High-Rise Building Fire System Economic Analysis and Assessment
The analysis is derived from what we called risk analysis. Risk analysis refers to a systematic examination of risk measures in terms of deaths, injuries, property damage and business interruptions. Risk analysis examines whether the reduction or freedom from these risks are great enough to justify the cost of the system; it is an analysis of cost versus risk reduction benefits in which the risk portion is measured explicitly.
Basically, three methods applied by which risk can be handled such as:
- Assuming all the risk;
- Buying insurance premium to transfer the risk; and
- Installing fire protection system, particularly a sprinkler system to reduce the risk in the building as it was designed in Qatar Silhouette Tower.
Building owners may handle risks through a combination of these methods. Nevertheless, in most cases, the building owners prefer the buying insurance policies in order to transfer the risk as it was. When there is a transfer of risk, the insurance company may impose fire protection system requirement for the building depending on the severity and possible occurrence of fire as a condition of obtaining an insurance policy. Another source of fire protection requirement is the local code requirement which takes precedence over all another type of consideration.
The most common approach to risk analysis is the cost-benefit analysis, a technique in which all the benefits of risk reduction are translated into monetary equivalents. This technique permits a proposed installation of fire protection system to be assessed in terms of its net benefits or costs. The benefits mean saved losses from fire and the cost means the initial and operating cost of the system as discussed in the previous chapter. There is two major type of losses associated with the destruction of property from fire:
- Direct losses include damage to the equipment, building and its contents. The cost of personal injuries and death resulting from fire and explosion are also part of a direct loss. Depending on the property owner’s degree of liability, these losses can exceed the cost of all other direct losses.
- Indirect losses include loss of profit caused by interruption of business, cost of temporary location, temporary or permanent loss of customers, and the loss of a skilled employee who takes another job during their lay-off.
Determination of the expected losses with or without fire protection is usually made on judgment basis. It requires a lot of assumption and statistical data based on fire scenarios. The most difficult step is assessing the cost of lives and injuries of persons. For property damage, the loss faced by the building owner may be mediated by insurance. In that case, it would be necessary to estimate the likely reduction in out of pocket, uninsured damage plus insurance premium, rather than likely reduction in total direct damage achievable. Another consideration in the evaluation is whether to include an adjustment for indirect loss such items as business interruption and permanent or temporary loss of customers. These losses can be very large in individual cases, but in the aggregate, they tend to be in the order of magnitude smaller than the direct losses. Determination of such indirect losses depends on the nature of business of the building owner. Likewise, the owner may transfer some of the risks to the insurance company and assume some of the risks. The cost-benefit analysis produces time streams of costs and risk reduction benefits – that is, year by year estimate of cost and reductions in fire death, injuries, property damage and indirect losses. To compare the costs to the benefits, the two-time streams need to be combined into a single manageable indicator of net benefits.
To compare future and present costs and benefits, it is necessary to decide what the future costs and benefits are worth in the present.
The attractiveness of such investments is based on the prevailing bank interest rate. Most fire risk-reducing strategies involve greater costs than benefits in the near years and greater benefits than costs in the later years; this makes the interest rate of a critical factor in the overall assessment of whether the benefits justify the costs. Justification of the cost of the fire protection system could be done only if all the data for benefit calculations are available.