in sample
m=number of TTM in sample

Sample Statistics for Repairable items
OPERATING Operative Time Operation Time before Registered

tUP(n-1)
(UP – TIME) between failures Maintenance Time
0 t
The MTBDE is the meantime between different stoppages.

n m w
TBF  TPM   CT
i 1
i
j 1
j
k 1
k
MTBDE 
nm
The Stoppage Rate ( λi ); is a equipment out of service frequency indicator .
nm
i  n m w
n= TBF sample values number
TBF  TPM   CT
i 1
i
j 1
j
k 1
k
m= TPM sample values number
w= CT sample values number

Going from Sample Statistics to Population Statistics for Repairable items
Probability Distributions for Up-Times
The analysis of Time to Failure (TTF) samples frequently reveals that Exponential and
f(x) Weibull distribution fits very well these samples
 TBFi : Operational time between

n failure “i-1” and failure “ i “
f ( x )  e   . x  n w TCk : Operational time since the last
TBF  TC
i 1
i
k 1
k failure of item “k”
n: Number of TBF of the sample

w: Number of TCk of the sample
X
 TBF   
f(x) n

w
lnTBFi    TCk lnTCk 

i
1 1 n
i 1 k 1
   lnTBFi 
 n     
w
 n i 1

 TBFi    TCk 
  x   1    x   i 1   k 1 
f ( x )     e 1
  
      TC   
n W 
   TBFi  k


    i 1   k 1 

n
 
 
Copyright © Reliability and Risk Management X
Probability Distributions for Up-Times – Important Equations
Probability Distribution
Frequency Format Failure Probability Reliability Failure Rate MTBF
MTBF
MTBF =
MTBF =

Probability Distributions for Down -Times
The down-time variable probabilistic characterization frequently reveals that the best
adapting distributions to the sample data are:
 Exponential Distribution
 Lognormal Distribution
The down-time variable analysis is known as MAINTAINABILITY (M(t)). Quantitatively it is

defined as the probability to restore the equipment operative condition in a period of time or
mission time .
The maintainability key parameter is often the Mean Time To Repair (MTTR)

A procedure for “Maintainability M(t)” calculations
1.- To select a “representative” sample of down times
2.- To perform a “Goodness of Fit Test” to determine which of the well known probability
distribution models fits better on sample data
3.- Once a probability distribution model has been accepted as the “best fit” for the sample
data, the corresponding CDF equation represents the “Maintainability Function M(t)”
1
 .t
Exponential: M (t )  1  e MTTR
Casos mas frecuentes:

 ln t   t 
LogNormal M (t )   
 t 
4.- In those cases when data is not good enough as to perform a “Goodness of Fit Test”, THE
EXPONENTIAL DISTRIBUTION CAN BE ASSUMED as the distributión for down times.
1
 .t
Exponential: M (t )  1  e MTTR
“Availability A(t)” calculations
The Availability is a probabilistic term exclusive of “repairable equipment” that is defined as
the probability that the equipment is operating (that is to say that not this in repair) at a time
“t.”
On the other hand, availability estimation, in addition to the up-time random variable analysis
and failure rate estimation, includes the downtime random variable analysis and failure rate
(μ(t)) and mean time to repair (MTTR) parameter estimation.
( t )
Availability  A ( t ) 
( t )  ( t )
For equipment whose “up-time” and “down-time” values follow or fit to the exponential
distribution, the Availability equations transformed in:
 MTBDE
Availability  A ( t )  
   MTBDE  MDT
MTBDE: Mean time between downing events
MDT: Mean Down Time
“Availability A(t)” and “Expected Number of Failures (t)” calculations
n
Past - Calculation
Uptime t UPi
A  i 1
Uptime  Downtime n m
Basic Approach
t
i 1
UPi   t DOWNj
j 1
Future: Forecast
MTBDE MTBF
AOperationa l  AInherent 
MTBDE  MDT MTBF  MTTR
A(t)=
A5% A A95%
Advanced Approach Montecarlo Simulation
(t)=
(Expected Number of
Failures)
 5%   95%
On boarding Programme for Engineers INICIO
CARACTERIZAR PROBABILÍSTICAMENTE EL TIEMPO DE OPERACIÓN ENTRE FALLAS (X) Y UN VALOR DEL TIEMPO FUERA DE SERVICIO (Y)

DESDE LOS DATOS DE LA MUESTRA; SIGUIENDO LOS PROCEDIMIENTOS DESC RITOS EN LOS PUNTOS 2.3.3.1 DEL CAP. II SECIÓN 2.2
Y 4.3.1.3.1 DEL CAP. II SECCIÓN 2.4
f(X)=Distribución de Frecuencia del g(Y)= Distribución de Frecuencia

Tiempo de Operación entre Fallas del Tiempo fuera de Servico
f(X)
g(Y)
SELECCIONE EL NUMERO
DE ITERACIONES = m
i=1

j=1
k=1
T0=0
x0=0
“Availability A(t)” and “Expected y0=0

Number of Failures (t)” GENERAR ALEATORIAMENTE UN VALOR DEL TIEMPO DE OPERACIÓN ENTRE FALLAS (X) Y UN VALOR DEL TIEMPO
calculations based on Montecarlo

FUERA DE SERVICIO (Y) DESDE SUS RESPECTIVAS DISTRIBUCIONES DE PROBABILIDAD; SIGUIENDO LOS
PROCEDIMIENTOS DESCRITOS EN EL PUNTO 3.4.1.2.2.1, DEL CAP. II; SECCIÓN 2.3
Simulation F(X)=Distribución de Acumulada del F(X)=Distribución de Acumulada del

Tiempo de Operaci ón entre Fallas Tiempo fuera de Servicio
1
1
1
1
F X 
0,9
F X 
0,9
0,8
0,8
0,7
0,7
0,6
0,6
G(Y)
0,5
0,5
F(X)
0,4
0,4
0,3
0,3
0,2
0,2
0,1
0,1
0
0
0
0
X = Tiempo fde Operación entre Fallas (hrs) Y = Tiempo fuera de Servicio (hrs)

1
xk  F ( X ) y k  G 1( Y )
Tj=Tj-1 + xK + yK

xj=xj-1+xk
i=i+1 Disponibilidad yj=yj-1+yk

SI xj
di 
Tj NO SI j=j+1
i <m ? Tj <T ? 
k=k+1
N° Fallas
NO ni=j
DISPONIBILIDAD NUMERO ESPERADO DE

ESPERADA AL TIEMPO “T” FALLAS AL TIEMPO “T”
1m  1m  STOP

D(T )    di  (T )    ni 
m  i 1  m  i 1 
Using RAPTOR for “Availability A(t)” and “Expected Number of Failures (t)”
calculations based on Montecarlo Simulation – Example No 14
Since the last overhaul a turbo-compressor has had a

failure and repair behavior that is reflected in the attached TIEMPO EN TIEMPO EN
table. OPERACIÓN REPARACIÓN
Notice that the turbo-compressor has operated 578 hrs (Hrs) (Hrs)
continuously from the last failure up to date, and it still 4300 10
operating. 2187 65
367 11
Up to date, the total accumulated hours in operation is
278 32
16625
789 45
Calculate: 1789 12
1. The availability to 19000 and 20000 hrs. 469 4

1890 51
2. The number of failures that will occur during the next 3578 8
year.
578 -
Solve the exercise using the software RARE and
RAPTOR.
See Example No 14.xls 
See Lecture No. 8
Sources of Data for RAM Analysis

.- Evidences
.- Experts Opinion
.- Generic Information

Sources of Information - EVIDENCE
The EVIDENCE is constituted by the failure and repair times observed in equipments or groups
of equipments in a plant under analysis. Also it can be considered an EVIDENCE the failure and
repair time in equipments operating in similar plants or productive processes.
The fortitude of this information type is its representativeness of "reality" and its weakness is that
it could probably be "very few information” (statistically no robust information).
After considering an equipment population from which a sample of "n" values has been gathered,
where n are the operation times between failure (TBF 1, TBF2, .. TBFn) and "w" are operation
times since the last failure (CT1, CT2,… CTk) and T is the total operation time or “ up - time ” of
the equipment population .
TBFi : Operation Time between failure (i-1) and

n w failure (i)
T  TBF i  CTk CTk : Operation Time since the last failure
i 1 k 1 n: failure number
w: CT sample values number

Sources of Information – EXPERT OPINION
The experts' opinion represents one of the fundamental information sources for the Reliability
and Availability calculation.
The experts possess the most valuable information about parameters such as failure and
repair rate normally sustained in the observation and experience with similar equipments in
operation (similar equipment to which we want to estimate the failures rate).
One of the most effective forms of Minimal possible value from the failure rate
eliciting an expert’s opinion is to ask him EXPERT
EXPERTO Most probable value from the failure rate
for three values to characterize the Maximum possible value from the failure rate
information of interest; a minimal value, f( )

the most probable value and a
maximum value. With these three
values; supported by probability
distributions such as the TRIANGULAR
or the BETA PERT; it´s possible to
probabilistically characterize the  min  likeliest  max
expert’s opinion.

Sources of Information – Generic Information (Database)

There exists a great deal of generic information (databases) that contain failure and
repair rates for different types of equipment. Some of the most famous banks of this
type of information are:
Off Shore Reliability Data – OREDA

Pipeline and Riser Loss of Containment Database -PARLOC
Electronic Parts Reliability Data (EPRD)
Non-electronic Parts Reliability Data (NPRD)
MIL-STD-217
Reliability Prediction Procedure for Electronic Equipment (Bellcore), TR-332
Handbook of Reliability Prediction Procedures for Mechanical Equipment,
NSWC Standard 94/L07
IEEE Std 493-1997 Gold Book
Reliability of Well Completion Equipment Database – WELL MASTER
Due
Dueto
tothe
theheterogeneity
heterogeneityof ofthe
thesamples
samplesanalyzed
analyzedtotoconstruct
constructthese
thesebanks
banksofofinformation;
information;the
the
same one present itself in the form of probability distributions of the failure and repair rates
same one present itself in the form of probability distributions of the failure and repair rates

Generics databases – Representativeness of Information
VALVE
Failure Mode that doesn't applies to the

operational context analyzed
OREDA

2002
Valve=mode1+mode2+mode3…+mode”n”
GENERIC
GENERICFAILURE
FAILUREDATA
DATA modo1 modo3 modo n
Well
WellMaster,
Master,2.5
2.5 RAM Analysis
OREDA2002
OREDA 2002
OREDA 2002
PSA-2001-039
PSA-2001-039 Valve =mode1+mode3…+mode”n”
PARLOC
PARLOC96 96
Experts Opinion
Experts Opinion
Valve customized

Generics Data Bases – Representativeness of Information
TUBES
Failure Mode that doesn´t applies to the

operacional context analized
WELDED
PIPE METAL BASE
FLANGED JOINT
PARLOC 96/2001
Tubes=mode1+mode2+mode3…+mode”n”
JOINT
GENERIC FAILURE DATA modo1 modo3 modo n

GENERIC FAILURE DATA
RAM Analysis
Well
WellMaster,
Master,2.5
2.5
OREDA
OREDA2002
2002
Tubes =mode1+mode3…+mode”n”
PARLOC
PARLOC96 96/ /2001
2001
Expert Opinion
Expert Opinion
Tubes tailored
Combining different sources of data – Bayes Theorem

The Bayes theorem is the statistical vehicle that allows us to combine information of failure rate from
generic data bases or from expert opinion with evidence of failure and repairs times collected in our own
installation or process; with the purpose to obtain better estimation of failure and repair rates for the systems
under analysis. This procedure is adapted to estimate the mentioned failures rate (l), in cases where the
evidence or sample is void or is not representative.
The theorem allows to find the posterior or updated distribution of the failure rate “f(/X)”. For it its
necessary on one hand to define a "previous" distribution to the failure rate g(). (Previous Knowledge). On
the other hand, to construct the likelihood function or probability of the evidence L(X/) from the evidence
sample. This procedure of calculation is generally known as “ update of the failure rate”.
L( X  )g (  )
f( / X )   Bayes Theorem
 L( X  )g(  )d

Prior Knowledge: Probability Distribution of failure or repair rate reflected in generic data banks such as
OREDA, PARLOC, WELL MASTER, IEEE. The virtue of this information is its "robustness", its weakness is
its "heterogeneity".

Combining different sources of data – Bayes Theorem

Evidence Sample: In this study it's represented by the Times to Failure and times to repair collected in
the plant under analysis or in equipments operating in similar installations or productive processes. The
fortitude of this information is its representativeness of the "reality" and its weakness is that it could
probably be "very few information” statistically no robust (information).
The Figure, illustrates how there are Prior Knowledge Evidence

combined the proper evidence and the (Generic Data) ( “N” Data points gotten from similar Upgraders
operating in Venezuela )
generic information to obtain an improved OREDA (OREDA)
Censored Data
information or updated knowledge. Failure Data
(Time in operation without
(Time to Failure)
Dist. failures)
Gamma
This information or updated knowledge is a t1,t2,t3,…tr tc1,tc2,…tc(N-r)
modified distribution of the failure rate; of r=number of N-r=number of
which we will take the average or expected OREDA: OREDA Distribution Mean equipment that equipments that
OREDA: OREDA Distribution Std Dev have failed has not failed
value as the representative value.
This estimation is much more robust than Improved Information  OR EDA 2 
r  
the previous knowledge or the experience   2 
Bayes  UPDATED   OR EDA 
taken separately and in an exclusive way. r 
N r
OR EDA
Theorem  t i   tc j  
 OR EDA 
2
 i 1 j 1
See Exercise 15.xls  See Lecture No. 9

System Reliability, Availability and

Maintainability (RAM) Analysis

System:
Systems Analysis:
It's a conjunction of components , equipment,
It allows the estimation of the failure
sub-systems, processes and human resources
probability, reliability and risk in the
that interacting as a whole and delimited as a
different hierarchic levels of the,
volume of control a generates product.
physical and functional assets
structures.
It allows to estimate the contribution
Control Volume of every equipment or function to the
failure probability and/or reliability of
Plant Shutdown the system processes, because of its
S1
G1
S2 failure probability and/or individual
System 1
FAILURE
System 2
FAILURE
reliability and for its location within the
G2 G3 system architecture.
G4
TIMER CONTACT
It is supported by block diagrams ,

ALARM
FAILURE FAILURE FAILURE
A B C SUB SIST “A” SUB SIST “B”

fault trees and Markovians diagrams.
G5 G6
Tree of Failure
VALV. OF
OPER. INTERR. OAILURE
EMERG.
FAILRE FAILURE FAILURE FALLA
D E F E

Reliability Blocks Diagrams

Systems in Series
They are systems or equipment conformed by multiple elements. All of them must
operate for the system to accomplish its function.
1 2 3 N 1 2 3 N
N
RSYST.( t )  R1 t * R2 t * R3 t ........RN t    Ri t 
i 1
   
N
        
FSYST. ( t ) 1 R1 t * R2 t * R3 t ........RN t   
1  1 Fi t 
   
 i 1 
Reliability Blocks Diagrams

Parallel Systems
1 They are systems conformed by multiple elements of

which at least one must operate so that the system
2 accomplishes its function.
N
FSYSTt   F1 * F2 * F3 ..........FN   Fi t 
3 i 1
N
RSYSTt   1  FSYSTt   1   1  Ri t 
N i 1

Reliability Blocks Diagrams - Systems in parallel where component

"k" out of "n" are needed to cover the system requirement
1
N
N  N r
R SYST t      R t  1  R t 
r
2 r K  r 
3 FSYST t   1  R SYST t 
N = Total number of components in parallel.

N r = Number of units required to function in the system.
K = Minimum number of required components.
R(t) = Reliability of each component in time “t”
Reliability Blocks Diagrams – Example No 16
Consider the oil crude pumping system showed in the figure. Determine the system reliability
assuming that all the pumps are equal and have a reliability of 0.8. Additionally, the block
and check valves of the pumps have a failure probability of 0.001. Finally the reliability of the
control valve in the system discharge is 0.98 and the by-pass and input valve have a failure
probability of 0.001. The system needs 3 out of 5 pumps to accomplish the requirement.
FV=0.001 Rb=0.80 FV=0.001 FV=0.001
1
RV=0.98
2
Pumping
3 System
FV=0.001 4
FV=0.001
5

Reliability Blocks Diagrams – Example No 16 - Solution
Given that the pumps,block valves and check valves have the same reliability:
3
R1  R2  R3  R4  R5  Rv * Rv * Rb * Rv  Rv * Rb
R1  0.9993 * 0.8  0.798
5 52  5  5 3  5  5

   R  t   1  R  t      R  t   1  R  t      R  t   1  R  t      R  t   1  R  t  
2 3 4 54 5 5 5
RSIST
 2 3  4 5
 5!  3  5! 
 * 0.7982 * 1  0798     * 0.7983 * 1  0798 ....
2
RSIST  
 2!  5  2!   3!  5  3 ! 
 5!  1  5! 
 * 0.798 4 * 1  0798    * 0.7985 * 1  0798   0.9925
0
..............  
 4!  5  4 !   5!  5  5 ! 

Reliability Blocks Diagrams – Example No 16 - Solution

Then, solving the parallel of the discharge valve and the by-pass valves, we have:
2
Rvc  1   1  Ri  t    1  1  0.999  * 1  0.99   0.9999
i 1
Finally, the reliability of the whole pumping system comes given by:
Rsist . _ bombeo  Rv  entrada  * Rsist  bombas  * Rvc by  pass

Rsist . _ bombeo  0.9999 * 0.9925 * 0.99999  0.9923
"K" out of "n" Reliability
Components Pumping System
2/5 0.9923
3/5 0.9399
4/5 0.7330
5/5 0.3235
Availability Blocks Diagrams – Example No 17
Consider the crude oil pumping system showed in the figure. Estimate the "availability" of the system
at 10.000 and at 20.000 hrs assuming that all the pumps are equal and have the failures and repairs
behaviors that appears in the attached table. Additionally, the block valves and the check valves have
a failure probability of 0.001. Finally the reliability of the control valve in the system discharge is 0.98
and the by-pass and entry valves have a failure probability of 0.001. The system needs 3 out of 5
pumps to accomplish the request (all the pumps are in operation). Solve the problem using the
software RAPTOR.
Pumps Data
FV=0.001 FV=0.001 FV=0.001 TIEMPO EN TIEMPO EN
OPERATION REPAIR
TIME TIME
1 OPERACI ÓN REPARACI ÓN
(Hrs)
(Hrs) (Hrs)
(Hrs)
RV=0.98
2 4300 10
2187 65
3 367 11
278 32
FV=0.001 4 789 45
1789 12
FV=0.001
5 469 4
1890 51
PUMPING SYSTEM 3578 8

578 -
See Exercise 17.xls  See Lecture No. 10

Part IV: Principles of Financial

Analysis

On boarding Programme for Engineers Foundations of
Module IX: Risk & Reliability Engineering Financial Analysis
Basic Definitions – General Aspects
•The fundamental task of the project analysts or options of investment is to contribute directly or
indirectly that the available resources in the economy are assigned in the most rational form among
the different possible uses.
• Those who must decide among the diverse options of investment or those who should suggest the
mobilization of resources towards a certain option, assume a great responsibility, since their
recommendations can affect in significant form the interests of the investors (public or private), when
stimulating the assignment of resources towards some options in the detriment of others.
• This process implies defining figures of merit or indicators that allow to qualify the different options
of resources utilization, in their most efficient uses; in other words, the task of evaluating consists of
quantifying certain magnitudes associated with every investment option and of turning them into
financial numbers in order to obtain useful indicators to measure their kindness.
• Financial analysis of options provides the methodologies to determine the advantages and
disadvantages that can be expected from assigning or not resources towards certain objectives and
at the same time it implies the organization study and analysis of the different economic, technical,
financial, administrative and institutional order factors associated with every option of investment.

Basic Definitions – Economic Horizon

• The economic horizon of a project refers to its useful life, being this the period or total term of
foreseen time, during which the project will generate incomes. This economic horizon includes the
period of investments and operation; serving to estimate the cash flows of the proposal of investment.
• The criterion for the determination of the economic horizon must not be, by any means, arbitrary and
therefore the following concepts must be carefully studied:
• Project main asset: Almost Every project produces incomes through the use of the assets in
which he money was invested. These assets have an estimated period of service which is known
as “useful life”. As a logic reasoning, the economic horizon of the project should be the initial
investment period of time plus the period of time that corresponds to the useful life.
• Type of project: There are short, medium and long term projects depending of the pretended
objective with them. For example, an investment project for the exploitation of an oil reservoir
would have a long term economic horizon. The reason for this consideration is that it considers
not only the life cycle of the reservoir but also the time to develop the infrastructure. Therefore,
the cash flow will be developed through a period of time at least equal to the productive life of
said reservoir.
• Economic / political / socials conditions of the country: the establishment of the economic
horizon must take into account the economic, political and social stability of the country in which
the investment is to be done if they can affect the results of the project.
Basic Definitions – Projected Cash Flow
• The Projected Cash flow constitutes one of the most important elements of the study of a project;
and the same one consists of a graphical model which represents the income and disbursements of
money that are expected along the established economic horizon.
• During the construction of the graph that represents a cash flow, the direction of the arrows is
important, there can be assumed that an arrow up is a positive (revenue), and if appears downwards
it is a negative (expenditure).
Incomes
(US$)
Economic Horizon
o
INCOME
t
0 1 2 3 4 5
DISCARDING
Expend.
(US$) INITIAL INVESTMENT
OPERATION + TAXES + UNDESIRED EVENTS

On boarding Programme for Engineers Projected Cash Flow
INCOMES
Economic Horizon
(Time)
INITIAL INVESTMENT
TAXES
OPERATION
UNDESIRED EVENTS DESCARDING
Incomes
0 1 2 3 4 5
0 1 2 3 4 5
Expenditures
VPN
NPV E
Profitability Factor
.094
.071
.047
.024
.000
-3,000.00 -500.00 2,000.00 4,500.00 7,000.00
Pr(NPV<0)
<0)
Risk Factor
Basic Definitions – Discount Rate
The interest rate used in determining the present value of future cash flows.
It is the rate of interest that represents the value to which the investor would risk his capital. It
is different and particular for every investor and project depending on the characteristics of
the company.
The Petroleum Industry considers a discount rate to be composed for:
• Capital Cost
• Average Risk
• Contribution of Non Generating projects
There exist other two methods used for the determination of the Discount Rate:
• Weighted Average Cost of Capital (WACC)

• Capital Asset Pricing Model (CAPM)
Basic Definitions – Financial Indicators – Net Present Value
• The financial indicators are figures of merit that allow to qualify the different options of utilization of
the resources according to their kindness; in other words, these indicators offer standardized and
easily interpretable information about the convenience or viability of each one of the evaluated
options and in consequence, they allow us to compare them.
• There exist multiple financial indicators widely used; some of which do not consider the value of the
money in the time and are known as static indicators. There are others that do consider it and are
known as dynamic indicators.
•• Net
Net Cash
Cash Flow
Flow
Statics
•• Period
Period of
of Return
Return of
of the
the Investment
Investment
Financial
Indicators
•• Net
Net Present
Present Value
Value (NPV)
(NPV)
•• Internal
Internal Rate
Rate of
of Return
Return (IRR)
(IRR)
Dynamics
•• Dynamic
Dynamic Period
Period of
of Recovery
Recovery (DPOR)
(DPOR)
•• Efficiency
Efficiency of
of the
the Investment
Investment (EI)
(EI)
• El indicador valor Presente Neto (VPN), también conocido como NPV (Net Present Value) por sus
siglas en ingles, es un índice que calcula el valor presente de un determinado flujo de caja
proyectado o futuro; y que busca básicamente responder la siguiente pregunta, “Cuantos dinero de
hoy representa un flujo futuro de costos y beneficios?” .
• Este método, descuenta el flujo de caja a una determinada tasa igual durante todo el periodo bajo
análisis, conocida como tasa de descuento (i), la cual ha sido previamente.
• Matemáticamente el VPN se expresa con la siguiente ecuación:
 INCOME j  EXPENDITURE j 
n
NPVn      INITIAL INVESTMENT
j 1  (1  i ) j

+ THERE ARE EARNINGS BEYOND HAVING RECOVERED THE INVESTMENT
NPV 0 ONLY THE INVESTMENT HAS BEEN RECOVEREDS
- THE EARNINGS ARE NOT SUFFICIENT TO RECOVER THE INVESTED MONEY


Probabilistic Model
•In those cases where a significant uncertainty exists in the variables of entry to the calculation of financial indicators and in
consequence should be represented by distributions of probability, it is very important to use Risk Analysis based on Simulation
of Montecarlo in the frame of Financial Evaluations.
•When the input variables for the calculation of the NPV are random, it is needed to carry out multiple iterations to obtain reliable
estimated of the expected value of the NPV; of this form can be obtained the complete probability distribution of the NPV. It allows
to infer the risk of the analyzed option, based on the dispersion of the mentioned distribution, to obtain confidence intervals of the
NPV and to calculate the probability of which the VPN <0.
• This approach has the advantage of allowing to realize a sensibility analysis of the incidence of the uncertainty of the input
variables on the NPV, which will drive us to surely identify the offender variables of the NPV and to the establishment of actions to
mitigate the risk of the analyzed option.
INPUT VARIABLES MODEL OUTPUT VARIABLE

(INFORMATION) (INFORMATION) (DECISION VARIABLE
Project Horizon VPN=0
“n”
(years)
.094
.071
.047
Initial “CAPEX” .024
Investment NPV
 INC j  EXP j 
.000
n
NPV n   
-3,000.00 - 500.00 2,000.00 4,500.00 7,000.00
“INGJ.”   CAPEX
Incomes
j1  (1  i) j  PROB.(NPV>0)
PROB.(VPN>0)
PROB.(NPV>0)
J
Expenditures “EXP J.” PROB.(VPN
PROB.(NPV
PROB.(NPV<0) < 0)
Discount “i”
NPV Objective (Approving criterion )=0
Rate

Basic Definitions – Financial Indicators – Net Present Value - Example 18

From the following information it is necessary to realize the Economic Evaluation of a new well to
be drilled. Determine:
• The probabilistic economic indicator Net present Value (NPV) for an economic horizon of
20 years.
Expected Production Profile
Time Well Prod.
(Years) (bpd)
0
1 800
2 689 Most
Mínimum Máximum
3 593 Probable
4 510 Oil Price ($/bl) 25 30 35
5 439
6 378
Operation Cost per
4 10 20
7 325 Produced Barril ($/Bls)
8 280 Drilling Cost ($) 8000000 9800000 10500000
9 241
10 207 Discount Rate (%) 0.15
11 179 % Taxes 0.3
12 154
13 132
14 114
15 98
16 84
17 73
18 62
19 54
20 46
See Example 18.xls 
Basic Definitions – Financial Indicators – Annual Equivalent Value
Projects with Different Economic Horizons

As it was mentioned before; the NPV is the profit or losses in terms of the value of money at
this moment (present time), after having recovered the initial investment at a rate of interest (i),
that considers the change of the value of the money in time; in an economic specific horizon.
The VPN; it is an excellent tool for ranking options evaluated in the same economic horizon;
nevertheless; in occasions it is necessary to decide among projects or options of investment
with different economic horizons; in these cases, it is necessary to re-express the VPN in an
equivalent amount of annual money. It is known as Equivalent Annual Value, EAV that is
defined as the fragment or annual portion and constant necessary to pay an amount equal to
the VPN
 i 
EAV  NPV  K where K n 
1  (1  i ) 
i=rate of discount
n=economic horizon
Basic Definitions – Financial Indicators – Annual Equivalent Value
Project Horizon “n”

(years)
Initial
“CAPEX”
Investment
 n  INC j  EXPj    i 
Incomes
“INC
“INGJ.” EAV   j 1    CAPEX 
  n 
 (1  i )  1  (1  i ) 
j
 
Expenditures “EXPJ.”
“i”
Discount
Rate EAV

References
•Yañez, Medardo – Gómez de la Vega, Hernando, Valbuena Genebelin, Gerencia de la Incertidumbre. Casa Editorial
Campus MBA Venezuela, Maracaibo, Zulia, Junio 2003.
•Yañez, Medardo – Gómez de la Vega, Hernando, Valbuena Genebelin, Ingeniería de Confiabilidad y Análisis
Probabilístico de Riesgo – ISBN 980-12-0116-9 - Junio 2003
•Yañez, Medardo – Semeco, Karina – Medina Nayrih – “Enfoque Práctico para la Estimación de Confiabilidad y
Disponibilidad de Equipos, con base en Datos Genéricos y Opinión de Expertos” – Universidad Simón Bolívar -
Venezuela 2005
• Yañez, Medardo - Joglar, Fancisco - Modarres Mohammad, “Generalized Renewal Process for Analysis of
Repairable Systems with Limited failure experience” – Reliability Engineering and System Safety Analysis Journal –
ELSVIER – USA 2002
• H. Paul Barringer, P.E. - Life Cycle Cost Tutorial - Fifth International Conference on Process Plant Reliability
• NORSOK STANDAR: Life Cycle Cost for Production Facilities
• NORSOK STANDAR: Life Cycle Cost for System an Equipments
• ISO STD 15663 – 1 – “Petroleum and Natural Gas Industries Life Cycle Costing – Part I – Methodology” – First
Edition – August 2001
• ISO STD 15663 – 2 – “Petroleum and Natural Gas Industries Life Cycle Costing – Part II – Guidance on Application
of Methodology and Calculation Methods” – First Edition – September 2001
• ISO STD 15663 – 3 – “Petroleum and Natural Gas Industries Life Cycle Costing – Part III – Implementation
Guidelines” – First Edition - August 2001
•NORSOK O-CR-001: Life cycle cost for systems and equipment
•SAE ARP-4293: Life cycle cost - Techniques and applications
• NORSOK O-CR-002: Life cycle cost for production facility
References
• NIST/SEMATECH Handbook of Statistical Methods, http://www.itl.nist.gov/div898/handbook/
•Hoyland, A.; Rausand, M., “System Reliability Theory: Models and Statistical Methods”, John Wiley and Sons, NY,
1994.
•Ascher, H.;Feingold, H., “Repairable Systems Reliability: Modeling and Inference, Misconception and Their Causes”,
Marcel Dekker, NY,1984ASM Metals Handbook, 13, 624, ASM Metals Park, Ohio, 1981.
• Woodhouse, John – “Managing Industrial Risk”- ISBN: 0412475901 Chapman & Hall; 1st ed edition (August, 1993)
• NASA, “Probabilistic Risk Assessment for NASA Managers and Practitioners”, Version 1.1, Agosto 2002
•Modarres, Mohammad; Kaminsky, Mark; Kritsov, Vasily. “Reliability Engineering And Risk Analysis”. Marcel Dekker,
New York,1999.
• Martz, H.F.;Walley, R.A. “Bayesian Reliability Analysis”, John Wiley and Sons, NY, 1982.
• Meeker, William Q.; Escobar Luis A., “Statistical Methods For Reliability Data”. Jhon Wiley & Sons, New York, 1998.”
• SINTEF- “Offshore Reliability Data Handbook” 4th Edition, (OREDA 2002)
• Energy Institute - “Pipeline And Riser Loss Of Containment Database (PARLOC 2001), London 2003

Reliability, Availability and Maintainability (RAM) Analysis For Repairable Items

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On boarding Programme for Engineers

Module IX: Risk & Reliability Engineering

Reliability, Availability and

Copyright © Reliability and Risk Management

OPERATING Operative Time Operation Time before Censored

Censored Time (CT): Operation Time from last Failure

n m w n= TBF sample values number

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OPERATING Operative Time Operation Time before Registered

The MTBDE is the meantime between different stoppages.

The Stoppage Rate ( λi ); is a equipment out of service frequency indicator .

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 TBFi : Operational time between

n: Number of TBF of the sample

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The down-time variable analysis is known as MAINTAINABILITY (M(t)). Quantitatively it is

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Casos mas frecuentes:

Module IX: Risk & Reliability Engineering

f(X)=Distribución de Frecuencia del g(Y)= Distribución de Frecuencia

“Availability A(t)” and “Expected y0=0

calculations based on Montecarlo

Simulation F(X)=Distribución de Acumulada del F(X)=Distribución de Acumulada del

i=i+1 Disponibilidad yj=yj-1+yk

DISPONIBILIDAD NUMERO ESPERADO DE

1m  1m  STOP

Since the last overhaul a turbo-compressor has had a

1. The availability to 19000 and 20000 hrs. 469 4

Sources of Data for RAM Analysis

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Sources of Information - EVIDENCE

TBFi : Operation Time between failure (i-1) and

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Sources of Information – EXPERT OPINION

information of interest; a minimal value, f( )

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Sources of Information – Generic Information (Database)

Off Shore Reliability Data – OREDA

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Generics databases – Representativeness of Information

Failure Mode that doesn't applies to the

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Generics Data Bases – Representativeness of Information

Failure Mode that doesn´t applies to the

GENERIC FAILURE DATA modo1 modo3 modo n

Combining different sources of data – Bayes Theorem

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Combining different sources of data – Bayes Theorem

The Figure, illustrates how there are Prior Knowledge Evidence

See Exercise 15.xls  See Lecture No. 9

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System Reliability, Availability and

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It is supported by block diagrams ,

A B C SUB SIST “A” SUB SIST “B”

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Reliability Blocks Diagrams

Reliability Blocks Diagrams

1 They are systems conformed by multiple elements of

2 accomplishes its function.

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Reliability Blocks Diagrams - Systems in parallel where component