Risk management, when working properly, is almost invisible. The same applies even clearer, to the modern infrastructure like roads, energy grids and pipelines. The discussion on deteriorating infrastructure has been heating up after shocking accidents like the Ponte Morandi bridge collapse on A10 motorway in Genoa, Italy last year.
Infrastructure needs continuous maintenance
Aging infrastructure needs continuous follow-up and maintenance. It is not a surprise, that the deteriorating structures will start failing at some point even without any unidentified defects in new materials. The problems arise from the long lifecycle of the infrastructure.
The accidents directly caused by failing infrastructure include serious injuries, fatalities, large property damages, not to mention lost income, reputation risk or even bankruptcy. Think about the risks involved in energy production and distribution, water management, transport like roads, ports and airports or in communication infrastructure. Consider the significance of these systems, and the impact bursting pipes or collapsing structures can have from both social and economic perspectives.
Updating in time is a persevering effort
Keeping up the infrastructure and updating it in time is a persevering effort. The structures may endure 30 to 100 years and “nothing” happens, even if some measures are postponed. As financing of public installations is often done through tax money, e.g. political preferences may delay necessary maintenance actions.
But this maintenance should be based on lifecycle assessment. Otherwise, the cumulative investment gap easily exceeds any funds available. Research studies show that timely actions are cheaper than waiting for a catastrophic incident to occur first.
Risks are evolving
The risks are also constantly evolving. Digital operation and monitoring systems, such as smart power grids are taken into use while the hardware may be old. This leads to new, possibly unidentified risk exposures to societies and companies. Digitalization of earning methods and the increase of immaterial values in new business models aren’t less exposed to interruptions of the common infrastructures like communication or cloud services.
But the risks aren’t limited to the direct consequences. The global supply chains are ever more complex and interconnected. The business interruption risks are among the highest ranking in studies among business leaders.
Climate change and the extreme weather events require extra resilience from the infrastructure and accelerate the maintenance challenge. In October 2019 the power company PG & E started to shut down their power grid in Northern California due to weather forecast of offshore winds prone to causing wildfires – the company has been criticized of deteriorated equipment igniting fires resulting in massive catastrophe in 2017.
Similarly, companies need to implement their deteriorating infrastructure related risks into their risk management. This is nothing new. Both direct exposures and supply and delivery chain as well as IT risks have to be taken into consideration.
Nordic Liability Risk Management Specialist, If