Risk is defined as the probability of an event occuring multiplied by the consequences of that event occuring. This is also the same as “expected cost.” Since future costs of ownership are not known exactly (we don’t know when assets will fail), they must be expressed probabilistically. Example: An asset has a probability of failure of 10% this year. If it fails, the consequence of failure will be $150,000. What is the risk cost of operating the asset this year? Answer: 10% * $150,000 = $15,000 risk cost this year.

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