Equipment criticality is done to assess the full extent of inherent risks an item of plant and equipment brings to an operation. Doing an equipment risk assessment lets you appreciate the range of risks, and their respective size, that a physical asset causes a site. Once you spot unacceptable operating risks due to equipment you can pick and apply effective risk elimination strategies. Equipment risk is assessed by using the risk equation. All risks to the operation are summed together to arrive at a total value for an asset, which is its equipment criticality. Gauging plant and equipment criticality is done as described within this guidance note in organizations that use the Plant Wellness Way EAM System-of-Reliability methodology.

Keywords: equipment risk, equipment criticality, equipment risk assessment, operating risk analysis, criticality analysis

Organizational problems this article helps you to address:

    •  Use a reputable equipment criticality assessment methodology for physical assets.
    • Gauges the real financial impact of a risk event’s total costs and losses to the operation.
    • Sets the importance and priority of an organization’s physical assets to operational success.

Definition of Equipment Criticality

Equipment criticality, as done in PWW EAM system methodology, is the sum of all operational risks caused to a site by the presence of an equipment item or a physical asset. All such risks are added together to gauge an asset’s individual equipment criticality.

The extent of the criticality analysis is limited to the direct operating, production, and occupational health, safety, and environmental (OHSE) impacts to the site and does not include possible knock-on effects that might flow across to the rest of the business or corporation. By keeping the risk assessment to the consequences affecting a site the criticality analysis has a boundary at which it ends. Should an organization want equipment risk assessment to include potential business-wide and supply-chain-wide effects, then they can be added to the asset’s operational risk criticality.

Risk Equation Contents and Implications

The standard risk equation is written as:

Risk ($/event) = Consequence (losses in $) x Likelihood (of an event)

The equation applies to a specific event and its consequences. It measures the risk as an annualised cost of one occurrence. An event that happens many times a year costs that many more times than a single event. An event that happens on average once every 10 years is converted to an annualised incident of 0.1 times per year (i.e., 1 event per 10 years). By annualizing the risk, it allows the financial effect of many events to be compared regardless of what they are, or how often they happen.

The consequence is best measured as a financial cost since that sets a definite monetary amount lost by an event. When consequence is only assessed based on its descriptive impacts it produces a less robust analysis. PWWEAM uses the Total Defect and Failure Cost (TDAF Cost) approach to determine the consequential financial losses of a failure event. TDAF Costing is an Activity Based Costing methodology that traces all actions and tasks eventuating from an event and their associated costs.

Using a Risk Matrix to Show the Risk

Because the standard risk equation has two factors, consequence and likelihood, the risk can be plotted on a two-axis chart. Such charts are called a risk matrix. An example is shown below. Ensure that you follow accredited international standards in their construction and content.


The horizontal and vertical axes are log to the base ten scale. This allows both large numbers and fractions to be plotted on the same chart. The letters, L M H E, are respectively, Low, Medium, High, and Extreme risk. Each cell in the matrix can also be assigned a numerical value by multiplying the number representing the consequence significance column (1-5) by the row number (1-6) representing the likelihood of an event. But in using a numerical value it implies an accuracy that is not possible to achieve when quantifying risk. Because assessing risk is an estimation, PWWEAM risk rating uses cells with those letters and not numeric values.

Equipment Criticality is the Sum of All Operational Risks

When equipment fails the event can impact the operation in a variety of ways and each one has its own consequential costs. Operational risks from asset failure include production losses and wastes; personnel safety hazards; environmental harm to the site and the local community from substance release; regulatory and legislative penalties; and physical damage to equipment and infrastructure. The risks an asset can cause to a site are added together to gauge its overall criticality.


Calculating Equipment Criticality in PWW EAM Methodology

It is necessary to determine both Criticality 1 and Criticality 2 in the PWW EAM System-of-Reliability methodology. Criticality 1 is the total risk should a catastrophic equipment failure event happen. Criticality 2 is the historic risk of an equipment failure event as experienced at the site or in the industry.

Criticality 1 Assessment

Criticality 1 assumes the worst event that can happen with an asset will happen. In a Criticality 1 risk equation the Likelihood is certain. The Consequence value is the TDAF Costs to the operation of the worst event. That risk is the Criticality 1 value.

It is important to know what the severest event could be. If it is the death of personnel, or poisoning the community from a containment leak, then such an event can never be allowed to occur, and proactive measures and protections are instigated to eliminate the possibility of it happening.

Criticality 2 Assessment

Calculating Criticality 2 applies the risk equation in the traditional way, where Likelihood is the historic frequency of a failure incident, and Consequence is the total financial losses, wastes, and costs incurred due to the event, plus the costs to get equipment and the operation back into service.

All historic operational data about an asset is collected and used to identify the various types of failure events during its service life. The average annualised frequency of each event type is determined and becomes such event’s Likelihood. The Consequence amount is the event type’s TDAF Costs. The result of multiplying the Consequence and Likelihood produces the equipment risk criticality value for each risk event type.

A table with headings like the one below is developed when doing the equipment criticality analysis.  Operational data relevant to the column headings is entered for each event type and the table produces a risk assessment for operating equipment criticality event by event.


Adding Risks Together to Determine Total Risk

When failure events cause multiple risk types, like an incident that produces production loss, harms personnel, and damages equipment, the equipment criticality is the sum of risk from each event type. Summing risks requires following the correct rules for adding logs to the base ten together. For risks to be added they must be in linear scale form and not in log scale form. Log values need to be calculated back into linear scale values and added together. The log of the total linear value from all risks caused by the equipment represents the risk criticality of the asset.

Show Equipment Risk Criticality on the Risk Matrix

Once risk event consequences are determined and the likelihood of an incident is assessed the two factors can be used to place the risk on the operation’s risk matrix. Those risk events that are above Low level need to be addressed. Typically, operations work through and implement risk mitigations in the order of Extreme first, High second, then Medium, and finally Low level risks.


Mike Sondalini
PWWEAM System-of-Reliability
9 June 2022