ASTM E2506-15(2020)e1

This international standard was developed in accordance with internationally recognized principles on standardization established in the Decision on Principles for the
Development of International Standards, Guides and Recommendations issued by the World Trade Organization Technical Barriers to Trade (TBT) Committee.
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Designation: E2506 − 15 (Reapproved 2020)
Standard Guide for
Developing a Cost-Effective Risk Mitigation Plan for New
and Existing Constructed Facilities
This standard is issued under the fixed designation E2506; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (´) indicates an editorial change since the last revision or reapproval.
ε NOTE—Adjunct title and stock number in 2.2 were updated editorially in April 2020.
INTRODUCTION
Protecting constructed facilities from damages from natural and man-made hazards in a cost-
effective manner is a challenging task. Several measures of economic performance are available for
evaluating building-related investments. These measures include, but are not limited to, life-cycle cost,
present value net savings, savings-to-investment ratio, and adjusted internal rate of return. This guide
provides a generic framework for assessing the risks associated with natural and man-made hazards,
formulating combinations of risk mitigation strategies for constructed facilities exposed to those
hazards, and using measures of economic performance to identify the most cost-effective combination
of strategies.
1. Scope 1.4 The purpose of the risk mitigation plan is to provide the
most cost-effective reduction in personal injuries, financial
1.1 This guide describes a generic framework for develop-
losses, and damages to new and existing constructed facilities.
ing a cost-effective risk mitigation plan for new and existing
Thus, the risk mitigation plan incorporates perspectives from
constructed facilities—buildings, industrial facilities, and other
multiple stakeholders—owners and managers, occupants and
critical infrastructure. This guide provides owners and manag-
users, and other affected parties—in addressing natural and
ers of constructed facilities, architects, engineers, constructors,
man-made hazards.
other providers of professional services for constructed
1.5 This standard does not purport to address all of the
facilities, and researchers an approach for formulating and
safety concerns, if any, associated with its use. It is the
evaluating combinations of risk mitigation strategies.
responsibility of the user of this standard to establish appro-
1.2 This guide insures that the combinations of mitigation
priate safety, health, and environmental practices and deter-
strategies are formulated so that they can be rigorously
mine the applicability of regulatory limitations prior to use.
analyzed with economic tools. Economic tools include evalu-
1.6 This international standard was developed in accor-
ation methods, standards that support and guide the application
dance with internationally recognized principles on standard-
of those methods, and software for implementing the evalua-
ization established in the Decision on Principles for the
tion methods.
Development of International Standards, Guides and Recom-
1.3 The generic framework described in this guide helps mendations issued by the World Trade Organization Technical
decision-makers assess the likelihood that their facility and its
Barriers to Trade (TBT) Committee.
contents will be damaged from natural and man-made hazards;
2. Referenced Documents
identify engineering, management, and financial strategies for
abating the risk of damages; and use standardized economic
2.1 ASTM Standards:
evaluation methods to select the most cost-effective combina-
E631 Terminology of Building Constructions
tion of risk mitigation strategies to protect their facility.
E833 Terminology of Building Economics
E917 Practice for Measuring Life-Cycle Costs of Buildings
and Building Systems
This guide is under the jurisdiction of ASTM Committee E06 on Performance
of Buildings and is the direct responsibility of Subcommittee E06.81 on Building
Economics. For referenced ASTM standards, visit the ASTM website, www.astm.org, or
Current edition approved April 1, 2020. Published May 2020. Originally contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
approved in 2006. Last previous edition approved in 2015 as E2506-15. DOI: Standards volume information, refer to the standard’s Document Summary page on
10.1520/E2506-15R20E01. the ASTM website.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959. United States
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E964 Practice for Measuring Benefit-to-Cost and Savings- software that support the generic framework. These documents
to-Investment Ratios for Buildings and Building Systems and software are summarized in Appendix X1.
E1057 Practice for Measuring Internal Rate of Return and
4.3 Data about the frequency and consequences of natural
Adjusted Internal Rate of Return for Investments in
and man-made hazards are helpful when assessing the risks
Buildings and Building Systems
that a particular facility faces from these hazards. Historical
E1074 Practice for Measuring Net Benefits and Net Savings
patterns of natural disasters, in particular, indicate which areas
for Investments in Buildings and Building Systems
are more prone to these specific hazards in the future. Many
E1121 Practice for Measuring Payback for Investments in
analysts refer to past incidences of man-made hazards, such as
Buildings and Building Systems
crime, as predictors of future occurrences. Sources of hazards
E1185 Guide for Selecting Economic Methods for Evaluat-
data are presented in Appendix X2.
ing Investments in Buildings and Building Systems
E1369 Guide for Selecting Techniques for Treating Uncer-
5. Significance and Use
tainty and Risk in the Economic Evaluation of Buildings
5.1 Standard practices for measuring the economic perfor-
and Building Systems
mance of investments in buildings and building systems have
E1557 Classification for Building Elements and Related
been published by ASTM. A computer program that produces
Sitework—UNIFORMAT II
economic measures consistent with these practices is avail-
E1699 Practice for Performing Value Engineering (VE)/
able. The computer program is described in Appendix X3.
Value Analysis (VA) of Projects, Products and Processes
Discount Factor Tables has been published by ASTM to facili-
E1765 Practice for Applying Analytical Hierarchy Process
tate computing measures of economic performance for most of
(AHP) to Multiattribute Decision Analysis of Investments
the practices.
Related to Projects, Products, and Processes
E1946 Practice for Measuring Cost Risk of Buildings and 5.2 Investments in long-lived projects, such as the erection
Building Systems and Other Constructed Projects of new constructed facilities or additions and alterations to
E2103/E2103M Classification for Bridge Elements— existing constructed facilities, are characterized by uncertain-
UNIFORMAT II ties regarding project life, operation and maintenance costs,
E2166 Practice for Organizing and Managing Building Data revenues, and other factors that affect project economics. Since
E2204 Guide for Summarizing the Economic Impacts of future values of these variable factors are generally unknown,
Building-Related Projects it is difficult to make reliable economic evaluations.
2.2 ASTM Adjunct:
5.3 The traditional approach to uncertainty in project invest-
Discount Factor Tables - Adjunct to E917 Practice for
ment analysis is to apply economic methods of project evalu-
Measuring Life-Cycle Costs of Buildings and Building
ation to best-guess estimates of project input variables, as if
Systems - Includes Excel and PDF Files
they were certain estimates, and then to present results in a
single-value, deterministic fashion. When projects are evalu-
3. Terminology
ated without regard to uncertainty of inputs to the analysis,
3.1 Definitions—For definitions of general terms related to decision-makers may have insufficient information to measure
building construction used in this guide, refer to Terminology
and evaluate the financial risk of investing in a project having
E631; and for general terms related to building economics, a different outcome from what is expected.
refer to Terminology E833.
5.4 To make reliable economic evaluations, treatment of
uncertainty and risk is particularly important for projects
4. Summary of Guide
affected by natural and man-made hazards that occur
4.1 This guide presents a generic framework for developing
infrequently, but have significant consequences.
a cost-effective risk mitigation plan for constructed facilities
5.5 Following this guide when performing an economic
exposed to natural and man-made hazards. The generic frame-
evaluation assures the user that relevant economic information,
work consists of three interrelated components. The three
including information regarding uncertain input variables, is
components are: (1) perform risk assessment; (2) specify
considered for projects affected by natural and man-made
combinations of risk mitigation strategies; and (3) perform
hazards.
economic evaluation. The generic framework builds on an
5.6 Use this guide in the project initiation and planning
approach presented in Chapman and Leng (1).
phases of the project delivery process. Consideration of alter-
4.2 This guide identifies related ASTM standards and ad-
native combinations of risk mitigation strategies early in the
juncts and describes why measuring uncertainty and risk is
project delivery process allows both greater flexibility in
critical in the development of cost-effective protective strate-
addressing specific hazards and lower costs associated with
gies for constructed facilities. In addition to ASTM standards
their implementation.
and adjuncts, this guide identifies technical documents and
3 5
Available from ASTM International Headquarters. Order Adjunct No. The NIST Cost-Effectiveness Tool for Capital Asset Protection helps users
ADJE091717-EA. Original adjunct produced in 1984. Adjunct last revised in 2003. calculate measures of economic performance for buildings and building systems that
The boldface numbers in parentheses refer to a list of references at the end of are consistent with ASTM standards. The program is downloadable from http://
this standard. www.nist.gov/el/economics/CETSoftware.cfm.
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5.7 Use this guide for economic evaluations based on Provide the assessment team with the tools, such as laptop
Practices E917 (life-cycle costs), E964 (benefit-to-cost and computers and electronic forms/data collection sheets, needed
savings-to-investment ratios), E1057 (internal rate of return to implement the assessment plan.
and adjusted internal rate of return), E1074 (net benefits and 7.2.3 Make assignments and deploy the assessment team.
net savings), E1121 (payback), E1699 (value engineering), and
Collect and compile information on specific hazard types, their
E1765 (analytical hierarchy process for multi-attribute decision likelihood, and consequences.
analysis).
7.2.4 Use an agreed upon format, such as Classifications
E1557 or E2103/E2103M or Practice E2166, to create a
5.8 Use this guide in conjunction with Guide E2204 to
compiled set of information collected from the assessment
summarize the results of economic evaluations involving
team that documents the findings of the risk assessment.
natural and man-made hazards.
Transmit the compiled set of information to a central repository
6. Procedures
to insure that access to sensitive information can be limited to
those with a legitimate need to know.
6.1 The recommended steps in developing a cost-effective
risk mitigation plan are as follows:
8. Specify Combinations of Risk Mitigation Strategies for
6.1.1 Establish risk mitigation objectives and constraints.
Evaluation
6.1.2 Conduct assessment and document findings.
6.1.3 Review alternative risk mitigation strategies.
8.1 Review Alternative Risk Mitigation Strategies—This
6.1.4 Select candidate combinations of risk mitigation strat-
section describes three risk mitigation strategies—engineering,
egies.
management, and financial. Each strategy is composed of
6.1.5 Develop cost estimates and sequence of cash flows for
multiple approaches for addressing hazards identified in the
each candidate combination.
risk assessment. These approaches focus on hazard mitigation
6.1.6 Select appropriate economic method(s) for evaluating
for a specific system or collection of systems and components,
the candidate combinations of risk mitigation strategies (see
as well as facility and site-related elements. Strategies may be
Guide E1185).
used either singly or in combination. Past research indicates
6.1.7 Compute measures of economic performance for each
that combinations of risk mitigation strategies offer flexibility
candidate combination.
in dealing with both a single hazard and multiple hazards.
6.1.8 Recompute measures of economic performance taking
8.1.1 Engineering:
into consideration uncertainty and risk (see Guide E1369 and
8.1.1.1 Engineering strategies are technical options in the
Practice E1946).
construction or renovation of constructed facilities, their
6.1.9 Analyze results and recommend the most cost-
systems, or their subsystems designed to reduce the likelihood
effective combination of risk mitigation strategies.
or consequences of disasters. Engineering strategies provide
6.1.10 Prepare report with documentation supporting rec-
protection against both natural and man-made hazards. Engi-
ommended risk mitigation plan.
neering strategies also help defend against man-made hazards,
where their ability to detect or deter may reduce the likelihood
7. Perform Risk Assessment
or consequences of such hazards.
7.1 Establish Risk Mitigation Objectives and Constraints:
8.1.1.2 Protective engineering strategies are intended to
7.1.1 Specify the decision-maker’s objectives. This is cru-
reduce harm to occupants, damage to the structure, and
cial in defining the problem and determining the suitability of
disruption of business if a disaster occurs. Protective engineer-
the economic evaluation method(s).
ing strategies may improve the structural integrity of a
7.1.2 Identify the constructed facility or set of facilities to be
building, facilitate evacuation of occupants, or circumvent
evaluated. Identify the types of hazards to be evaluated.
compromised systems.
7.1.3 Specify the design or system objective that is to be
8.1.1.3 There is some overlap among engineering strategies
accomplished. Identify any constraints that limit the available
that deter, detect, and protect against terrorist attacks and other
options to be considered.
criminal acts. Detection and protective engineering strategies
that are observable to potential terrorists may deter them from
7.2 Conduct Assessment and Document Findings:
attacking. Closed-circuit television (CCTV), for example, is
7.2.1 Form an assessment team composed of individuals
designed to detect unauthorized activities, but its visibility may
familiar with the type of facility or set of facilities to be
deter these activities.
evaluated, individuals familiar with assessment tools and
8.1.1.4 Risk mitigation strategies may also be hazard-
techniques, and individuals who have breadth and depth of
specific. Reinforced building shell, shatter-resistant glass, and
experience and understand other disciplines and system inter-
use of barriers and bollards to achieve increased setback
dependencies. Refer to the risk assessment guidance docu-
distances for existing buildings are examples of engineering
ments and software tools summarized in Appendix X1 to gain
strategies that protect against blast.
assessment insights on specific hazards or classes of hazards.
Supplement your data sources with those described in Appen- 8.1.2 Management:
dix X2 to compile information on the likelihood and severity of 8.1.2.1 Management strategies can be procedural or techni-
specific hazards or classes of hazards. cal. Some management strategies relate to security, training,
7.2.2 Use information from the documents and software and communications. Others relate to decisions on where to
summarized in Appendix X1 to produce an assessment plan. locate the building and who should have access to its systems
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and subsystems. Some management strategies complement Both topics are explored in detail in Grossi and Kunreuther (2)
engineering strategies, while others substitute for them. and in Kunreuther, Meyer, and Van den Bulte (3).
8.1.2.2 Security practices are the use of security personnel
8.1.3.2 Building owners and managers may reduce their risk
and procedures to prevent terrorist or criminal breaches from
exposure to disasters by purchasing insurance for worker’s
happening by detection or deterrence. They may be used to
compensation, property damage, business interruptions, event
perform identification checks at building entrances, conduct
cancellation, and liability.
background checks on individuals with access to sensitive
8.1.3.3 Financial incentives fall into two categories: govern-
areas and information, patrol facilities, and monitor CCTVs.
ment incentives and private incentives. Government incentives
Security personnel may also be used to capture attackers or
are explicitly designed public policy instruments that encour-
facilitate recovery if a breach occurs.
age decision-makers to make certain choices over others.
8.1.2.3 Training practices are used primarily to prepare
Private incentives reward decision-makers for making some
responses to disaster. Building owners and managers may
choices over others through private transactions. In the case of
institute periodic emergency response drills for building occu-
risk mitigation, government and private incentives are policies,
pants. These drills may include information about evacuation
measures, or characteristics that motivate building owners and
routes or sheltering procedures to improve survival during
managers to implement risk mitigation measures in their
emergencies. Security and facility management personnel may
buildings.
receive training about proper techniques for responding to
8.1.3.4 Federal, state, and local governments can institute
breaches and containing damage. Training may also be used for
direct incentives that reduce the price that building owners and
prevention: building security personnel and occupants may be
managers pay to protect their buildings. These incentives
trained in detection of suspicious activities and notification
include subsidies or tax write-offs for investments in protective
procedures.
measures. Other examples of government-initiated financial
8.1.2.4 Building owners and managers may also use com-
incentives are formal cost sharing of the protective investments
munications practices to coordinate responses with emergency
and loan guarantees to ease the short-term financial burdens of
personnel and to relay information and instructions to occu-
structural upgrades.
pants during emergencies. Communications practices include
8.1.3.5 Financial incentives for risk mitigation in con-
setting up emergency phone numbers or instituting building-
wide audio or e-mail broadcast mechanisms. Coordinated structed facilities may also be offered by the private sector.
communications can play a key role in occupant safety. Building owners have commercial relationships with insurers,
Building owners and managers can develop communications
tenants, employees, potential buyers, and lenders. These parties
procedures to coordinate with first responders, security staff, may each benefit from a building’s reduced vulnerability.
and other emergency personnel responding to the incident.
8.1.3.6 Insurance companies benefit from the adoption of
Finally, communications practices can be used by firms occu-
either engineering or management strategies through smaller
pying the building to facilitate recovery, assess consequences,
claims if a disaster occurs. To encourage owners to adopt risk
and minimize disruptions to the organization’s mission or
mitigation, insurers may reduce insurance premiums for build-
business.
ings that have protective measures. Building owners may also
8.1.2.5 Another management practice available to building
be able to obtain more favorable insurance policies, such as
owners and managers relates to the building’s location and ease
those that are longer term, have lower deductibles, or have
of access. Decisions concerning location come into play for
fewer exclusions.
new construction and for acquisitions of existing buildings.
8.1.3.7 Building owners who lease commercial space may
Setback distances, which have effects that are interdependent
find that tenants value a building’s safety features and are
with some engineering strategies, are a component of the
willing to pay a leasing premium. For owner-occupied
management decision about location. For new construction,
buildings, employees may also value the added safety of a less
managers may choose a site within a lot that satisfies a
vulnerable building. The perception of danger may affect
minimum setback distance. When acquiring existing property,
employees’ willingness to work in a particular location.
managers may make a choice based on the physical character-
8.1.3.8 Potential buyers are another party from which a
istics of the available properties. Other structure-related man-
building owner can extract rewards for the building’s risk
agement decisions concern access to the building itself and its
mitigation measures. The installation of protective measures in
sensitive areas. These access areas include attached garages,
a building is an improvement that increases the value of the
mailrooms, loading docks, side entrances, connected buildings,
asset. The building owner may realize the benefit of increased
driveways, and rooftops. Sensitive areas include rooms hous-
ing HVAC equipment and controls; servers, network property value when the property is sold.
connections, and other information technology (IT) assets; and
8.1.3.9 Building owners may also receive incentives from
CCTV monitoring equipment.
their lenders to protect their assets. Lenders would suffer direct
8.1.3 Financial: financial losses if the destruction of a building led to the
building owner’s insolvency. To encourage owners to make
8.1.3.1 Building owners and managers can explore financial
strategies to reduce their pecuniary risks from natural and choices that reduce the likelihood of such destruction, lenders
may offer preferential financing terms on the building loan.
man-made hazards. There are two types of financial strategies
to address risk mitigation: insurance and financial incentives. Another way building owners are potentially rewarded in their
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relationships with financial institutions for their risk mitigation (Practice E1057). The computer program described in Appen-
efforts is through the increased collateral value of their build- dix X3 produces calculated values for each of the four
ings. economic evaluation methods.
9.1.3 More than one method can be technically appropriate
8.2 Select Candidate Combinations of Risk Mitigation Strat-
for many design and system decisions. If more than one
egies:
method is technically appropriate, use all that apply, since
8.2.1 Form a project team empowered to select combina-
many decision-makers need information on measures of mag-
tions of risk mitigation strategies. The project team will include
nitude (life-cycle costs and present value net savings) and of
some of the individuals from the assessment team as well as
return (savings-to-investment ratio and adjusted internal rate of
additional individuals with specific knowledge about the facil-
return) to assess economic performance.
ity or subject matter expertise. Provide the project team with
access to the compiled set of information produced by the risk 9.2 Compute Measures of Economic Performance for Each
assessment team (see 7.2). Candidate Combination:
8.2.2 Review the findings of the assessment team on how 9.2.1 Follow the instructions given in the selected evalua-
individual building elements are affected by each hazard type. tion method(s) for computing the measure(s) of economic
Use Practice E1699 for guidance on how to employ value performance (see 9.1). Perform these computations with fixed
engineering concepts to help identify and specify mitigation
parameter values. Cases where parameter values are allowed to
strategies. Use information from the documents and software vary are treated in 9.3.
summarized in Appendix X1 to identify mitigation strategies
9.2.2 Use the computed values of the measure(s) of eco-
for building elements and hazard types. Employ a combination nomic performance (outcomes) to rank order the alternatives
of mitigation strategies rather than focusing only on
(combinations of risk mitigation strategies). Refer to the
engineering-based approaches. selected evaluation method(s) to determine the criterion for
8.2.3 Form each combination of risk mitigation strategies
ranking alternatives.
into a well-defined alternative, which addresses one of more of 9.2.3 Designate the alternative with the best outcome (mea-
the hazards identified in the risk assessment. Prepare a brief
sure of economic performance) as the most cost-effective risk
narrative statement for each alternative in the set, describing mitigation plan. For example, if the life-cycle cost method is
what it does and how it accomplishes it.
used, the alternative with the lowest life-cycle cost has the best
outcome. Consequently, it qualifies as the most cost-effective
8.3 Develop Cost Estimates and Sequence of Cash Flows
risk mitigation plan.
for Each Candidate Combination:
9.2.4 Examine any significant effects that remain unquanti-
8.3.1 Consult with senior management to establish a first
fied. Note how these effects differ across alternatives.
cost budget constraint for the project. Compile information on
the amount and timing of investment costs, operating costs, and
9.3 Recompute Measures of Economic Performance Taking
maintenance and repair costs for each alternative combination
into Consideration Uncertainty and Risk—Decision-makers
of risk mitigation strategies. Eliminate from further consider-
typically experience uncertainty about the correct values to use
ation those alternatives whose initial investment costs exceed
in establishing basic assumptions and in estimating future
the first cost budget constraint for the project.
costs. Guide E1369 recommends techniques for treating uncer-
8.3.2 Compile information on the likelihood and conse-
tainty in parameter values in an economic evaluation. It also
quences of each hazard type (see Section 7) for each alterna-
recommends techniques for evaluating the risk that a project
tive. Develop estimated costs for each consequence.
will have a less favorable economic outcome than what is
8.3.3 Identify areas where information is impacted by un-
desired or expected. Practice E1946 establishes a procedure for
certainty.
measuring cost risk for buildings and building systems, using
8.3.4 Identify any significant effects that remain unquanti-
the Monte Carlo simulation technique as described in Guide
fied.
E1369. The computer program described in Appendix X3
incorporates the treatment of risk and uncertainty to produce a
9. Perform Economic Evaluation
set of calculated values for each of the four economic evalu-
ation methods referenced in 9.1.2 that are consistent with
9.1 Select Appropriate Economic Method(s) for Evaluating
the Candidate Combinations of Risk Mitigation Strategies: Guide E1369.
9.3.1 Perform Sensitivity Analysis (see Guide E1369):
9.1.1 Numerous methods are available for measuring the
economic performance of investments in buildings and build- 9.3.1.1 Sensitivity analysis is a test of the outcome of an
ing systems. Use Guide E1185 to identify types of building economic evaluation to changing values of one or more
design and system decisions that require economic evaluation parameters about which there is uncertainty. It shows decision-
and to match the technically appropriate economic methods makers how the economic viability of a project changes as the
with the decisions. discount rate, key unit costs, escalation rates, and other critical
parameters vary.
9.1.2 Four economic evaluation methods addressed in
Guide E1185 apply to the development of a cost-effective risk 9.3.1.2 A sensitivity analysis might use as inputs a pessi-
mitigation plan for dealing with natural and man-made haz- mistic value, a value based on a measure of central tendency
ards: (1) life-cycle costs (Practice E917); (2) present value net (mean or median), and an optimistic value for the parameter of
savings (Practice E1074); (3) savings-to-investment ratio interest. Then an analysis could be performed to see how each
(Practice E964); and (4) adjusted internal rate of return outcome (for example, savings-to-investment ratio) changes as
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each of the three chosen values for the selected input is rankings among the three types of analysis. Focus on circum-
considered in turn, while all other parameters are held constant. stances under which the most cost-effective risk mitigation
A sensitivity analysis can also be performed on different plan identified in the fixed parameter values analysis is
combinations of parameters. That is, several parameters are replaced by (an)other alternative(s) when the effects of uncer-
altered at once and then an outcome measure is computed. tainty are considered. Use the results of the Monte Carlo
9.3.1.3 The key advantage of sensitivity analyses is that simulations to identify the characteristics associated with
they are easily constructed and computed and the results are ranking changes for those alternatives under consideration.
easy to explain and understand. Their disadvantage is that they 9.4.3 Recommend an alternative as the most cost-effective
do not produce results that can be tied to probabilistic levels of risk mitigation plan. Provide a rationale for the recommenda-
significance (for example, the probability that the savings-to- tion. Include as part of the rationale, findings from each of the
investment ratio is less than 1.0). three types of analysis. Include a discussion of circumstances
9.3.2 Perform Monte Carlo Simulation (see Guide E1369 under which the recommended alternative did not have the best
and Practices E917 and E1946): measure of economic performance.
9.3.2.1 Monte Carlo simulation varies a small set of key 9.4.4 Describe any significant effects that remain unquanti-
parameters either singly or in combination according to an fied. Explain how these effects impact the recommended
experimental design. Associated with each key parameter is a alternative. Refer to Practice E1765 and its adjunct for guid-
probability distribution function from which values are ran- ance on how to present unquantified effects along with the
domly sampled. The major advantage of the Monte Carlo computed values of the measures of economic performance.
simulation technique is that it permits the effects of uncertainty
to be rigorously analyzed through reference to a derived 10. Prepare Report with Documentation Supporting
Recommended Risk Mitigation Plan
distribution of project outcome values. Their disadvantage is
that they require a computer program to implement.
10.1 In a report of an economic evaluation, state the
9.3.2.2 In a Monte Carlo simulation, not only the expected
objective, the constraints, the alternatives considered, the key
value of the outcome can be computed but also the variability
assumptions and data, and the computed value for each
of that value. In addition, probabilistic levels of significance
outcome (measure of economic performance) of each alterna-
can be attached to the computed outcome value for each
tive. Make explicit the discount rate; the study period; the main
alternative under consideration.
categories of cost data, including initial costs, recurring and
9.3.2.3 Key elements of Guide E1369 and Practice E1946
nonrecurring costs, and resale values; and grants and incentives
have been incorporated into the calculation of life-cycle costs
if integral to the decision-making process. State the method of
(Practice E917). Practice E917 provides direction on how to
treating inflation. Specify the assumptions or costs that have a
apply Monte Carlo simulation when performing economic
high degree of uncertainty and are likely to have a significant
evaluations of alternatives designed to mitigate the effects of
impact on the results of the evaluation. Document the sensi-
natural and man-made hazards that occur infrequently but have
tivity of the results to these assumptions or data. Describe any
significant consequences. Practice E917 contains a comprehen-
significant effects that remain unquantified in the report.
sive example on the application of Monte Carlo simulation in
10.2 Use the generic format for reporting the results of an
evaluating the merits of alternative risk mitigation strategies
economic evaluation described in Guide E2204. It provides
for a prototypical data center.
technical persons, analysts, and researchers a tool for commu-
9.4 Analyze Results and Recommend the Most Cost-
nicating results in a condensed format to management and
Effective Combination of Risk Mitigation Strategies—Choosing
non-technical persons. The generic format calls for a descrip-
among alternatives designed to reduce the impacts of natural
tion of the significance of the project, the analysis strategy, a
and man-made hazards is more complicated than most building
listing of data and assumptions, and a presentation of the
investment decisions. Consequently, guidance is provided to
computed values of any measures of economic performance.
help identify key characteristics and the level of effort that will
Guide E2204 contains a comprehensive example evaluating the
promote a better-informed decision. This guidance draws on
merits of alternative risk mitigation strategies for a prototypical
information presented in 9.2 and 9.3.
data center summarized using the generic format.
9.4.1 Review the calculated values of each alternative’s
10.3 To complete the report, include as supporting docu-
measures of performance. Include the outcomes computed for
mentation information compiled from the risk assessment and
each of the three types of analysis: (1) fixed parameter values
a description of the process by which combinations of risk
(see 9.2); (2) sensitivity analyses (see 9.3.1); and (3) Monte
mitigation strategies were assembled.
Carlo simulations (see 9.3.2).
9.4.2 Use the performance criterion from each selected 10.4 Appendix X4 provides a comprehensive, illustrative
evaluation method to rank order alternatives for each type of application of the three-step protocol in the development of a
analysis (fixed parameter values, sensitivity analyses, and risk mitigation plan against intentionally-set fires in at-risk
Monte Carlo simulations). Document differences in alternative Michigan communities.
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11. Keywords sures of economic performance; Monte Carlo simulation;
multiattribute decision analysis; natural hazards; net savings;
11.1 adjusted internal rate of return; analytical hierarchy
present-value analysis; project management; risk assessment;
process; building condition assessment; building economics;
risk mitigation strategies; savings-to-investment ratio; sensitiv-
building systems; cost analysis; economic evaluation methods;
ity analysis; value engineering
economic impacts; engineering economics; homeland security;
impact assessment; life-cycle costs; man-made hazards; mea-
APPENDIXES
(Nonmandatory Information)
X1. RISK ASSESSMENT GUIDANCE AND SOFTWARE TOOLS
X1.1 Risk Assessment Guidance Documents First, it defines a common framework that can be used by the
owners and operators of the nation’s critical infrastructure to
X1.1.1 Multiple guidance documents are available to help
assess terrorist risk to their own assets and systems. Second, it
building owners and managers assess the risks facing their
provides guidance on methods that can be used to assess and
structures. These documents vary considerably in their techni-
estimate risk information defined by the common framework.
cal sophistication and focus on individual hazards and classes
Third, this common risk framework provides an efficient and
of hazards. Eighteen guidance documents are described in this
consistent mechanism for both the private and public sectors to
section. The first three guidance documents are rigorous
report essential risk information to DHS. The technical content
theoretical treatments; they provide a framework for analysis
of the RAMCAP guidance document is divided into three parts.
that is applicable to a broad cross section of natural and
Section I, The RAMCAP Framework, provides an overview of
man-made hazards. The remaining 15 guidance documents are
how a risk analysis methodology can be applied to assessing
applications oriented; they strike a balance between rigor and
the risk associated with terrorist threats. How the results of the
ability to implement.
risk analysis should be communicated to key stakeholders so
X1.1.2 Stewart’s and Melchers’ (4) Probabilistic Risk As-
the value of the information is optimized and security is
sessment of Engineering Systems is a rigorous treatment of the
insured is also described. Section II, RAMCAP
subject. They describe ways in which hazardous situations
Implementation, contains a step-by-step procedure for deter-
might arise by drawing on examples from a wide range of
mining the individual parameters necessary for assessing risk
industries. They discuss issues that engineers and other stake-
from terrorism events. Topics covered include: how to perform
holders face in design, construction, and management of
screening; the definition of threats, vulnerability analysis,
projects which could have serious cost impacts. The way risk
consequence assessment, and threat assessment; and how these
analysts tend to examine the system with which they have to
elements are combined to estimate terrorism risk. Section II
deal is introduced through a series of industry-specific ex-
also covers risk assessment and contains an introduction into
amples. A number of approaches are then outlined, from simple
risk management considerations. Section III, RAMCAP Ap-
but powerful techniques to more detailed analyses required for
pendices and References, contains a lexicon of terms used in
complex systems having major impacts should failure occur.
risk analysis, abbreviations and acronyms, and a list of
X1.1.3 The American Society of Mechanical Engineers requirements for compliance with RAMCAP.
(ASME) Innovative Technologies Institute (ITI), through fund-
X1.1.4 Grossi and Kunreuther’s (2) Catastrophe Modeling:
ing from the Department of Homeland Security (DHS), has
A New Approach to Managing Risk provides an in-depth
launched the Risk Analysis and Management for Critical Asset
treatment of recent developments in the nature and application
Protection (RAMCAP) project. In 2005, ASME-ITI published
of catastrophe models used to manage risk from natural
a guidance document (5) on assessing the risk associated with
disasters. It describes current and potential future uses of such
terrorist threats. The goal of this document is to inform
models. The book emphasizes natural disasters, but also
resource allocation decisions for the protection of critical
discusses application of the models to the terrorist attacks of
infrastructure. Although the focus is on terrorist threats, the
September 11, 2001. The book is divided into four parts. Part
ASME-ITI guidance document provides a framework suitable
I provides an introduction to risk management and catastrophe
for addressing other types of man-made hazards as well as
models and develops a framework for integrating risk assess-
natural hazards. Specifically, the document provides a review
ment with risk management strategies via catastrophe model-
of the existing approaches to assessing risk, highlights the
ing. Part II explores the complex process of linking the science
common terminology and basis for reporting results, and
of natural hazards to the output of catastrophe models. Part III
presents recommended methodology and best practices.
examines how catastrophe modeling aids insurers and other
ASME-ITI’s RAMCAP project focuses on three key issues.
stakeholders in managing the risks from natural hazards. Part
IV focuses on the use of catastrophe models (see X1.2.4).
Available from ASME Innovative Technologies Institute, 1828 L St., NW, Suite NOTE X1.1—Many of the documents described in the remainder of this
810, Washington, DC 20036-5104, http://www.asme.org. section include guidance on the selection and use of mitigation strategies
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as well as guidance on performing a risk assessment.
fourth publication, FEMA 429 (13), is a primer on risk
management. The purpose of FEMA 429 is to introduce the
X1.1.5 The Federal Emergency Management Agency
building insurance, finance, and regulatory communities to the
(FEMA) has developed a series of guidance manuals to assist
issue of terrorism risk management in buildings and the tools
state and local communities in planning for risk mitigation.
currently available to manage these risks. FEMA 452 (14), Risk
These manuals address the need for risk assessment for a
Assessment: A How-To Guide to Mitigate Potential Terrorist
variety of hazards. They describe the processes of identifying
Attacks Against Buildings, provides a clear, flexible, and
hazards, identifying and developing mitigation strategies,
comprehensive methodology for preparing a risk assessment.
implementing risk mitigation plans, and applying these pro-
FEMA 452 outlines methods for identifying the critical assets
cesses to man-made hazards. Understanding Your Risks (6)
and functions within buildings, determining the threats to those
addresses natural hazards but offers descriptions of the risk
assets, and assessing the vulnerabilities associated with those
assessment process that can be generalized to other types of
threats. The Guide presents five steps and multiple tasks within
hazards. The four-step process consists of: (1) identifying the
each step that define a process for conducting a risk assessment
hazards; (2) profiling the hazard events to determine magni-
and for selecting risk mitigation strategies. FEMA has also
tudes and pinpoint more specific asset vulnerabilities; (3)
created a course, E155, Building Design for Homeland
inventorying assets; and (4) estimating losses. Developing the
Security, that draws on FEMA 426 and FEMA 452. The
Mitigation Plan (7) provides state and local decision-makers
course familiarizes students with assessment methodologies
with the tools to identify mitigation objectives and strategies.
available to identify the relative level of risk for a variety of
Bringing the Plan to Life (8) describes the steps that planners
threats, including blast and chemical, biological, and radiologi-
can take to implement the strategies that were identified in
cal agents.
Developing the Mitigation Plan to accomplish the stated risk
mitigation objectives. Integrating Human-Caused Hazards (9) X1.1.7 In 2002, the Department of Defense (DoD) pub-
directly relates to terrorism and “technological disasters.” All lished a Uniform Facilities Criteria (UFC), “DoD Minimum
four FEMA guidance manuals are designed to be used at the Antiterrorism Standards for Buildings” (15). The objective of
community level rather than at the level of individual busi- these criteria is to improve the survival of DoD personnel from
nesses or buildings. But building owners and managers may terrorist attacks. Although the UFC system applies to the
benefit from increased awareness of local hazards and the types military departments, DoD agencies, and DoD field activities,
of personnel and expertise that FEMA recommends, particu-
the criteria identify and highlight several key aspects of site
larly if they undertake risk mitigation in a coordinated fashion planning, structural design, architectural design, and electrical
wi
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