NAME: SOYEMI ADEMOLA

OLUWOLE
MATRIC NUMBER:
13CF015171
QUESTION 1.
A manufacturer provides a warranty against failure ofa carbon
steel product within the first 30 days after sale. 10 Out of 1000
sold were found to have failed by corrosion during the warranty
period. Total cost of replacement for each failed product is
approximately N1,200,000, including the cost of environmental
clean-up, loss of product, downtime, repair, and replacement.
a.) Calculate the risk of failure by corrosion, in Naira.
SOLUTION.
R=P C

R= Risk
P= Probability
C= Consequence
Calculating probability,
If 10 out of 1000 carbon-steel products fail, the probability of one
product failing is
P=

10
=0.01
1000

The cost of replacement of one product is therefore the

consequence of the risk incurred
C=N 1,200,000

Therefore risk is,

R=0.01 N 1,200,000=N 12,000 per one product

For 10 failed products R is simply,

R=10 N 12,000=N 120,000

b.)If a corrosion-resistant alloy would prevent failure by corrosion,

is an incremental cost of N1200 to manfacture the product using
such an alloy justified?What would be the maximum incremental
cost that would be justified in using an alloy that would prevent
failures by corrosion?
SOLUTION.
Using a basis of 1000 products, 10 products will fail based on the
probabilistic calculations above. If the incremental cost is to be
incurred, an additional N1,200,000(N1,200*1000= N1,200,000)
goes into producing the product (corrosion-resistant product). It is
more economical to spend an extra N1,200,000 on production of
1000 corrosion-resistant products than it is to spend N1,200,000
on a failed product, therefore the incremental cost is justified.

QUESTION 2
Linings of tanks can fail because of salt contamination of the
surface that remains after the surface is prepared for the
application of the lining. Between 15% and 80% of coating
failures have been attributed to residual salt contamination.

The cost of reworking a failed lining of a specific tank has been

estimated at N9,000,000.[Reference:H.Peters, Monetizing the
risk of coating Failure, Materials Performance 45 (5) 30 (2006)]
a.)Calculate the risk due to this type of failure assuming that
20% of failures are caused by residual salt contamination.
SOLUTION
R=P C

R= Risk
P= Probability
C= Consequence
Calculating probability,
If 20% of all failures are caused by salt contamination, then the
probability of failure due to salt contamination is
P=

20
=0.2
100

The cost of reworking a failed lining is therefore the consequence

of the risk incurred
C=N 9 , 0 00,000

Therefore risk is,

R=0.2 N 9,0 00,000=N 1,800 ,00 0 per lining

b.)If the cost of testing and removal of contaminating salts is

N450,000 is this additional cost justified based on the risk
calculation in (a).
SOLUTION

From the above risk calculation, it can be seen that the probability
of a lining failing due to salt contamination as well as its
consequence (in monetary terms) is high. This means that the risk
involved is also on high.
If the cost of testing and removal of contaminating salts is
N450,000, to ensure that no lining is affected by salts the cost is
N450,000 X (where X is the number of tanks).
If the probabilty of a number of tanks failing out of a given
number of tanks due to salt contamination is 20% ( taking a basis
of 100 tanks, then 20 fail will fail due to salt contamination), then
the cost of removing the risk of failure is
N 450,000 X=N 450,000 100=N 45,000,000

Comparing this to the hypothetical situation whereby you would

to replace all failed tanks would be
N 9,000,000 20=N 180,000,000

From the above calculations, a cost of N450,000 to remove or

significantly reduce the risk of failure is justified since it woud
take a much smaller amount to prevent failure than to replace
failed equipment.
c.)Calculate the minimum percentage of failures caused by
residual salt contamination at which the additional cost of
N450,000 for testing and removal is justified.
SOLUTION.
From the above hypothetical situation it would take N45,000,000
to prevent failure due to salt contamination in 100 tanks. Now, for
us to justify the incremental cost of N450,000 per tank , we have
to calculate the amount of tanks that would have to fail for the
cost of replacement to equal the cost of prevention of failure.

Let Y be the number of failed tanks

N 9,000,000 Y =N 45,000,000
Y=

45,000,000
=5
9,000,000

From the above calcutations, using a basis of 100 tanks, only 5

tanks would have failed for the cost of reworking tanks
( N9,000,000 per tank) to equal the cost of preventing failure in
all 100 tanks.
Therefore, the minimum percentage of failure caused by salt
contamination at which the incremental cost is justified is the
number of failed tanks divided by the total number of tanks, i.e.
number of failed tanks
5
=
=5
total number of tanks 100