ISSUE 2 : 2014

p r o p e r t y r is k and insu r ance solutions f o r a co m p lex w o r ld

Global Matters
Rachel Yin
INTERNATIONAL CODES AND STANDARDS

Rachel works as a codes and standards consultant at FM Global. Since

joining the company in 2011, her main job is to support building code and
installation standard organizations and try to improve codes and standards
in China. In China, there is a highly controlled and conservative authoritative
environment, she says. My work is to get out there and share the message
about the need for resilient building codes and standards. I take great
satisfaction in being able to advance building codes in China and help to
improve the countrys protection standards.

Visit FM Globals official China website

at fmglobal.com.cn
contents : ISSUE 2 2014

COVER
[ 36 ] 36 W
 orking Together with
The Hershey Company

FEATURES
46 Stemming the Tide
54 Risk Management Challenge

THE LATEST
09 Layered Sketches
10 Talking Points with
Kirsten Shawn
12 Looking at Losses
14 Historic Loss:
Nuclear Transformer
16 Business Sprinkler Alliance
[ 46 ] [ 54 ]
18 On Tech Roundup

THE IDEA
21 Supply Chain Theory
25 On the Record

THE SCIENCE
27 Semiconductor Best Practices
32 Three Years After: The Virginia
Earthquake

[ 10 ] [ 14 ]

[ 21 ] [ 32 ]
 Reason
EXECUTIVE DIRECTOR Johanna Hetherton FM GLOBAL AROUND THE WORLD

MANAGING EDITOR Bob Gulla FM Global products and services are available around the world.
robert.gulla@fmglobal.com The countries listed below represent those where we regularly serve our clients.

ART DIRECTOR Jennifer Cournoyer asia pacific

jennifer.cournoyer@fmglobal.com Australia Bangladesh Brunei Cambodia China Hong Kong India Indonesia
Japan Laos Macau Malaysia New Zealand Pakistan Philippines Singapore
EDITORIAL
South Korea Sri Lanka Taiwan Thailand Vietnam
deputy editor Alicia Kamm
senior editors Kerri Germani, Patricia Iannotti, John Rufo, Christian Campbell europe, middle east and africa

editor Amy Carbone
contributing writers Alan Earls, Hank Giles
Stephanie Van Ness, Steve Turgeon
technical editor John C. Harrington
ART
creative director Rebecca Marino
associate art director Nicole Caddell
designers Elizabeth Kenty, Stephen Pine
design intern Becca Quigley
contributing photographers Lou Bopp, Devlo Media
Albania Algeria Angola Armenia Austria Azerbaijan Bahrain Belgium
Bosnia-Herzegovina Botswana Bulgaria Burkina Faso Cameroon Croatia
Cyprus Czech Republic Denmark Egypt Estonia Finland France Gabon Georgia
Germany Ghana Greece Hungary Iceland Ireland Israel Italy Jordan Kazakhstan
Kenya Kuwait Kyrgyzstan Latvia Lebanon Liechtenstein Lithuania Luxembourg
Macedonia Madagascar Malta Montenegro Morocco Mozambique Namibia
Netherlands Norway Oman Poland Portugal Qatar Romania Russia Saudi Arabia
Senegal Serbia Slovakia Slovenia South Africa Spain Sweden Switzerland
Tanzania Tunisia Turkey Ukraine United Arab Emirates United Kingdom
north america

contributing illustrators Justin Gabbard, Matt Hollister, Rick Shiers Bahamas Barbados Canada Costa Rica Dominican Republic El Salvador
Guatemala Honduras Jamaica Mexico Nicaragua Panama United States
PRODUCTION
production manager Sheena Carter south america

production coordinator Ashley Kuhar
VIDEO PRODUCTION
producers Bob Gulla, Stephen Pine
contributing video direction Lou Bopp, Devlo Media, Jon Ryan
Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru
Trinidad and Tobago Uruguay Venezuela
TO REACH THE FM GLOBAL OFFICE NEAREST YOU,
VISIT FMGLOBAL.COM/CONTACT.

CUSTOMER SERVICE AND SUBSCRIPTIONS

270 Central Ave., P.O. Box 7500, Johnston, RI 02919 USA
fax: +1 (1)401 477 7010, phone: +1 (1)401 477 7744
(1)877 364 6726 (toll-free in Canada and United States)
email: customerservices@fmglobal.com
This publication is made available for informational purposes
only in support of the insurance relationship between FM Global
and its clients. This information does not change or supplement
policy terms or conditions. The liability of FM Global is limited to
that contained in its insurance policies.

REPRINTS
P07001 2014 FM Global. All rights reserved.
Address inquiries to: In the United Kingdom: FM Insurance Company Limited,
Adam Houser, manager, intellectual property 1 Windsor Dials, Windsor, Berkshire, SL4 1RS.
phone: +1 (1)401 275 3000, ext. 2202 Regulated by the Financial Services Authority.
email: adam.houser@fmglobal.com
Have a question or want to subscribe?
CORRESPONDENCE
Send to Reason, FM Global Communications
270 Central Avenue, P.O. Box 7500, Johnston, RI 02919 USA
fax: +1 (1)401 464 9031, phone: +1 (1)401 275 3000, ext. 2185

ADVISORY BOARD
Nick Batten (Client Service and Sales), Jeffrey Beauman (Underwriting)
Chris Boston (Client Service and Sales), Karen Freedman (Enterprise Learning)
Ronald Gibson (Engineering), Louis Gritzo (Research), John C. Harrington (Engineering)
Belinda Oliver (Marketing), Duncan Reid (Client Service and Sales)
Burton Wright (Claims), Martha Young (Marketing)

AMY BROWN is a senior staff engineer
specialist in engineering standards. She
works on special hazards such as ignitable
liquid, dust, molten material and mining.
n APP: TripCase
n MOVIE: WallE
n ARTIST: Lisa Hannigan
DANIELLE HARRISON is a senior account
manager responsible for managing the
insurance program for clients, including
coordinating and underwriting coverage for
policyholders around the world.
n APP: Words with Friends
n MOVIE: The Shawshank Redemption
n ARTIST: The Beatles
STEVEN DOUVAS is senior market research
consultant. He conducts large market
research, market intelligence and market
assessment initiatives, and disseminates
insights throughout the organization.
n APP: Shazam
n MOVIE: Diamonds Are Forever
n ARTIST: U2
ANDREW SAITAS is a loss analyst who
analyzes and extracts key technical loss data
from loss reports. The data helps FM Global
assess, mitigate and reduce loss for clients.
n BOOK:
 Francona: The Red Sox Years, by
Terry Francona and Dan Shaughnessy
n MOVIE: The Butler
n ARTIST: Atlanta Rhythm Section
[ CONTRIBUTORS ]
RICH FERRON is operations vice president
and manager of testing and certification.
He is responsible for the delivery of
technical services for FM Approvals,
including maintaining technical integrity
and knowledge within the organization and
certification of innovative property loss
prevention products.
n APP: MLB.com At Bat
n MOVIE: The Godfather
n ARTIST:
 Bruce Springsteen
SKIP SLAUSON is an assistant vice
president and a senior account engineer,
responsible for implementing consistent
loss prevention services for clients in
high-challenge industries, including power
generation, basic metal and confectionary
and pharmaceutical risks.
n APP: Yelp
n MOVIE: Casablanca
n ARTIST: Simon and Garfunkel
EXTRA, EXTRA!
Reading Reason on your tablet
or mobile device? Dont forget
to view brand-new videos and
content from this issue:
u WATCH another great
Working Together video
with Hershey, and read Kiss
and Tell (in this magazine,
page 36) Check out our stop-
motion confection, too!
u WATCH a new Talking Points
video with Kirsten Shawn of
Brandywine Realty Trust. Her
accompanying interview is on
page 10.
u VIEW Understanding the
Hazards: Earthquake Shake
Damage after reading A Few
Great Shakes (page 30) and
our Earthquake Checklist.
u VIEW Flood Emergency
Response Plan, after reading
Stemming the Tide (page 46);
it's a step-by-step guide to
creating a detailed FERP that
meets each of your locations
unique needs.
DOWNLOAD the
RiskEssentials
app in iTunes or
Google Play
 [ WEB NOTES ]
WHERE DOES YOUR COUNTRY RANK?
The FM Global Resilience Index is the first tool to rank supply chain resilience
Where in the world is your company at risk or your supply chains
potentially vulnerable? The 2014 FM Global Resilience Index is the
first data-driven resource to rank 130 countries according to their busi-
ness resilience to supply chain disruption. It provides a useable tool to
assist business executives in prioritizing where to focus risk manage-
ment and investment efforts.
Theres endless value inherent in a tool like the
FM Global Resilience Index.
Margareta Wahlstrm
U.N. SPECIAL REPRESENTATIVE OF THE
SECRETARY-GENERAL FOR DISASTER RISK REDUCTION
We live in a volatile world and whether thats because of what
nature wrought or the human element, every nation is prone to some
form of risk, said Margareta Wahlstrm, United Nations Special Rep-
resentative of the Secretary-General (SRSG) for Disaster Risk Reduc-
tion. The question is why are some countries, whether developing
nations or economic power houses, more resistant to supply chain dis-
ruption or better able to bounce back? Its a puzzle that world leaders
are perpetually trying to solve and theres endless value inherent in a
tool like the FM Global Resilience Index to help answer that.
With this tool, business decision-makers can generate powerful
insights about risk and opportunities in the supply chain as important
elements to guide their operating strategy in four key areas: selecting
suppliers based on the supply chain risk/resilience of the countries in
which they are located; deciding where to locate facilities; evaluating
6 [ Reason ] ISSUE 2: 2014
the resilience of the countries hosting existing facilities; and assessing
the supply chain resilience of countries where customers facilities are
based.
The Resilience Index calculates composite country scores and
rankings based on nine discrete drivers determined to be the most
pertinent indicators of business resilience to supply chain disruption.
These drivers are then categorized into three factors that exemplify
the core elements of resilience: economic, risk quality and supply
chain. To support each of the three factors, data is sourced from presti-
gious institutions including the International Monetary Fund, the U.S.
Energy Information Administration, The World Bank and The World
Economic Forum. Moreover, the Risk Quality data comes from
FM Globals RiskMark benchmarking algorithm that calculates risk
quality at more than 100,000 commercial properties around the world.
Natural disasters, political unrest and a lack of global unifor-
mity in safety codes and standards all can have an impact on business
continuity, competitiveness and reputation, said Jon Hall, FM Global
executive vice president. As supply chains become more global, com-
plex and interdependent, it is essential for decision-makers to have
concrete facts and intelligence about where their facilities and their
suppliers facilities are located. The Resilience Index is a dynamic
resource to better understand unknown risk in order to strategically
prioritize supply chain risk management and investment efforts.
With the FM Global Resilience Index, business executives are
able to identify countries that are working hard to become more
attractive supply chain partners, as well as insights into why some
leading economies with apparently strong supply chains received
surprisingly low rankings. To find out how your country ranks, log
on to fmglobal.com/resilienceindex.
MYRISK IMPROVEMENTS
Site enhancements increase
awareness and add risk
control for clients
Natural hazards like windstorm, earthquake
and flood comprise a significant portion of
the risk our clients face. MyRisk, the client
portal that delivers essential risk manage-
ment information, tools and solutions, now
boasts three unique features that will help
mitigate these risks.
The first new feature is a flood map, WHEN YOU'RE RESILIENT,
developed by FM Global researchers, of the
YOU'RE IN BUSINESS
Weser River Basin in Germany. Since the
release of digital flood maps in the United
States in 2011, FM Global has undertaken
a project to produce flood maps for regions
of the world where little or outdated loca-
tion mapping exists. The Weser River Basin
in Germany was selected as a starting point Tweets Tweets and replies
because the area is well understood and the FM Global
data is readily available. The outcome of this
@FMGlobal
project is a detailed flood map for the Weser FM Global @FMGlobal
Basin that is comparable to the flood maps
currently in use for the area.
Find out and share whats
Other enhancements to MyRisk include happening @FMGlobal in
the addition of Historical Storms and His-
torical Earthquake Epicenter map layers.
less than 140 characters!
The Historical Storm maps show the tracks, Follow us on #Twitter! Pls
landfall locations and wind footprints of 13
RT! twitter.com/FMGlobal
hurricanes since 2003. Hurricane Katrina
(2005) and Hurricane Sandy (2012) are
included in the 13 hurricanes. Additionally,
the Historical Storms feature allows clients
to view the landfall locations for U.S. land-
fall hurricanes since 1900.
These MyRisk enhancements provide
clients with unprecedented access to flood
maps and historical information, with the
goal of preventing loss and improving resil-
ience. The map enhancements are accessible
through the Map Center tool.

twitter.com/FMGlobal
[ EDITORS NOTE ]

How well do you communicate?

I ask this because, in putting together this months cover story with The Hershey Company, it
became supremely evident during the interview process that the relationship between the choco-
latier and their property insurance company worked because there was open communication.
Of the five folks we interviewed for the story, four of them came right out and said as much. It
all starts with open communication, states risk manager Megan Marshall. The risk manage-
ment culture at Hershey is one of open communication and collaborative effort, says our own
account engineer Skip Slauson. It became pretty clear after a day of interviews that the founda-
tion of the partnership between Hershey and FM Global rests and relies on good communication.
The purpose behind our visit to Hershey was to discuss the ambitious new plans they have
to expand into the Asia market. The first project to address that new plan is the construction
of a manufacturing facility in Malaysia. Our story focuses on Hersheys historic expansion,
and how the iconic, Pennsylvania-based confectioner has used FM Globals assistance to help
them meet their goals. With so much uncertainty and relative inexperience at building out like
this, Hershey felt more confident with contractors, building materials, codes and standards,
and related engineering matters when they leaned on the guidance and expertise of their prop-
erty insurer.
In this issue, we also take a first and very important look at a new slate of flood abatement
products that are worth a peek. These companies are customers of FM Approvals, not
FM Global insureds, but we consider their products to be of considerable benefit to any busi-
ness located in or around flood zones. Have a look. Its our way of communicating real benefit
to you, our clients, prospects and friends.
We hope you will let us know if you like what you see. After all, a solid business relationship
(like the one between an insurance company and a client) is indeed all about good communication.

Bob Gulla, managing editor

reason@fmglobal.com

8 [ Reason ] ISSUE 2 : 2014

 [ the LATEST ]

Above left: traditional

sketch; above right:
Sketchy Propositions
Layered Sketch Enhanced insurance plans combine drawings with aerial photographs

As technology has advanced, so has our ability to provide clients with enhancements to traditional insur-
ance plan sketches. Known as Layered Sketches, these enhanced insurance plans combine various tech-
nology, including GIS (geographic information systems) and CAD (computer-aided design) drawings as
well as aerial photographs, to create a multidimensional, detailed view of information, layered on top of
each other.
Layered Sketches allow clients to gain a better understanding of specific exposures and our rec-
ommendations, explains Thomas Gay, assistant vice president, engineering plan services manager. If
theres a recommendation for a flood emergency response plan, the client is able to see the flood zone on
the layered sketch and pinpoint its exact impact on the facility. Its a very different experience than just
talking about the risk. The enhanced capability also helps risk managers manage their risks globally,
across locations they might not often visit.

ISSUE 2 : 2014 [ Reason ] 9

[ theLATEST ]
Talking Points with Kirsten Shawn
Risk Manager, Brandywine Realty Trust, one of the largest, full-service, integrated real estate
companies in the United States
What is your corporate background?
Kirsten: I started my career with Brandywine in 2001.
I spent about nine years in the legal group, and I did
a lot of transactional work, acquisitions/disposition,
contract negotiations and handled the claims and liti-
gation. In 2006, Brandywine acquired Prentiss Proper-
ties Trust, and at that time there was a gentleman at
Prentiss named Greg Imhoff who took me under
his wing and groomed me to transition into risk
management. It was 2010 when I moved
into risk management full time, and
Ive been the companys risk man-
ager ever since.
Lets discuss how
you put your
imprint on
Brandywine risk
management.
Once I made my formal
move into risk management
working in operations, I was
able to start some new safety pro-
grams within the company. The one Im
most proud of is our Boot Camp. Boot Camp
focuses on our internal safety and engineering pol-
icies and procedures. Then I take it a step further
and think about how we can further assist our ten-
ants and how we can better educate their employees
in emergency situations. In real estate, its not just
our employees and our properties were dealing with.
We have all of our tenants and their employees as well.
Boot Camp aids in training our property managers and
engineering staff to understand the way Brandywine
views risk, not only from an operational level but from
a safety perspective as well.
Talk about some of the things you focus on in
this training.
A couple of the trends weve been focusing on recently
have been active shooter and severe weather train-
ing. This is a day and age where every other week we
10 [ Reason ] ISSUE 2 : 2014
are hearing about some mass shooting, or
what starts as rain ends up a superstorm or
hurricane with severe flooding and power
loss. Were trying to stay ahead of those
kinds of things, so when property managers
are faced with these situations they know
how to respond.
How do you communicate your
philosophy in risk management
through your properties?
Im a little outspoken and very high
energy. Im extremely direct and I
do a lot of hands-on training. The
more I can communicate to my
team, the more they can commu-
nicate to their team. Communica-
tion is key for me. If I can get in
their heads, they will remember
what I said and better communicate
with our tenants. Its really important
to make sure everybody is on the same
page, because you never know when
youre going to have a true emergency
situation. So far weve been lucky and
havent been hit with anything too hor-
rific. But with the changing weather
and all of these terrible construction
incidents, you have to think it was just
poor communication.
For me, the more I can tell my col-
leagues, or bring in the FM Global team
to explain why we do things a certain way
or why these types of materials are better
to use, it just makes everything more seam-
less. It makes us better prepared.
Do you have a team that helps you
in your risk management role at
Brandywine?
Internally, my manager, George Johnstone,
executive vice president (EVP) of operations

and asset management, is very supportive of my role and everything
I do and have accomplished. Externally, I rely heavily on FM Global
to assist with any issues I might have.
Frame your relationship with FM Global and what role
your insurer plays in your job as risk manager.
My relationship with FM Global began in 2011. I have so much faith
in my FM Global client service team. I can call my account manager
Bob Lee, or my account engineer Bodo Wolters at any time of the
day. They travel with me if I need them. I make it a point to get
them in front of as many people at Brandywine as possible because
I want my colleagues to have the same relationship that I have with
FM Global.
Fire protection and sprinkler systems are
huge. FM Global has really helped us with
developing the right types of sprinkler
systems in residential and student housing
compared with commercial property.
Can you talk about how FM Global is an extension of your
engineering function?
The one thing I absolutely love is how hands-on FM Global is with
our properties, through inspections, through walking the sites, espe-
cially during construction. They are such an asset to what we do.
Brandywine is really moving forward in construction and devel-
opment, and there are a lot of unique challenges were coming up
against. Brandywine has always been a commercial real estate com-
pany, but now we are dabbling in student housing, luxury residential,
multi-family, pools on rooftops, green roofs and automated park-
ing. So there have been a lot of unique things weve started that
FM Global has come in and helped with.
Green roofs?
Interestingly enough, when I first reached out to Bodo and said, Id
like you to walk the green roof with me at this property so you can
give me your thoughts, he said, Hold on, Kirsten. I have some data
sheets on that topic I can send over to you. FM Global is so ahead
of the game, its amazing! They have data on everything!
Lets talk about the things that keep you up at night.
Ill tell you right now what keeps me awake at night is the unex-
pected. My words to live by are: Prepare, communicate, execute,
respond. But there is always something that can come into play to
[ the LATEST ]
prevent that, especially in the response part. When youre faced
with a situation that can be disastrous, you have no idea whos going
to be available and what resources are going to be available to you
when you need them. You can sit there and say, When the power
goes out, were going to be ready because we have generators on
standby. But guess what? There may be a situation that prevents
those generators from getting to you. So you need to have a backup
plan to your plan and, with enough preparation and training, you
hope to get over the hurdle.
Does FM Global help you expect the unexpected?
I had the pleasure of going to the FM Global Research Campus and
I was blown away. The fires and explosions and natural disasters
FM Global recreates, I mean thats awesome. I could only dream of
putting on that kind of show for my team at Brandywine. I would
love to put them all on airplanes and take them all up there with
me. In addition, FM Global provides thorough reasoning behind the
testing. I love when Bodo says Id rather see you use this insulation
instead of that insulation or Lets take a closer look at this roof for
the type of situation youre in. Fire protection and sprinkler systems
are huge. FM Global has really helped us with developing the right
types of sprinkler systems in residential and student housing com-
pared with commercial property. So Ill tell you right now that I have
absolutely bought in to FM Globals philosophy that the majority of
risk is preventable and I firmly agree with that. I think that theyre
sending a very positive message in stating this when theyre out at
our locations doing their inspections.
How would you characterize your relationship with
FM Global?
Theyre like my family. I know it sounds crazy, but I really view it as
a partnership. Like I said, if I can get them in front of my colleagues
as often as possible, I do. I dont want anyone at Brandywine to be
afraid to pick up the phone and ask for help. Theyve been there, and
theyve been very supportive, especially through the new ventures
that Brandywine has taken on. I can reach them at any time of the
day. They mean the world to me, and I really do see this as a long-
term relationship.
DOWNLOAD the RiskEssentials app in iTunes
or Google Play to view the Talking Points with
Kirsten Shaw video
ISSUE 2 : 2014 [ Reason ] 11
[ theLATEST ]

The Biggest Losers

Equipment hazard losses by type and total gross

The 384 equipment losses highlighted in this graphic occurred between 2008 and 2013 and each
loss represented amounted to over US$1 million in total gross. The top five FM Global client losses
are numbered according to total gross amount (in US$), and include electrical, mechanical and
pressure equipment breakdowns.

3% COMPRESSORS 3% BOILERS

4% PULP AND PAPER PROCESSING

6% NON-ROTATING ELECTRICAL

7% CHEMICAL VESSEL/
PROCESS EQUIPMENT 43% TURBINES

9% MINERAL/METAL
PROCESSING

11% TRANSFORMERS

14% GENERATORS

2 GENERATORS

$431 million

Source: FM Global clients

Amounts shown in US$
 [ the LATEST ]

3 TRANSFORMERS

$339 million

1 TURBINES

$1.35 billion

5
CHEMICAL
VESSEL/

4
PROCESS
EQUIPMENT

MINERAL/METAL $208 million

PROCESSING
$295 million
[ theLATEST ]
Massive Power Failure
A dangerous transformer fire shuts down a nuclear power plant
The charred side of an auxiliary building at Arkansas Nuclear One, in Russellville, Arkansas,
USA, is pictured on Dec. 9, 2013, following a report of a transformer fire that was extin-
guished, forcing utility officials to take a unit at the facility offline. (AP Photo/The Courier,
Joshua Mashon)
I
n December 2013, according to a report
in the Los Angeles Times, a transformer
fire at Arkansas Nuclear One plant near
Russellville forced a shutdown of the
unit and ultimately necessitated installation
of a replacement transformer.
Although the fire, which took place in a
switchyard outside the plant, caused neither
injuries nor any radiation releases, it was a
serious disruption for a multibillion-dollar
facility. And, as is often the case with unex-
pected transformer failures, the cause was
not immediately obvious. Indeed, in scores
of incidents sparked by weather events or
just wear and tear, transformers burn or even
explode, causing disruption and injury and
incurring substantial costs. Its an ongoing
challenge for utilities, facility operators and
the public sector.
14 [ Reason ] ISSUE 2 : 2014
According to details of the Arkansas
incident, contained in Nuclear Regulatory
Commission documents:
At approximately 0748 [CST] on Dec.
9, 2013, an electrical fault occurred resulting
in a fire and explosion on the ANO [Arkansas
Nuclear One] Unit 2 Unit Auxiliary Trans-
former. This caused a unit trip and a loss of
power to Startup 3 Transformer, which is one
of the two off-site power feeds to ANO Unit
2. ANO Unit 2 is currently in a stable shut-
down condition. With Startup 3 and Unit Aux
Transformer unavailable, power was lost to
the Reactor Coolant Pumps and Circulating
Water Pumps. RCS [Reactor Coolant Sys-
tem] natural circulation is in progress remov-
ing core decay heat. Emergency Feedwater
actuated due to low steam generator levels
and is supplying both steam generators. The
unit is steaming to the atmosphere. 2A-1 and
2A-3 are powered from SU [Startup] 2 Trans-
former. 2A-4 is powered from 2K-4B Emer-
gency Diesel Generator.
As a result of the failure, Arkansas
Nuclear One Unit 2 had to be cooled down
via natural circulation with heat being
removed from the reactor via emergency
feedwater and downstream dump valves to
the atmosphere. According to the NRC doc-
uments, the accident also released a minor,
unknown amount of mineral oil into nearby
Lake Dardanelle, requiring further reports of
the incident to emergency and environmen-
tal officials.
Just what is it that causes transformers
to fail so spectacularlyand suddenly? To
answer that question, it helps to understand
what a transformer does. A transformer con-
sists of two very long strands of wire that
are wound around a common core, typically
made from iron, providing an electromag-
netic coupling between the windings. Oper-
ating under alternating current, (a trans-
former cannot operate with direct current),
the device can perform functions such as
converting one voltage to anotherstepping
up or stepping down. They can also provide
a degree of isolation between different parts
of an electrical system.
In operation, transformers also produce
heat, sometimes dissipated through oils and
cooling fins.
While transformers on the whole are
reliable, external interference and internal
cumulative hazards and wear and tear can,
and often do, lead to failure. Transformer
problems can come from a variety of sources
such as improper installation or electrical
loading, including issues with unanticipated
harmonics, lack of maintenance and testing,
as well as from lightning strike, grid distur-
bance and interference from tree branches or
even small animals.
A chronic challenge is maintaining
proper insulation. For instance, the coiled
wires within a transformer are designed to
function only when those wires are prop-
erly insulated from each other. Over time,

though, mechanical or chemical action can
gradually degrade insulation, resulting in a
damaging internal short circuit. Overload-
ing, water and air leakage into the trans-
former will result in the insulation degra-
dation process speeding up. If the failure
results in internal arcing, the insulating oil
in the transformer can sometimes be rapidly
heated and vaporized, resulting in sudden
pressure increases capable of rupturing the
transformer shell and spraying the oil onto
surrounding equipment and buildings. Min-
eral oil is the most common liquid insulation
and, when released during an arcing event,
will ignite and burn as either a spray or large
pool fire.
Shuzhen Xu, FM Global senior engi-
neering specialist for engineering stan-
dards, says it is important to be mindful of
all of the issues that can help prevent trans-
former losses, ranging from greater care in
transporting and installing transformers to
regular inspection and ongoing testing and
maintenance. Improper transportation and
installation can compromise the mechanical
integrity of a transformer, leading to trans-
former premature failure, she notes.
Testing is really about trying to detect
invisible deficiencies happening inside that
could lead to trouble, she adds. Detection
TRANSFORMER CHECKLIST
To avoid transformer losses, FM Global recommends performing proper maintenance and regular
testing. To determine the risk for each transformer, consider taking into account the following factors:
The criticality of The lead time
the transformer required to
replace or repair
the transformer
Source: FM Global Property Loss Prevention Data Sheet 5-4, Transformers, available online at fmglobal.com/datasheets
can lead to proper preventive action before
a failure occurs, she says. She notes, It
is important to include bushings and tap
changers attached to transformers, too,
when it comes to maintenance. They can
fail, and sometimes their failure can cause
serious trouble to the transformer. Xu says
one more factor to assess when considering
potential transformer failures is the electri-
cal protection system for transformers. The
electrical protection system is not only the
first defense line to help control transformer
failure consequences, but is critical to pro-
tecting the transformer from external threats.
It needs to be properly maintained in order
to fulfill this very important function.
Although forestalling electrical prob-
lems is generally the most critical focus
related to transformers, there are other
actions that can help reduce potential losses,
according to Glenn Mahnken, FM Global
senior engineering specialist for engineer-
ing standards. For instance, he says mitiga-
tion steps for fire can substantially reduce
the impact of a transformer failure. It is
important to ensure adequate space separa-
tion or fire barriers between transformers
and structures, so that damages that might
occur as a result of transformer failure can
be isolated as much as possible, he explains.
The fire The effect of
exposure transformer
presented by failure on
the transformer system integrity
to buildings and and reliability
equipment
[ the LATEST ]
Water spray protection in the event of a fire is
also helpful in limiting the damage severity.
And, of course, making use of FM Approved
transformer insulation fluids can substantially
reduce potential fire problems.
Conventional mineral oil is ignitable,
so when a transformer develops problems
such as arcing or a short circuit, it can lead to
a rupture, followed by fire, notes Mahnken.
Thats why its important to have electrical
protection in place, he notesand to use
FM Approved fluids.
For many years, FM Approvals, a sub-
sidiary of FM Global, has taken a role in
examining and approving fluids for trans-
former operations that can help to reduce the
fire and explosion hazards associated with
transformers, while also simplifying associ-
ated fire protection. These fluids are listed in
the Approval Guide, which is available online
at approvalguide.com.
FM Global Property Loss Prevention
Data Sheet 5-4, Transformers, also provides
extensive guidance on transformer loss pre-
vention in general. And of course, notes
Mahnken, FM Global loss prevention con-
sultants can provide detailed, site-specific
advice and assistance.
The service The condition of
requirements of the transformer
the transformer
ISSUE 2 : 2014 [ Reason ] 15
[ theLATEST ]
In the U.K., Time for a Change
An average of 600 fires occur annually in unsprinklered warehouses
W
hen it comes to sprinkler recommendations for
commercial warehouses in Europe, its not a one-
size-fits-all approach. Norway boasts the most
stringent sprinkler recommendations, with the gov-
ernment encouraging commercial warehouses above 8,600 square
feet (800 square meters) to utilize sprinklers. In Belgium, the rec-
ommendation for sprinklers in commercial warehouses is 54,000
square feet (5,000 square meters), a more lenient recommendation
than that of France, Spain, Germany and the Netherlands. There is
one country, though, whose recommendation dramatically deviates
from the rest of Europe and has the Business Sprinkler Alliance
(BSA) and other public organizations calling for a change. That
country is the United Kingdom (U.K.).
The U.K. guidelines for sprinklers in commercial warehouses
recommend that warehouses with a square footage above 215,000
square feet (20,000 square meters) utilize sprinkler systems. This
guideline, arguably the least rigorous in all of Europe, persists in
the face of a startling fact: The British economy loses 1 billion Brit-
ish pounds in gross domestic product and 5,000 full-time jobs every
five years through preventable fires in commercial warehouses. To
put it in perspective, this is the cost equivalent of the annual pro-
ductivity of the U.K. soft drink industry.
Over 600 fires occur in U.K. warehouses each year, with the
majority of them occurring in warehouses without sprinklers. The
fires pose a serious threat to human life, are an enormous finan-
cial burden on the U.K. economy and take a substantial toll on the
environment. In 2010, the BSA commissioned a three-year study
to analyze just how severe the financial burden and environmental
impact of these fires is. The study, conducted by independent third-
party certification organization BRE Global, is being hailed as one
of the most comprehensive and robust cost benefit studies of its
kind.
The key findings of the study prove that, on average, it is cost-
effective to install sprinklers in commercial warehouses above
22,000 square feet (2,000 square meters), with warehouses boasting
a square footage above 108,000 square feet (10,000 square meters)
retaining the highest cost benefit. Moreover, the study proved that
whole-life costs for warehouses with sprinklers are typically 2 to 5
times less than warehouses without sprinklers.
Iain Cox, BSA chairman and former chief fire officer of Royal
Berkshire Fire and Rescue Service, explains, What is clear from
the current research is that insurance alone is not enough to fully
16 [ Reason ] ISSUE 2 : 2014
protect companies from the long-term impacts of fire. And the
long-term impacts are staggering. Each year, blazes cause a direct
financial loss to businesses of US$385 million. Additionally, fires
cause a loss of US$318 million per year in productivity and impacts
to the supply chain. On an environmental scale, warehouse fires
emit 135,000 tons (122,500 tonnes) of carbon dioxide into the U.K.
air annually.
So whats at the core of this heated debate? According to
Bruce Bromage, FM Global operations vice president and senior
codes and standards consultant, the perceived cost to install sprin-
klers can be a huge deterrent for warehouse owners. Still, he says,
In the end, if its the costwhat truly is the cost at the end of the
day? Its usually less than the electrical installation or less than the
cost of carpets. While some owners might consider the cost exorbi-
tant, the study actually proves that, over the lifetime of the building,
its cost beneficial. The danger lies in letting short-term thinking
prevail when it comes to sprinklers.
Cox and his colleagues at the BSA are working tirelessly to
disseminate the studys findings to a wider audience, aiming pri-
marily at engendering support from key political figures. Cox says,
We urge the government to do more to encourage the installation
of fire sprinklers in commercial premises and promote a better
understanding of the positive impacts of physical resilience. In
addition to the stark economic and environmental impact, the BSA
believes that the current sprinkler regulations put the U.K. at a dan-
ger that competitor countries do not face.
In a two-pronged approach, the BSA is also targeting the
building trade, publishing the studys findings in a number of build-
ing trade commission magazines. Bromage explains, Were focus-
ing on architects because there tends to be a general anti-sprinkler
feeling among architects that sprinklers do not enhance a buildings
design. In an attempt to eradicate this misconception, we are in the
process of developing courses for architects on how sprinklers can
actually enhance the buildings design.
The studys groundbreaking findings highlight the importance
of examining the cost-effectiveness fire sprinklers have across the
board. In addition to lobbying for political change of the U.K.
sprinkler regulations, the BSA plans to broaden its study to include
other sectors, manufacturing being next on the list.
 [ the LATEST ]

THE COST
The economic, social and environmental cost of fire for U.K. businesses

2.7 million ft.2

37,500 tn.
(250,000 m2)
(34,000 t) total area damaged
of carbon dioxide
released in fires

67 million ft.3
(1.9 million m3) 1,700
of water used in firefighting people
unemployed

DataData
2009-2012 average
2009 2012 average per year, estimated.
per year, estimated.

THE BENEFITS
Sprinklers do much more for the U.K. than people know

ECONOMIC

Lower insurance Ensure business continuity Allow flexible

premium and minimize impact to building design
supply chains

ENVIRONMENTAL

Minimize fires impact Extinguish fires using Reduce overall carbon

to our ecosystem minimum amount of water dioxide emissions
from fires

Sources: Business Sprinkler Alliance, Royal Parks, Building Research Establishment Global

ISSUE 2 : 2014 [ Reason ] 17

Sources: Business Sprinkler Alliance, Royal Parks, Building Research Establishment Global
[ theLATEST ]
On Tech
In case you missed it, heres a look at the
science, research and engineering solutions
behind recent technical challenges.
BLASTCALC
THE CHALLENGE
Insuring chemical plants is all about understanding the hazards and
gaining an accurate estimate of the maximum foreseeable loss.
One of the most devastating and destructive loss scenarios is an
outdoor vapor-cloud explosion. When there is a gas or vapor leak, the
chemical mixes with air, creating a highly combustible cloud that, if
ignited, unleashes a massive amount of energy in a violent explosion.
Historically, vapor-cloud explosion calculations were done using the
trinitrotoluene (TNT) equivalency method, calculating the damage
done by an estimated equivalent amount of TNT. The TNT equivalency
method, while simple to use, often resulted in damage being over-
predicted in some cases and under-predicted in others.
THE SOLUTION
FM Global field engineers now have an important tool in their
chemical plant risk-assessment arsenal: BlastCalc. Developed
by Dr. Sergey Dorofeev, assistant vice president, research
area director, fire hazards and protection, at FM Global, the
tool calculates not only the damage from the explosion, but
also that of the pressure wave it creates. As such, it provides
results comparable to other more sophisticated models, but faster and
more cost effectively. The damage predicted by BlastCalc compares
very favorably to the damage observed in the actual event. With
BlastCalc weve really moved to the cutting edge of science and
technology, from a business perspective, we have a methodology that
gives us and our clients a level of confidence that we are setting our
lines correctly, explains Pat Lee, FM Global assistant vice president,
principal engineer, chemical and pharmaceutical.
CEILING-LEVEL SPRINKLER
THE CHALLENGE
If you have automatic
sprinklers installed in your
warehouse, youre good
to goright? Not always,
according to Wes Baker,
FM Global assistant
vice president, senior
engineering technical
specialist. Depending on
the specifics of the sprinkler
system in combination
with the available supporting
water supply, an automatic
sprinkler system may or may not be able to prevent a fire
from becoming uncontrolled. To succeed, a ceiling-level
sprinkler system must achieve three performance criteria.
It must limit the ceiling-level temperature during a fire so
that only those sprinklers over and adjacent to the fire
area operate; it must limit the temperature of any exposed
structural steel so that the integrity of the building,
which supports the sprinkler system, is not compromised;
and it must sufficiently wet down combustible material
adjacent to the point of fire origin in order to prevent
excessive horizontal fire spread. These three criteria are
interrelated, Baker explained. If any one of them is not
met, the result may be that none are met.
THE SOLUTION
When a ceiling-level sprinkler system is determined to
be unable to provide an acceptable level of protection,
there are several options to consider in order to remedy
the situation. Replacing existing older-style ceiling-
level sprinklers with newer versions may be one option
to upgrade the ceiling-level sprinkler system. In some
situations, reinforcing a sprinkler system, adding in-rack
sprinklers and/or adding a fire pump to the existing water
supply may all be ways to upgrade the existing protection
so that it is capable of providing adequate protection.
These options are reflected in the updated FM Global
Property Loss Prevention Data Sheet 8-9, Storage of Class
1, 2, 3, 4 and Plastic Commodities, which includes a
revision to the way in-rack sprinklers are designed
and installed, and allows clients to take advantage
of new technology to reduce the number of
installed in-rack sprinklers.
 [ the LATEST ]

SOMETHING IN THE AIR

THE CHALLENGE
Combustible dust explosions occur at factories and refineries
every year, around the worldmany with fatal consequences.
A dust fire occurs when combustible dust comes in contact with
THE DEVIL IS IN THE DETAILS
an ignition source in the presence of air (oxygen). The most
common ignition sources for dust explosions are friction, spark,
chemical action, burner flame, hot work, electricity and static
THE CHALLENGE
electricity. A dust explosion requires two additional conditions Approximately 70 percent of all wind losses are attributed to
suspension of the dust so that it burns more quickly in air, and damage during severe tropical storms. During a recent 10-year
confinement that provides resistance, creating pressure period, 9 percent of all losses sustained by FM Global clients were
buildup. During a recent 25-year period, FM Global clients have related to wind. Building contents are susceptible to the impact of
experienced 242 fires or explosions involving combustible dust or such storms when the buildings envelope is torn open and the wind
fiber deposits, totaling an estimated US$315 million in damage to and rain enter the premises. During a windstorm, damage to the
their facilities. The average gross loss was US$1.3 million. buildings structural frame seldom occurs, said Robert Zemantic,
staff engineering specialist, engineering and research, at FM Global.
Whats most important is keeping the building envelope sealed; it
is one of the most effective ways of preventing windstorm damage
at a facility. According to Zemantic, the many changes in the winds
direction as it circulates around a building can result in varying uplift
or suction forces at different parts of the building. The corners of a
building experience the most substantial amount of pressure. In many
THE SOLUTION cases, the same field-of-the-roof fastening density is used across the
entire roof, which is why the corner and/or perimeter roof areas are
Controlling fugitive dust is most likely to fail first.
often the first step and can
be as simple as tightening
leaking joints and adjusting THE SOLUTION
malfunctioning equipment or
The focus of FM Globals wind engineering efforts is on the building
as complex as providing a dust
envelope, not the main frame structure. Our experience has shown
collection system over a bagging
that the structural frame, when designed to code, will likely be
operation. Henry Febo, assistant
adequate, Zemantic said. He suggested that designers begin by
vice president, senior engineering
selecting the wind speed from the maps or data in FM Global Data
technical specialist, at FM Global
Sheet 1-28, Wind Design. These are the minimum acceptable design
explained, Establishing thorough
windspeeds that should protect most buildings from collapse and
programs to control ignition
major structural damage. Another option is an FM Approved
sources and rigidly enforcing
roof. FM Approved roof systems are actually load-
them in dust-handling areas makes a big difference. Such
tested and verified to meet specific wind pressure
programs include a hot work permit system that applies to
parameters required by the code and then listed
both employees and contractors to control the amount of
accordingly, said Zemantic. He continued, At the
hot work and the conditions under which it is performed; a
end of the day, a focus on the envelope, typically the
smoking control program for all employees and visitors; electrical
roof, normally involves the addition of fasteners
preventive maintenance to reduce the likelihood of sparks from
on the roofs perimeter, usually at the
electrical equipment; maintenance of dust-handling equipment to
corners and edges. The
eliminate sparks from unaligned or otherwise malfunctioning
cost of improvement in
conveyors, mixers, fans and other mechanical equipment; and
many cases might be
maintenance of all magnetic separators and any equipment used
no more than that for a
to convey the material past the magnets. For more information,
bucketful of fasteners and
consult FM Global Data Sheet 7-76, Prevention and Mitigation of
the labor of a person with a
Combustible Dust Explosions and Fires, or several National Fire
screw gun.
Protection Association codes.

ISSUE 2 : 2014 [ Reason ] 19

Does the idea
of cyber crime make
you go haywire?
In todays business world, a companys information assets
might be its most valuable commodity. So protection
against data breach is critical. For defense against and
recovery from cyber crime, look no further than the
FM Global Advantage policy, which includes standard
coverage of data destruction and damage.

FM Global. At the forefront of todays ever-evolving risks.

For more information, consult

your client service team.
 [ the IDEA ]

When Exceptions Become the Rule

Supply chain disruptions pose a big risk for businesses
as companies strive to balance cost and quality.

The reasons for the increase in severity of supply chain disruptions are several and include:
increased outsourcing, offshoring, lean sourcing, geographic clustering of suppliers and the
increasing size and complexity of supply chains.
A 2013 Zurich and Business Continuity Institute study showed that three-quarters
of respondents from large corporations had experienced some form of disruption in the
past 12 months, with adverse weather, IT outages and service interruptions being common
sources of disruption. u
[ theIDEA ]
Interestingly, more than 40 percent of the
respondents indicated that these disruptions
came from below the top-tier suppliers. The
consequences can be dire, including: loss
of market share, reputation and shareholder
value. An Accenture study of 62 significant
supply chain disruptions reflected an average
reduced share price of 7 percent.
The World Economic Forum recently
published a report on supply chain resil-
iency, concluding that increased volatility
While traditional methods for managing supply
chain risk rely on knowing the likelihood of
occurrence and the magnitude of impact for
every potential event that could materially disrupt
a firms operations, the reality is that the largest
supply chain disruptions are low probability,
high impact events.
is the new normal for globalized and inter-
connected supply chains. Supply chain risk
management approaches configured for
more stable times now need to be updated.
In From Superstorms to Factory Fires:
Managing Unpredictable Supply Chain Dis-
ruptions, in the January/February issue of
the Harvard Business Review, the authors
came to the same conclusion and even took
it a step further. They contend that, while
traditional methods for managing supply
chain risk rely on knowing the likelihood
of occurrence and the magnitude of impact
for every potential event that could materi-
ally disrupt a firms operations, the reality is
that the largest supply chain disruptions are
low probability, high impact events. Because
22 [ Reason ] ISSUE 2 : 2014
historical data on these rare events is limited
or nonexistent, risk is hard to quantify using
traditional models.
Case studies
The reality is that disruptions can come
from anywhere in the supply chain and par-
ticularly from the smallest of suppliers and
emerging markets. Two of the following
examples demonstrate the impact on market
share and reputation.
Poor or nonexistent risk management
practices are commonplace in many emerg-
ing markets. There is no better example than
the Rana Plaza factory fire in Bangladesh
that occurred in April 2013, killing more
than 1,100 workers, many of whom report-
edly were locked in the building. The factory
was making clothing for Wal-Mart Stores
Inc., Sears Holdings Corp. and The Walt
Disney Co., among others. In 2011, Wal-
Mart audited more than 9,000 factories, and
the factory in Bangladesh was not authorized
to produce merchandise for the Bentonville,
Arkansas, USA-based retailer due to safety
standards. However, a supplier reportedly
continued to subcontract work with the Ban-
gladesh factory. In this case, it was more of a
public relations disaster, including pressure
for Wal-Mart to compensate those whose
loved ones perished.
Another example was the little-known
fire at an SK Hynix facility in Wuxi, China,
on Sept. 4, 2013. (See loss profile on
page 25.) The vast facility produces dynamic
random access memory (DRAM) chips,
used to store data in personal computers and
mobile devices such as smartphones and
tablets. The South Korea firm is the worlds
second largest manufacturer of DRAM chips
and says it has a 30 percent market share,
with the factory in eastern China accounting
for half of its output. With Windows 8.1 on
the way at the time, HP took the threat of
supply chain disruption seriously enough for
senior management to clear their calendars
for two days and, according to one of their
executives, All we did was make sure that
we have an significant share of the avail-
able [DRAM] commodity. As a result of
the fire, Hynixs lost production constrained
industry DRAM supply and helped pric-
ing (spot prices went up by 40 percent) for
suppliers such as Micron Technology and
Samsung. In addition, the DRAM market
share of Hynix dropped from 28.5 percent
to 23.8 percent between Q3 and Q4 2013,
with Micron and Samsung the primary ben-
eficiaries. The longer-term impact to Hynix
remains to be seen.
Taking action
Some have argued for an updated approach
to preventing and mitigating supply chain
disruptions. A new way of thinking can be
seen in both risk assessment and mitigation.
While a solid business continuity plan can
address the disruption when it happens, the
issue is more fundamental. The strategies
that can be developed as part of the plan
need to be thought of in a new light.
Risk assessment
First, lets look at the supply chain risk
assessment process. It all begins with pri-
oritizing the product or service lines that
need to be addressed first. To determine the

key product or service lines, one must ask
how important each one of those lines is to
the companys current overall profitability
and future strategic goals. Looking at those
product or service lines, the critical compo-
nent is mapping out the supply chain and
identifying the sole source or limited source
suppliersthose are potentially the weakest
links. If that is not evident, then the focus
on assessing vulnerabilities should be done
through a business impact analysis (BIA).
The focus of the assessment should not be
based on the likelihood of a disruption, but
rather on the severity. The severity is typi-
cally measured in terms of lost profit and/
or impact on a companys future strategic
goals. Companies tend to look at supply
chain spending in doing so. As in the afore-
mentioned case studies, the reality is that the
disruptions came from a smaller supplier of
a sole source or limited source supplier. The
assessment of severity should be based on
the resulting revenue exposure. To do that,
a supply chain BIA should be conducted by
looking at critical product lines in a supply
chain. Specifically, the goal of the analysis is
to determine which suppliers in the chain can
have the greatest impact on the production of
a final product or service and, therefore, on a
companys revenue stream. Once the vulner-
abilities or weakest links in the supply chain
are identified, there are two critical next
steps in the process: assessing the suppliers
business continuity plans (BCP) and a physi-
cal assessment of those critical suppliers
facilities. Both of these steps set the basis for
developing robust risk mitigation strategies.
A supplier mentioning that they have a BCP
should not be taken at face value. BCPs are
often not evaluated internally on a periodic
basis. To that end, there are a series of ques-
tions that will help assess the robustness of
the suppliers BCP, such as:
Does the scope of the plan consider the
loss of the entire operation/facility in
question?
Does the plan identify an executive
management committee responsible
for oversight of the BCP development
RETURN ON INVESTMENT ON RISK MITIGATION
HIGH Risk transfer
COST (direct and indirect)
Alternative suppliers
LOW
holding inventory
LEVEL OF PROTECTION (time)
TEMPORARY
(revenue)
EXHIBIT 1 shows a range of strategies that can be implemented based on cost, in terms of direct (dollars spent) and
indirect (time and resources), and level of protection measured in terms of amount of disruption time covered.
framework, structure and delineation
of staff responsibilities?
Does the plan include a clear framework
for delegation of authority, or otherwise
outline an incident command structure
to denote key responsibilities?
Are there procedures in place to con-
duct a comprehensive testing program
to ensure the effectiveness of the plan
strategies and enhances awareness of
plan actions?
Does the plan indicate the need for
a periodic BIA to their supply chain
vulnerabilities?
Does the plan address the options
available to mitigate a major operation-
al loss at the facility in question, such
as the utilization of other company
locations, expedited equipment
[ the IDEA ]
In-sourcing
Supplier acquisition
Business continuity
planning
Risk improvement
investments at
supplier locations
LASTING
(market share, reputation)
replacement, temporary facilities or
outside third parties?
Secondly, and equally important, is the
physical assessment of the suppliers critical
facilities. Taking the suppliers word on the
risk quality of their facilities is not sufficient.
Moreover, with many suppliers in emerging
markets, their perspective of risk manage-
ment will most likely not be as robust as
those in developed markets. Herein lies an
opportunity to create a stronger relationship
with the supplier. Requesting an engineer-
ing visit confirms the risk quality and iden-
tifies opportunities for partnering with the
supplier to reduce their exposures.
If the supplier is not willing and able
to participate in either an evaluation of their
BCP or having an engineering visit, then
one has to ask the question of whether that
ISSUE 2 : 2014 [ Reason ] 23
 [ theIDEA ]
supplier is reliable and whether the relation-
ship should continue. Moving forward, it
becomes imperative that these two steps be
integrated in the supplier selection process.
Risk mitigation alternatives
Loss prevention and mitigation can then be
applied to specific suppliers. Exhibit 1 shows
a range of strategies that can be implemented
based on cost, in terms of direct (dollars
spent) and indirect (time and resources),
and level of protection measured in terms of
amount of disruption time covered.
Risk transfer, alternative sourcing and
The key to resiliency is identifying suppliers,
regardless of tier, that can cause the greatest
interruption to revenue streams, as well as the
greatest negative impact on reputation and
market share. Then address them with lasting,
Good long-term investments.
Choice!
Click, tap, scroll,
pinch
inventory strategies address disruptions in
Now, Reason content is available a temporary manner in terms of prevent-
whenever you are, on whatever device ing and mitigating loss of business income.
you happen to have at hand! Risk-transfer solutions can be more expen-
sive because they require a risk assessment
in order to provide an appropriate level of
fmglobal.com/reason business interruption coverage. In any case,
none of these strategies addresses the last-
ing impact of loss of reputation, market
share or shareholder value. Addressing
those consequences requires some level of
investment in vulnerable suppliers. Given
the levels of investment required, the most
effective and lasting means is partnering with
the vulnerable supplier to help implement
risk improvement activities to prevent or
24 [ Reason ] ISSUE 2 : 2014
mitigate a loss.
Effective supply chain risk management
must be holistic and integrated. Some of the
most sophisticated supply chain risk manage-
ment programs are integrated in the design
and manufacture of a product or service and
based on solid collaboration with critical sup-
pliers. They also possess a great deal of agility
to address supply chain disruptions.
A company with a strategic source-
planning process can concurrently deliver
risk management; a lean, effective supply
chain; cost and value improvement; speed
to market; and innovation. That plan would
address the two more effective ways of deal-
ing with supply chain risk: collaborating
with suppliers on their business continuity
planning and protecting their facilities.
In the end, the interconnectivity of
our complex corporate world requires a
new level of thinking as it relates to sup-
ply chain resiliency. The key to resiliency is
identifying suppliers, regardless of tier, that
can cause the greatest interruption to rev-
enue streams, as well as the greatest nega-
tive impact on reputation and market share.
Then address them with lasting, long-term
investments.
 [ the IDEA ]

On the Record
FM Global executives meet the press and contribute to the public risk management discourse

Lets talk about a different On supply chains, or rather,

He who is the most resilient
kind of change webs

Instead of talking about climate change, why
dont we talk about making our communities
more robust? What are the practical things
we can do today? Everyone wants to discuss
climate change, but when will we start put-
ting communities on high land and fix urban
drainage? Urban planners are talking about
putting affordable housing in flood plains! All
we are doing is making the problem worse.
Shivan Subramaniam @ RIMS
Those companies focused on resilience tend
to export it to their facilities around the
world. It goes back to the culture of those
organizations. Resilience is quite simple to
understand. When bad events happen, you
want to be in business when your competi-
tors arent, and those who are the most resil-
ient stay in business.
Tom Lawson @ RIMS
Rather than thinking of it as a chain, it is
more like a spider web. When you snip one
part of the web, it immediately becomes
weak. And the spider feels that, no matter
where it is, and quickly runs for cover. At
what point will the spider repair the web?
We try to bring to our clients the knowledge
a spider has. When do I know when the web
is irrepressibly damaged and when it can
be repaired? Does it mean making the web
stronger? Protecting it? Building another?
Chris Johnson @ RIMS

Home is where the heart is

One of the most important things going on is meeting the service expectations of multina-
tional companies. They tend to be very sophisticated, very demanding clients. Its a global
economy of course, so the ability to follow them around the world wherever they go and pro-
vide them with the level of service theyre used to in their home territory is really important.
Randy Schreitmueller, in Bests Review

ISSUE 2 : 2014 [ Reason ] 25

Tune in to FM Globals YouTube channel
youtube.com/FMGlobal
 [ the SCIENCE ]

MEMORY LOSS
A sharp, nearly irreversible dip in market share follows
a fire at a massive China semiconductor plant

In September 2013, a fire broke out at the SK Hynix plant in Wuxi New Dis-
trict in Jiangsu, Southeast China. This fire, which is thought to have started in
a chemical vapor deposition (CVD) tool, quickly spread to involve the waste
exhaust ductwork and the associated scrubbers located on the roof. The result of
this rapid fire spread was thick billowing clouds of black smoke rising from the
plant that could be seen from quite a distance. u
[ theSCIENCE ]

News of the fire quickly reached the

commodity market, where the price of
dynamic random access memory (DRAM)
quickly rose due to the suspected coming
shortage of supply. The SK Hynix plant,
prior to the fire, was the worlds second
largest producer of memory chips, with an
average production rate of 130,000 wafers
per month.

FM Globals partnership with

MEMC/SunEdison [over] the
past four years is a big part
of the reason none of the
plants has suffered a fire
or explosion loss during
that time.
James Ingraham
DIRECTOR,
ENVIRONMENTAL SAFETY AND HEALTH,
SUNEDISON

Reports on the fire indicated that about
half of the plants production area was
affected either directly by the fire or by con-
tamination when the power failed, causing
the environmental control systems to shut
down. Reports from reinsurers estimate the
cost of the fire at approximately US$1.3
billion. Production at the facility resumed
in a limited capacity in October, with full
production achieved in January 2014. In the
five months it took SK Hynix to recover,
the price of DRAM rose about 20 percent
higher than the seasonally adjusted aver-
age. Unfortunately, SK Hynix struggled to
capitalize on this price spike due to reduced
capacity and lowered contract prices for
their existing customers. This allowed SK
Hynixs major competitors to increase
their market share, so by January 2014 SK
Hynix had lost just under 5 percent market
share and realized a fourth-quarter drop in
SEPTEMBER 2013. Heavy smoke rising from the SK Hynix facility in Wuxi, in eastern Chinas Jiangsu province, after a
fire started in a workshop. The fire at the giant Chinese factory, a facility responsible for nearly one-sixth of the worlds
supply of a key high-tech component, shows how vulnerable global supply chains can be to an unexpected event. The
scale of production at the plant, or similar plants, now means that a fire or strike taking one factory out of action can
reverberate around the world. PHOTO CREDIT: STR/AFP/Getty Images
revenue of approximately 12 percent. Some of the major fire hazards related to
Large losses such as these are rare, semiconductor fabrication facilities include:
and their devastating potential impact to combustible process tools, plastics in con-
property and profitability can be mitigated. struction (e.g., ductwork, wall panels etc.),
FM Global works with our clients to reduce handling and storage of pyrophoric liquids
the frequency and severity of fires at their and gases, handling and storage of ignitable
facilities through our dedicated indus- liquid and flammable gas, and reliability of
try specialist engineers and tools such as critical services. One of the key hazards that
FM Global Data Sheet 7-7, Semiconductor may have contributed to the severity of the
Fabrication Facilities. In a recent meeting SK Hynix fire was combustible process tools
with their FM Global client service team, and ductwork.
James Ingraham, Director Environmental Many process tools are constructed from
Safety and Health, SunEdison, stated that a variety of plastics, including but not limited
he is convinced that FM Globals partner- to fiberglass-reinforced plastic (FRP), polyvi-
ship with MEMC/SunEdison [over] the past nyl chloride (PVC) and polypropylene (PP).
four years is a big part of the reason none of Plastics are popular in the semiconductor
the plants have suffered a fire or explosion industry as they are easily cleaned and limit
loss during that time. the potential for contamination of the wafers.

28 [ Reason ] ISSUE 2 : 2014

 [ the SCIENCE ]

Any contamination of the silicone substrate wet benches and help improve the risk at to limit the fire spread and potential smoke
on the wafer would impede or inhibit the these facilities, said Stephen Marek, senior damage if ignited. Approval Standard
semiconducting ability of the wafer, render- account engineer at FM Global, who works 4910 can be found in the Approval Guide
ing it useless. with James Ingraham on improving the risk (approvalguide.com) and is used by many
semiconductor process tool manufacturers.
If the CVD tool involved in the fire
incident at SK Hynix had used Approval
FM Global and FM Approvals are working with the Standard 4910, the fire may not have spread
manufacturer of a new water-mist fire protection technology beyond the tool.
for the protection of SunEdison wet benches. If the system While it may not always be possible to
purchase a process tool that does not include
is FM Approved, this would address the fire hazard associated
some combustible material, FM Global
with combustible wet benches and help improve the risk Property Loss Prevention Data Sheet 7-7,
at these facilities. Semiconductor Fabrication Facilities, sug-
gests that limiting the combustible material
Stephen Marek
SENIOR ACCOUNT ENGINEER, ST. LOUIS OPERATIONS AT FM GLOBAL
within the tool to 1 lb/ft.2 (0.5 g/m2) of the
tool footprint, will significantly reduce the
risk of fire spread and contamination from
smoke. Similarly, many semiconductor fab-
Unfortunately, many of these plastics at SunEdison facilities. rication facilities have numerous existing
are easily ignited and readily burn, giving An alternative to using common plas- process tools that would be cost prohibitive
off large amounts of dense black smoke. Not tics in process tool construction is to use to replace. Data Sheet 7-7 suggests implant-
only can a fire involving a plastic process tool plastics that have passed Approval Stan- ing a companywide tool replacement policy
quickly cause major damage to the tool, but dard 4910, Cleanroom Materials Flam- that specifies all new process tools purchased
also the smoke can cause widespread contam- mability Test Protocol. These materials will use noncombustible or FM Approved
ination to nearby tools and in-process stock. have been evaluated for fire propagation materials. A tool replacement policy can be
This could quickly escalate a small fire into behavior, smoke contamination and con- a cost-effective way of improving the risk at
an incident resulting in millions of dollars of tamination by corrosive products and found a semiconductor facility.
physical damage and weeks of downtime.
In existing facilities where combustible
ESTIMATED WAFER PRODUCTION
tools are already present, the installation of
SK Hynix in Wuxi, China
automatic fire protection within the tools can
help prevent the spread of fire and dramati-
cally reduce the potential smoke generated,
WAFER PRODUCTION (1000s per month)

until the tool can be replaced with a non-

140
combustible alternative. There are a number
of fire protection options for combustible 120
tools, and new technologies are continuing 100
to be developed to help address tool owners 80
concerns about rapid extinguishment of a
60
fire within the tool, limiting potential con-
40
tamination from the fire protection activat-
ing, and quick reinstatement of the tool after 20
an incident. FM Global and FM Approvals 0
are working with the manufacturer of a new AUG13 SEPT13 OCT13 NOV13 DEC13 JAN14 FEB14
water-mist fire protection technology for the
DATE OF LOSS RECOVERY PERIOD
protection of SunEdison wet benches. If the
system is FM Approved, this would address Production at the facility resumed in a limited capacity in October with full production in January 2014.
the fire hazard associated with combustible Date of loss: September 2013.

ISSUE 2 : 2014 [ Reason ] 29

[ theSCIENCE ]
Another common area where combusti-
ble materials can be found in a semiconduc-
tor facility is the exhaust ductwork. Many of
the waste vapors and gases liberated from
wafer production are corrosive, limiting the
materials that can be used in the construction
of the exhaust system.
Combustible ductwork presents an
enormous fire hazard in a semiconductor
fabrication facility, as there are often miles
of ductwork travelling through the facility
that can provide a path for fire to spread.
It is entirely possible that the combustible
TOP: Snapshot of a plastic wet bench free burn test conducted by FM Global
BOTTOM: As seen here, combustible ductwork presents a dangerous fire hazard
30 [ Reason ] ISSUE 2 : 2014
ductwork was the mechanism for fire spread
in the SK Hynix fire. In order to avoid the
potential of a multimillion-dollar loss, non-
combustible ductwork, such as stainless
steel, is an ideal choice, or ductwork that is
manufactured to Approval Standard 4922,
Fume Exhaust Ducts or Fume and Smoke
Exhaust Ducts. The key difference between
an Approval Standard 4922 cleanroom duct
and the other Approval Standard 4922 ducts
listed in the Approval Guide is that the ducts
rated for cleanroom use will maintain their
structural integrity during a fire so that
smoke and other fumes will continue to be
exhausted from the cleanroom, reducing the
potential for contamination.
Another option for protecting combus-
tible ductwork for extremely corrosive envi-
ronments is to provide corrosion-resistant
sprinkler nozzles as outlined in Data Sheet
7-78, Industrial Exhaust Systems. This pro-
tection utilizes a technology developed and
patented by FM Global utilizing the above-
mentioned coated sprinkler nozzles with
a linear heat detection system triggering a
deluge protection system, and the compo-
nents of this protection system have been
tested and shown to be able to withstand
the extremely corrosive environments found
within these ducts. There are commercially
available FM Approved corrosion-resistant
nozzles suitable for this use.
Selecting noncombustible ductwork,
or using Approval Standard 4922 for a new
exhaust system is a great property conser-
vation measure but, in an existing fabrica-
tion facility, replacing the existing ductwork
may not be possible in the short term. In
these instances, Data Sheet 7-7 recommends
that a companywide policy be developed to
replace combustible ductwork with either
noncombustible or Approval Standard 4922
ductwork as the opportunity arises, perhaps
during retooling or a redesign of a section of
the cleanroom.
Until such time as combustible ductwork
can be replaced, Data Sheet 7-7 provides
guidance on how to protect the combus-
tible ductwork to prevent the spread of fire
throughout the fabrication facility, guarding
against the potential for a large and destruc-
tive loss like the one at the SK Hynix plant.
For more information on construction
material-related fire hazards or other hazards
associated with a semiconductor fabrication
facility, please refer to Data Sheet 7-7, which
can be found at fmglobal.com/datasheets.
The Magic Marking
The unique FM Approvals diamond is the mark to seek
out on all of your property loss prevention products.
Earned only after stringent testing, the mark symbolizes
the highest in quality products and represents the gold
standard in third-party testing and certification. Ensure
quality workmanship in your facility: Look for the
diamond on all of your products.

Visit fmapprovals.com
[ theSCIENCE ]

T his summer marks the three-year anni-

versary of the August 2011 magnitude
5.8 Virginia earthquake. The U.S. Geological
Survey (USGS) located the event in Louisa
County, 37 miles (60 kilometers) northwest
of Richmond, Virginia, and 84 miles (135
kilometers) southwest of Washington, D.C.,
at a depth of 3.7 miles (6 kilometers). This
particular earthquake occurred in the Cen-
tral Virginia Seismic Zone, an area known to
produce small earthquakes every few years.
Prior to the 2011 earthquake, the largest
earthquake on record in the Central Virginia
Seismic Zone occurred in 1875, clocking
in at 4.8 magnitude. The damage resulting
from the earthquake included bricks falling
from chimneys, broken plaster, destroyed
windows and overturned furniture in some
homes. The 2011 Virginia earthquake is the
largest event in the central and eastern U.S.
since the 1897 magnitude 5.9 Giles County,
Virginia, earthquake (see Figure 1).
The regional geologic structure and
faults run southwest-northeast, parallel to
the Appalachian Mountains. The faults are
ancient and most are considered inactive.
Since no surface rupture from the 2011 Vir-
ginia earthquake has been discovered, and
the area is not covered by detailed geologi-
cal maps, it is difficult to designate a specific
causative fault for the earthquake.

(AP Photo/J. Scott Applewhite,File)
A FEW GREAT SHAKES
Lessons learned following the
magnitude 5.8 Virginia, USA, earthquake
and the ground-motion amplification
caused by soft soil
Ground Shaking
The Did You Feel It? (DYFI) program
developed by the USGS in the late 1990s
allows people to record their earthquake
experiences online. The program uses the
Modified Mercalli Intensity (MMI) scale
(see Figure 3). Using the MMI, the intensity,
or the effect of an earthquake on the earths
surface, is measured in 12 increasing levels
of intensity able to be observed by people
without special instruments or training. The
levels of intensity range from minimal shak-
ing to total damage.
The MMI at each location is determined
from peoples responses. After the 2011 Vir-
ginia earthquake, over 148,000 people in the
eastern United States and Canada rushed

32 [ Reason ] ISSUE 2 : 2014

 [ the SCIENCE ]

online to report their ground-shaking experi-
ences on the DYFI website (Figure 2). Based
on the DYFI data, the intensity at the epicen-
tral region was as high as VII-VIII, causing
considerable damage to ordinarily or poorly
built buildings. In Washington, D.C.; Bal-
timore; and Philadelphia, some locations
experienced intensity V-VI, meaning nearly
everyone felt the quake.
As a result of its geological
character and dense population
of the eastern United States,
the 2011 Virginia earthquake
was felt by more people in the
United States than any other
earthquake.
The ground motions were also instru- the earthquake collapsed pinnacles on the
mentally recorded at 15 seismic recording National Cathedral, shifted at least one mas-
stations in Virginia, Pennsylvania, South Car- sive stone, and cracked panels on the top of
olina, New York, Massachusetts and Vermont. the Washington Monument and the ceiling at
At the North Anna Nuclear Power Plant, 11 Union Station.
miles (18 kilometers) from the epicenter (Fig- Insurance claims were filed in Virginia,
ure 2), a peak ground acceleration of 0.26 g Washington, D.C., Maryland, Pennsylvania
(gravity acceleration of Earth) was regis- and New Jersey. The damaged structures
tered. Because the ground motion exceeded insured by FM Global included unrein-
the power plants Safe Shutdown Earthquake forced masonry, reinforced masonry, precast
ground motions, the plant went on automatic concrete and reinforced concrete buildings.
shutdown immediately after the quake. Light to moderate structural damage, such as
separation of concrete masonry unit (CMU)
Damage walls and chimneys, was observed from cen-
Fortunately, the 2011 Virginia earthquake tral Virginia to southern Maryland, including
did not result in fatalities or serious injuries, the Washington, D.C., area. Minor damage
although damage to buildings was wide- such as wall cracks and fallen ceiling tiles
spread. In the rural region of Louisa County, occurred in all five states. Office buildings
Virginia, two public schools were severely accounted for 40 percent of the damaged
damaged and had to be demolished and properties. Other occupancies included hos-
rebuilt. Some residential buildings partially pitals, manufacturing, government, univer-
collapsed. In the Washington, D. C., area, sities and residential. A breakdown of the

The ground-shaking data obtained by (

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by more people in the United States than any shaded in light brown. Thin dark red lines represent the geological faults mapped by USGS.
other earthquake.

ISSUE 2 : 2014 [ Reason ] 33

 [ theSCIENCE ]

DID YOU FEEL IT? EARTHQUAKE DATA

Virginia Earthquake
ND
WA
MT
MN
Aug. 23, 2011
ID SD WI
Magnitude 5.8 VT
ME
OR MI
WY NY NH
IA MA
NE CT RI
PA
OH NJ
IL IN
NV UT CO MD DE
KS MO WV
KY VA
CA
OK TN NC
NM AR
AZ SC
MS AL GA
TX
LA
Parkfield Earthquake
PA !
Sept. 28, 2004 Philadelphia
FL
NJ
Magnitude 6.0 Baltimore INTENSITY
!
n II III
WV Washington DC MD
! DE n III IV
n IV V
n V VI
NAPP
n VI VII
VA n VII VIII
Richmond
!H
0 15 30 60 90 120
Miles

FIGURE 2 U.S. Geological Survey Did You Feel It? data from the 2011 magnitude 5.8 Virginia and the 2004 magnitude
6.0 Parkfield, California, earthquakes. Colors illustrate the Modified Mercalli Intensity (MMI) scales. Red star and black

REPORT. triangle in the inserted map show the locations of the 2011 earthquake and North Anna Power Plant (NAPP).

RESTORE. damage by states shows:

Approximately 45 percent of the dam-
Linking ground shaking with damage
Not surprisingly, the level of property dam-

RELAX.
Impairment reporting
just got easier.
RED eTAG provides a flexible
online alternative to our printed
Red Tag Permit.
Available in multiple languages.
Learn more at
fmglobal.com/redetag
aged properties were located in central
and northern Virginia. All of them were
built after 1990. Most of the damage was
cracked walls and faades, with a few
cases of automatic sprinkler leakage.
Approximately 30 percent of the dam-
 gated along a southwest-northeast direction,
aged properties were in Washington, D.C.,
and all of them were built prior to 1990.
Damage included cracks and separation of
CMU walls, cracks in brick chimneys and
faades, cracked ceilings and windows,
and fallen bricks and plaster.
Maryland incurred about 20 percent
 shaking and damage demonstrates that rein-
of the damage. Similar to Washington,
D.C., most of the damaged buildings
were built before 1990. Damage includ-
ed sprinkler leakage, brick chimney
separation, concrete shear wall separa-
tion, cracks in CMU walls and stair-
wells, and fallen ceiling tiles.
New Jersey and Pennsylvania reported
5 percent of the damaged properties.
The damage was mainly wall cracks.
age is directly influenced by the amount of
ground shaking during a quake, regardless
of construction conditions. Figure 2 shows a
high intensity patch (light green orange
red colors) from New Jersey to Virginia elon-
parallel to the regional geologic structure.
Most of the FM Global-insured damaged
properties were within this patch. With the
first-hand ground motion and insurance
claims data, the ground shaking and damage
can be qualitatively related. The relation of
forced concrete structures performed much
better than unreinforced masonry, reinforced
masonry and precast concrete structures;
and that reinforced masonry structures per-
formed better than unreinforced masonry
and precast concrete structures.
It is well known that local site condi-
tions can increase the severity of damage
from an earthquake. In general, structural
damage from earthquakes is greater in areas

underlain by soft soils, alluvium or water-
saturated unconsolidated soils, and less in
areas underlain by bedrock. There is plenty
of landfill along the banks of the Potomac
River in the Washington, D.C., and Vir-
ginia areas, and significant fill up to 30 feet
deep was placed for the construction of the
western half of the National Mall where the
important historical buildings were dam-
aged. Among FM Global-insured properties,
most of the damaged buildings are sitting on
relatively soft soil, and several buildings sit-
ting on the artificial fill in the Washington,
D.C., area sustained the severest damage.
What have we learned?
Significant earthquakes do infrequently
occur in the eastern United States and can
affect populated areas. Fortunately, the Vir-
ginia earthquake struck a lightly populated
area. Future earthquakes may happen in a
densely populated region. Moreover, seismic
building codes did not come into wide use
in the eastern United States until the mid-
1990s, whereas in the western United States
seismic codes substantially improved con-
struction as early as the 1930s. The densely
populated east coast has weak structures of
high monetary value, especially in the met-
ropolitan areas of New York, Washington,
D.C., Boston, Philadelphia and Baltimore.
Due to the lack of seismic design, consider-
able seismic risk exists.
This earthquake underscores the fact
that soft soil, especially artificial fill, ampli-
fies ground motions and exacerbates dam-
age. It proves the importance of accounting
for site amplifications in earthquake risk
estimation. Fortunately, we incorporate the
site conditions in the FM Global earthquake
risk maps.
Yufang Rong is a senior research specialist
at FM Global.
[ the SCIENCE ]
A DESCRIPTION OF MODIFIED MERCALLI INTENSITY
(MMI) SCALES
I Not felt except by a very few under especially favorable conditions.
Felt only by a few persons at rest, especially on upper floors
II
of buildings.
Felt quite noticeably by persons indoors, especially on upper floors
of buildings. Many people do not recognize it as an earthquake.
III
Standing motor cars may rock slightly. Vibrations similar to the
passing of a truck. Duration estimated.
Felt indoors by many, outdoors by few during the day. At night,
some awakened. Dishes, windows, doors disturbed; walls make
IV
cracking sound. Sensation like heavy truck striking building. Standing
motor cars rocked noticeably.
Felt by nearly everyone; many awakened. Some dishes, windows
V
broken. Unstable objects overturned. Pendulum clocks may stop.
Felt by all, many frightened. Some heavy furniture moved; a few
VI
instances of fallen plaster. Damage slight.
Damage negligible in buildings of good design and construction; slight
VII to moderate in well-built ordinary structures; considerable damage
in poorly built or badly designed structures; some chimneys broken.
Damage slight in specially designed structures; considerable damage
in ordinary substantial buildings with partial collapse. Damage great
VIII
in poorly built structures. Fall of chimneys, factory stacks, columns,
monuments, walls. Heavy furniture overturned.
Damage considerable in specially designed structures; well-designed
IX frame structures thrown out of plumb. Damage great in substantial
buildings, with partial collapse. Buildings shifted off foundations.
Some well-built wooden structures destroyed; most masonry and
X
frame structures destroyed with foundations. Rails bent.
Few, if any (masonry) structures remain standing. Bridges destroyed.
XI
Rails bent greatly.
Damage total. Lines of sight and level are distorted. Objects thrown
XII
into the air.
Figure 3 The Modified Mercalli Intensity (MMI) scale measures the effect of an earthquake on the earths surface in
12 increasing levels of intensity, felt by people without special instruments or training.
ISSUE 2 : 2014 [ Reason ] 35
With the announcement of a major new manufacturing
facility in Malaysia, The Hershey Company
unwraps its strategy for global growth

ISSUE 2 : 2014 [ Reason ] 37

The Hershey Company Director of Risk Management Megan
Marshall (standing) reviews Malaysia facility plans with
colleagues (Peter Lord, far left, and Steve Myers, second
from right) and the FM Global client service team (Danielle
Harrison, far right, and Skip Slauson, second from left).
M
ilton Hershey decided, back in 1894, to
produce sweet chocolate as a coating
for his caramels. Located in Lancaster,
Pennsylvania, his new enterprise was
coined, appropriately, the Hershey
Chocolate Company. In 1900, the com-
pany began producing milk chocolate in
bars, wafers and other shapes. With mass production, Her-
shey was able to lower the per-unit cost and make milk choc-
olate, once a luxury item for the wealthy, affordable to all.
Today, The Hershey Company is the leading North
America manufacturer of chocolate and non-chocolate
confectionery and grocery products. With approximately
13,000 employees and net sales of more than US$7.1 billion,
The Hershey Company markets more than 80 brands glob-
ally and takes advantage of growth opportunities through
acquisitions. The company is focused on growing its pres-
ence in key international markets such as China, Mexico,
India and Brazil while continuing to build its competitive
advantage in the United States and Canada.

ISSUE 2 : 2014 [ Reason ] 39


STRATEGIC LOCATION
The company announced recently that it
planned to expand its manufacturing capa-
bilities to Asia, its first green field project in
the region. The move is intended to aggres-
sively increase The Hershey Companys
global growth and revenue. Construction of
this new facility is now underway in Johor,
Malaysia.
Steve Myers, senior manager of corpo-
rate facilities, utilities and energy conserva-
tion for The Hershey Company, has helped
to manage many of the companys green
field construction projects; the Malaysia
facility is the first such construction project
in Asia. The project is huge for the com-
pany, he says. Were on a very aggressive
economic growth pattern here. Theres pres-
sure on all of us as a group. We want to do
the right thing, and I believe we have the
right process in place to do that.
The Malaysia plant investment contin-
ues Hersheys ongoing expansion of its global
supply chain to position the company for its
next 100 years of growth. This follows on the
40 [ Reason ] ISSUE 2 : 2014
We just celebrated our 25th anniversary and
I will say that no two days have been the same
in interacting with FM Global, which is exactly what
were looking for in terms of a strategic partner. They
challenge us and they challenge the status quo. That
keeps our risk management program growing and evolving.
MEGAN MARSHALL
Director of Risk Management, The Hershey Company
heels of a US$300 million investment in manufacturing and logistics, which culminated with
the opening of one of the worlds most technologically advanced chocolate-making facility in
the companys hometown of Hershey, Pennsylvania, USA.
After Hershey completes the building structure in 2015, the Malaysia plant will be one
of the largest facilities in the companys global manufacturing network with 700,000 total
square feet (65,000 square meters). The company has nine plants in the United States as
well as facilities in Canada, Mexico, India, Brazil and China. The Malaysia plant will also
have the capability to produce the broadest array of finished products of any Hershey factory
outside of the United States and Mexico.
The plant will produce four of Hersheys five global brands, which include: Hersheys
Kisses, Ice Breakers, Reeses and Hersheys Milk Chocolate brands. Hershey is expanding its
global distribution of these brands as part of the companys ambitious global growth vision
to achieve US$10 billion in annual revenue by 2017. Hersheys global growth plans include
focusing on key international markets, such as China, and expanding its consumer product
portfolios around the world.
Hershey has been investing in its Asia business for several years, building its presence
across the region. The Johor plant, a US$250 million investment, represents the single largest
investment in Asia during the companys 18-year history in the region.
STATE-OF-THE-ART TECHNOLOGY
The new plant will include innovations in automated candy-making technology, including
proprietary equipment and systems developed to Hersheys specifications. The new Malaysia
plant features the latest confectionery manufacturing technology and will complement pro-
duction at an existing joint-venture plant in China. The plants capabilities will include high-
speed wrapping machines featuring spe-
cially engineered wrapping technologies.
To address the risk management con-
cerns of this major project, we assembled a
group of key Hershey risk management and
facilities personnelDirector of Risk Man-
agement Megan Marshall, Senior Direc-
tor Process and Packaging Engineering
Peter Lord, and the aforementioned Steve
Myersto discuss the companys goals and
challenges in Asia; the challenges it faces
in building a facility on the other side of
the world, including engineering, codes and
standards, staffing, and safety; and how Her-
sheys relationship with FM Global has been
and will be integral in dealing with those
challenges.
Weve had numerous meetings in Malaysia with
FM Globals people on the ground there. Weve
brought in technical experts to review our designs.
It gives us confidence that we have an extra set of
eyes watching over such a huge project.
Senior Director of Process and Packaging Engineering, The Hershey Company
Megan Marshall is responsible for the
strategy and execution of Hersheys global
risk and insurance program, which includes
our property, casualty and executive manage-
ment liability insurance program. She and her
teamincluding Michele Heck, manager of
risk and insurancealso support the advance-
ment of Hersheys enterprise risk manage-
ment program throughout the organization.
Hersheys risk management program
walks in stride with our strategic plan of
the organization, she says. Relationships
are extremely valuable to Hershey, and I am
most proud of the relationships that weve
forged, including those with FM Global. We
look to build strong partnerships that cross multiple years, so that as the insurance market-
place or other emerging risks ebb and flow, we can make sure that our program also remains
dynamic.
Marshall inherited the relationship with FM Global, which began in 1988, eight years
ago. Together, we just celebrated our 25th anniversary, she states, and I will say that no
two days have been the same in interacting with FM Global,
which is exactly what were looking for in terms of
a strategic partner. They challenge us and they
challenge the status quo. That keeps our
risk management program growing and
evolving.
Marshall believes that this part-
nership works effectively because
both sides are always seeking
new and innovative ways to
manage risk. Keeping pace
with the companys growth is
PETER LORD
critical to Hersheys global expansion. For example, she notes, in China, FM Global has
moved in stride with us, not only from engineering and inspection perspectives, but also
in terms of insurance coverage. We now have a truly global insurance program, thanks to
FM Global and its WorldReach partners.
By 2017, Hershey anticipates that more than 25 percent of its sales will come from
outside the United States and Canada. What that means is that the confectioners global
supply chain must be resilient, scalable, flexible and efficient, all while operating in a
dynamic risk environment. It is here that were going to find tremendous value from our
partnership with FM Global, because theyre together with us as our brands launch, and as
our manufacturing and supply chain footprints grow to meet the demand for our products
overseas.
BUT WHY MALAYSIA?
The plants location is a strategic geographical choice that provides Hershey with
easy distribution access to more than 25 markets across Asia. Malaysia also offers a
well-educated potential workforce, a stable
political environment and a strong supply
chain infrastructure.
Peter Lord has been with Hershey for
nearly four decades. His primary responsi-
bilities are to provide design installation and
startup for all the equipment that makes and
packages the companys products. In the
early stages of a project, we consult with
FM Global to be sure were following all the
current codes and regulations. They provide
recommendations, and then we basically
agree on a design and then follow through
with it.
As our partner, FM Global asks us the right
questions, and we respond to each other in
a way that, at the end of the day, we have a
facility that is highly protected.
Senior Manager, Facilities, Energy and Utilities Systems, The Hershey Company
Doing this work in a place so far from
Hershey, Pennsylvania makes it challenging.
Our expertise, he says, is candy making,
not necessarily codes and regulations. So we
rely on FM Globals advice and consulta-
tion to be sure that we design the equipment
properly and safely.
Also, Lord continues, Our supplier
base is somewhat unknown, so its a bit of
a mine field we have to work through to
develop appropriate contacts, find contrac-
tors and understand how business is done
in Malaysia. Weve had numerous meetings
in Malaysia with FM Globals people on
the ground there. Weve brought in some
of their U.S. technical experts to review our
designs, so it gives us confidence that we
have an extra set of eyes watching over this
huge project.
42 [ Reason ] ISSUE 2 : 2014
LOGISTICS
Of course, Steve Myers admits, this project is different. Constructing a facility thats
700,000 square feet (65,000 square meters), one of the largest facilities in our network and
17 hours away by air thats huge.
On the front end of the Malaysia project Myers was involved
with the land search and the discovery process with a local
engineering firm that helped Hershey design and
build the facility. Myers was also involved in
leading the civil, structural and architectural
design from the Hershey side until we
got about 90 percent complete with the
documentation, then we had people
who were going to be on the ground
there to take it the last 10 percent.
STEVE MYERS
Skip Slauson, FM Globals account engineer for Hershey,
helmed the engineering on the insurance side. The client service
team was aware of this project well ahead of any plans hitting the drawing board. Slauson
has been on the Hershey account for 20 years. We were asked for input on areas that would
be either negatively affected or tough to design around from a natural hazard perspective.
Then, as we progressed into the design phase, we were able to bring in local expertise both
from Hershey and in Malaysia so that we could work together to find the site, discover what
its needs would be and lay out the specifications for an adequately protected facility. Weve
been involved since day one and well be there right on through to final completion.
Since 2001, Myers, a civil engineer himself, has been the corporate interface with
FM Global. He has worked very closely with the FM Global team, specifically Skip Slauson,
account engineer.
Its always been a practice of mine as a construction manager on large projects to bring
FM Global in almost as soon as I know about the project, says Myers. Once you start down
the path of beginning to design and buildand youre making decisions on your own without
their inputyou can get into trouble quickly. I make it part of my daily routine on a new project
to bring Skip and his team in and they get an idea of what were thinking.
Myers points to some specific challenges. We want to make sure were selecting the
right materials, given the wind and rain conditions that well be faced with in Malaysia. In
Pennsylvania, we deal with snow and snow
load. Well, theres no snow load in Malaysia,
but there is a tremendous amount of rain and
the potential for high winds, so its a differ-
ent set of challenges.
In a neighboring country, for example,
Hershey will have issues with burning trees
at certain times of the year and the smoke that
travels into this area. We have to make sure
the building is tight; we dont want smoke
inside, because that smell will impregnate
our chocolate.
Hershey also insists on selecting
FM Approved materials in roofing
and walls, in their structural sys-
tem and in the sprinkler system.
From an engineering perspective,
says Myers, we know the right
questions to ask. We partner with
FM Global, and they ask us the
right questions, and we respond to
each other in a way that, at the end
of the day, we have got a facility that
should be very highly protected.
One of the first things Myers
approached Slauson about was getting local
support in Malaysia. I contacted Skip and
he was on it right away. We had an engineer-
ing team in Singapore visit the Malaysia
site where we were working with the design
engineer. The team wanted to understand
what our building was going to look like, or
at least what it was going to feel like. What
different manufacturing processes would be
in it. What we were doing as it related to
storage of finished goods. What type of plas-
tics we might have in the building, because
of flammability issues. It was engagement
from the start, and its been engagement ever
since.
Slauson, for his part, is coordinating
the effort both domestically and interna-
tionally. FM Global engineer Jacqueline
Ng in Malaysia, who is involved in the site
selection process, is now the project engi-
neer for us, he says. Jackie has helped
develop the project service plan, and has
developed the set of specifications to be fol-
lowed for this plan. She is doing a great job
communicating the plan to the local contractors, and she keeps risk management informed
of all those steps along the way.
Myers sees this, and the work of FM Global in general, as a set of guardrails for the
project. If you think about being on the highway, he says, you can drive all over the road.
But once you get beyond those guardrails, youre going to be in trouble. So we look at
FM Global as guardrails to keep us out of trouble.
One of the chief areas where Hershey depends on FM Global is for codes and standards
expertise, as well as compliance issues. Weve found that the FM Global standard for con-
struction is recognized around the world. Its the basis of our design. Any time we go into a
greenfield projectI dont care if its in Malaysia, Brazil or Chinathe key codes, the key
compliance areas, the key guidelines we want to meet are always FM Globals.
Lord agrees that this compliance and regulatory assistance is critical. I think its an
invaluable service, he says, because a lot of these regulations change very quickly, and we
dont have the day-to-day expertise to stay current. Without that, wed have a lot of trouble
getting the work done.
Whats very interesting, Myers adds, is that if you talk about FM Global Property
Loss Prevention Data Sheets anywhere in the world to any professional design team, they
know what youre talking about. Its very well-known and very well-accepted practice across
the globe.
TEAMING UP
Megan Marshall admits that she puts her account team on a pedestal. Theyre always will-
ing to listen to the needs of our organization, and to help advance our risk management
program. Danielle Harrison, our senior account manager, has helped transform our program
from being primarily U.S.-centric to having at least six different locally admitted insur-
ance programs overseas, all of which link back to our global master program. Skip Slauson
deploys his team across the world for us, which is extremely valuable as were trying to
understand the risks the company will be facing on the ground.
Myers reliance on the engineering expertise of FM Global, indispensible on a project
as vast and important as this one, helps him rest a little easier. I feel very confident right
now, he says. Were investing a tremendous amount of money, thousands and thousands of
miles away, to help us reach deeper into that Asia market. Weve engaged the right people,
so I think the approach is sound. The timeline is short. Now, its all about relationships and
hard work, but it can be done.
DOWNLOAD the RiskEssentials app in iTunes or Google Play to view
the Working Together with The Hershey Company video.
ISSUE 2 : 2014 [ Reason ] 43
 S ome of the powders The
Hershey Company must con-
tend with, including sugar
and milk powder, can be
explosive. This poses a significant risk in
its manufacturing facilities. In dealing
with the exposure, Hershey relies
on the expertise of FM Global.
Our interaction with
Cleaning
FM Global centers on a
couple of key areas, says
Peter Lord. One is explo-
House sive dust. We also do
quite a bit of roasting in
gas-fired roasters, so we
When the issue is try to make sure theyre
designed in a safe way
dust, Hershey doesnt
that protects the people
sweep this concern and the equipment.
under the rug The background infor-
mation FM Global can pro-
vide to us on this issueas
far as how potentially danger-
ous it can bereally helps us
understand the risk. Any time youre
roasting under really hot temperatures
with materials that will burn, youre sus-
ceptible to fires, and FM Global has pro-
vided a lot of guidance in recent years
on how to better protect our processes.
Together, we come up with effective
measures for fire prevention in our
roasting systems.
Hershey does an optimal job, from a
manufacturing standpoint, to keep areas
free of dust.
44 [ Reason ] ISSUE 2 : 2014
Critical questions Hershey person-
nel ask, says Myers, include, Are we
going to be storing a lot of material in
racks, which will require a different type
of sprinkler system? Are we going to
have issues with dust? Are we work-
ing with oils? Are we roasting? Is there
potential for a roaster fire? There are a
lot of issues that we work hand-in-hand
with FM Global on.
FM Global engineer Skip Slauson
gives Hershey a helping hand in deal-
ing with these risks. The FM Global
and Hershey partnership addressing the
dust issue is both longstanding and pro-
gressive, he says. We came in several
years ago and did a dust survey across
the entire account, identifing areas in
various facilities that needed atten-
tion. Hershey took that information and
has started working on the design and
implementation of either upgrades or
replacement equipment to address that
issue. The whole focus is to maintain
those facilities in operation as safely as
possible.
Sure, its a building protection
issue, says Myers. But its more about
people. From an employee safety stand-
point, its one of the major areas we
really need to focus on over the next
few years, just to make sure that were
investing our money to protect our facili-
ties, but more so to protect our people.
Wherever You Go, There We Are
However diverse your business is, your client service team
is your portal to all the services FM Global offers. The team
coordinates everything from a facility inspection in Kyoto to a
locally admitted insurance policy produced for your office in
Budapest. Do you need cargo coverage or a special review of
business interruption exposures? Does your organization plan to
establish a captive? For these and every other aspect of prop-
erty coverage, your local team works with you to meet your wide
range of needs. Thats one reason why more than a third of the
worlds largest multinational companies insure with FM Global.

Our knowledge of property protection and property risk enables

us to provide you with the broadest insurance coverage, terms
and conditions, and accommodates even the most complex
international arrangements and risk-transfer mechanisms.

No matter where you are around the globe.

fmglobal.com/contact
STEMMING
THE TIDE
Groundbreaking new abatement equip-
ment and systems, when combined with
a sound flood emergency response plan,
give property owners real hope of reduc-
ing or eliminating business interruption in
the face of flooding.
PROPERTY OWNERS
around the world have multiple options when it comes to flood pro-
tection equipment and systems. Flood protection products include
temporary perimeter barriers, opening barriers, backwater valves
and flood abatement pumps. These products, when used as part of
a comprehensive flood emergency response plan (FERP), can help
prevent floodwater from entering a facility and reduce or eliminate
business interruption.
Thanks to a partnership between FM Approvals, the United
States Army Corps of Engineers, and the Association of State Flood-
plain Managers (ASFPM), property owners, government agencies
and emergency response organizations now have a growing range of
certified flood protection options, including FM Approved products.
Below is the story of two organizationsa real estate firm and a
Canada provincial government agencythat use temporary perim-
eter barriers to help mitigate flood risk.

NORWAY FLOOD PROTECTION COMES TO NEW YORK

A year before Hurricane Sandy made its mark as the second costliest
hurricane in U.S. history, another stormHurricane Irenewhile
devastating to many inland areas, was considered a dud by many
New York City residents. Overhyped was the consensus of many
who weathered the media storm that preceded Irene.
For this reason perhaps, many residents of Manhattans low-
lying Zone A defied mandatory evacuation orders a day prior to
Sandys arrival on October 29, 2012. Hurricane Irene was a tropi-
cal storm by the time it reached us, notes Nehad Moughrabi, the
resident property manager of New York Plaza, a 19-story mixed resi-
dential and retail tower owned by Pan Am Equities and located just
a block from Battery Park on the lower tip of Manhattan. There
were wind gusts and lots of rain. We figured Sandy wouldnt be much
worse than Irene.
About 15 percent of the towers residents followed mandatory
evacuation orders for Zone A residents. Although many tower resi-
dents chose to ignore the warnings, Nehad and his team worked hard
to prepare. They created sandbag barriers around the main entrances
and service doors. Despite these and many other preparations, the
ground floor and cellar of New York Plaza at Two Water Street were
inundated the evening Sandy struck.
The storm surge from Sandy hit 13.88 feet (4.23 meters), sur-
passing the old record of 10.02 feet (3.05 meters) set by Hurricane
 Donna in 1960. The water rose to 46 inches city, one of the first steps taken by Pan Am working on other deals in the city. They also
(1.17 meters) in the lobby and 9.5 feet (2.9 Equities following recovery from Sandy were aware of our ongoing test program
meters) in the cellar. was to find and install flood protection sys- with FM Approvals and the Army Corps,
The Pan Am Equities team used a tems. This was not only prudent, but viewed which really helped.
rented generator and was able to pump out favorably by those reeling from massive Nehad and his team received delivery
the cellar within 48 hours. Electrical switch- Sandy losses. of the perimeter barrier and set up a large
gear equipment was power-washed to clean When the Pan Am Equities manage- section around a portion of the building.
the salty water, and blowers and dehumidi- ment team looked at available flood control However, high pedestrian traffic in the area
fiers were used to dry equipment prior to solutions, the temporary perimeter barriers prevented a full-test deployment. Wed like
restoring power. Lobby finishes had to be from the Norway firm AquaFence emerged to do a test deployment once a year to keep
replaced, as well as electrical switchgear, as a good choice. We liked the effective- the building staff familiar with the system
boilers, pumps and controls, air condition- ness, ease of installation, minimal setup and be prepared to deploy quickly in case of
ing, fire alarm system, security cameras time, compact storage and reasonable cost, another flood emergency. Wed treat it as an
and door access systems, and the New York says Pan Am Equities president and CEO annual deployment drill, Nehad notes.
Health and Racquet Club (NYHRC) space in Scott Solomon. We believe our purchase
the cellar. No damage was sustained to ele- of the perimeter barrier may have actually MANITOBA SUPPLEMENTS FIXED
vators and associated equipment; however, made us insurable with respect to flood loss FLOOD DEFENSES WITH FLEXIBLE
a service company performed cleanup and at this location. RESPONSE
preventive maintenance. Damage amounted Pan Am Equities purchased approxi- In the southern region of Canadas Manitoba
to approximately US$15 million. mately 400 feet (122 meters) of the perim- province, flood control is serious business.
The province employs a wide array of flood
defense systems to control a variety of chal-
When I first started in this business, I looked at these lenging flood risks. Manitoba is part of the
Red River drainage basin that drains por-
towers and huge facilities with hundreds of millions tions of Manitoba, as well as South Dakota,
of dollars invested in them and I couldnt believe North Dakota and Minnesota, USA. As with
any north-flowing river in the Northern
they were trying to protect them from flooding with
Hemisphere, snowmelt in southern sections
sandbags. Everything about these facilities is engineered may cause river levels to rise before north-
and properly maintained. Then, when it comes to ern sections have had a chance to completely
thaw, leading to ice jams and flooding.
something that could potentially put them out of business, In the spring of 1950, this situation led
many rely on sandbags. It didnt make sense. to devastating floods in the capital city of
Winnipeg. To protect the city from future
floods, the Manitoba government con-
PAUL VICKERS
structed a massive system of diversions,
President, U.S. Flood Control
dikes and floodways. The system kept Win-
nipeg safe during the 1997 Flood of the
Thanks to the hard work of Nehad and eter barrier system, enough to surround the Century, which devastated many communi-
his crew, the residential portion of the New building with a continuous temporary flood ties upriver from Winnipeg, including Grand
York Plaza tower was able to restore all protection. The barrier is stored at another Forks, North Dakota, and Ste. Agathe, Mani-
building operations and reopen just 10 days nearby Pan Am-owned building and can be toba.
after Sandy. The NYHRC, a tenant occupy- readily moved by truck. This network of water control sys-
ing the lower floors of the tower, was able Pan Am was somewhat concerned tems is managed by the Manitoba Depart-
to restore the cellar portion partially on May because they would be the first company in ment of Infrastructure and Transportation.
15, 2013. However, the facility was not fully New York City to purchase our flood protec- The department oversees the construction,
restored until January 2014. tion solution, notes Adam Goldberg, direc- maintenance and operation of 11,806 miles
Like many property owners in lower tor of New York operations for AquaFence. (19,000 kilometers) of all-weather roads,
Manhattan and other low-lying areas of the They were aware that we were also 1,367 miles (2,200 kilometers) of win-

ISSUE 2 : 2014 [ Reason ] 49


They were able to deploy the temporary barriers within
a matter of hours and help protect a number of homes
from flooding. These and other temporary barriers are
a critical part of our flood response system.
No Trespassing: Flood abate-
ment products like these, includ-
ing (from top) AquaFence, Tiger
Dam and PS Doors, have proven
effective in easing the ingress of
floodwater.
ter roads, more than 21,000 bridges and
culverts, 2,920 miles (4,700 kilometers) of
drains, 75 dams, 61 reservoirs, 41 pumping
stations, 24 northern airports and many other
components.
The province has invested more than
US$1 billion in flood mitigation efforts since
1997, saving an estimated US$7 billion in
damage throughout Manitoba. In addition
to its many fixed flood control systems, the
STEVE ASHTON
Minister of Manitobas Department
of Infrastructure and Transportation
province also employs a variety of flexible,
temporary flood response equipment and
products, including:
Amphibious ice-breaking machines;
Ice-cutting machines;
2 million regular sandbags;
Sandbagging machines;
17,000 super sandbags;
26 mi. (43 km) of cage barriers;
61 heavy-duty steamers;
34 mobile pumps;
31 mi. (50 km) of water-filled barriers,
of which 13.7 mi. (22 km) are in rapid-
response trailers
One of the water-filled temporary perim-
eter barrier systems used by Manitoba is the
FM Approved and ASFPM-certified Tiger
Dam from U.S. Flood Control. Manitoba
deploys many of its water-filled perimeter bar-
riers from rapid-response trailers, equipped
with the tubular dams, water pumps, hoses
and steamers to thaw ice blockage in culverts
and other drainage infrastructures.
We began using water-filled perimeter
barriers in 2005 in response to rising water
levels in Lake Winnipeg, our largest lake and
the 10th largest in the world, notes Steve
Ashton, Minister of the Manitoba Depart-
ment of Infrastructure and Transportation.
His departments Water Management and
Structures Division oversees, among other
things, the provinces hydrologic forecast-
ing, water management, emergency response
management and flood mitigation initiatives.
According to Ashton, in March 2009,
Manitoba experienced significant ice jam
flooding in the Red River Valley. Coinciden-
tally, U.S. Flood Control was demonstrat-
ing the use of its Tiger Dam flood barriers
in a nearby municipality. They were able
to deploy the temporary barriers within a
matter of hours and help protect a number
of homes from flooding, he recalls. These
and other temporary barriers are a critical
part of our flood response system.
Ashton compares fixed dams, flood-
ways and levees to Frances World War II
Maginot line of fixed defenses. Fixed flood
defenses are critical, but you still need an
array of flexible, fast-response measures as
well. Particularly in our climate, we need to
be able to respond rapidly when an unex-
pected situation arises. Ice jams are common
in the spring, as southern melt water hits us
before the ice has melted on our rivers.
During historic flooding on the Manito-
bas Assiniboine River in the spring of 2011,
an emergency breach was made in a levee
along the river to help prevent an uncontrolled
breach in a highly populated area downstream.
Prior to making the intentional breach, the
Canada Army and others deployed temporary
barriers around vulnerable homes, helping to
save many homes and prevent other losses.
It came as no surprise when U.S. Flood
Control announced last year that their Tiger
Dam product had been FM Approved as well
as attaining the highest level of certification
by the ASFPM, Ashton says. We have seen
firsthand how they have taken an already
innovative product and made it better and bet-
ter over the years. I also believe the experi-
ence they have gained in helping us to fight
floods in Manitoba has played a key role in
their product improvements.
SANDBAGS ARE OLD SCHOOL
When I first started in this business 10 years ago, I looked at these
giant towers and huge facilities with hundreds of millions of dollars
invested in them and I couldnt believe it when I saw they were trying
to protect them from flooding with sandbags, observes U.S. Flood
Control president Paul Vickers. Everything about these facilities is en-
gineered and properly maintained. Then, when it comes to something
that could potentially put them out of business, many rely on sand-
bags. It didnt make sense.
Times are changing and firms today realize that flood protection
and preparedness are important parts of contingency and business
recovery planning. Standardization is so important in any industry,
Vickers continues. The FM Approval mark on our products is a ma-
jor step toward professionalizing this industry. There are thousands of
certified fire protection products on the market, but only a handful
of certified flood mitigation products. I encourage all companies with
flood control products to go through the FM Approvals test program.
FACING FLOOD RISK Among the physical preparations firms
While ideally every building should be built can take to reduce the impact of flood include
outside of known flood zones, the reality is the permanent relocation to elevations above
that approximately one in 10 commercial the flood level for electrical, computer and
facilities are already located within a flood telecommunications equipment. If that is not
zone. The solution for these property owners possible, permanent protection of the equip-
is not cut and dried, so to speak. Facilities at ment should be considered. Other prepara-
risk for flooding must prepare well in advance tions include backflow preventers and sump
in order to keep water out of critical build- pumps for drains and sewers; relocation at
ings and limit resulting damage if floodwater elevations greater than the flood level of
enters a structure. FM Global Property Loss high-value stock and processing equipment;
Prevention Data Sheet 1-40, Flood, provides and permanent or temporary barriers to pro-
recommendations for the prevention and miti- tect buildings and building openings against
gation of losses due to flooding. floodwaters.
FM Global loss history studies show that
well-prepared organizationsincluding those CHOOSING FLOOD PROTECTION
with a tested FERPhave significantly less PRODUCTS CAN BE A CHALLENGE
damage and resume operations sooner than The prevalence of major flooding events
those who are unprepared. Guidance in pre- worldwide has resulted in an increase in
paring a FERP is included in Data Sheet 10-2, the number of manufacturers offering flood
Emergency Response. All FM Global data mitigation products of every imaginable
sheets are available publicly at fmglobal.com/ design and quality level. Its very much the
datasheets. Wild West out there when it comes to flood
ISSUE 2 : 2014 [ Reason ] 51
mitigation products, observes Rich Ferron,
operations vice president and manager of
testing and certification for FM Approvals.
Approval Standard 2510, Flood Abatement
Equipment, is currently the only standard that
evaluates both the performance of the product
in realistic flood conditions and the compo-
nent and materials that comprise the product.
He continues, Thats why the ASFPM
chose our standard as the basis for the high-
est level of certification in their new pro-
gram. Were working with the association
and the U.S. Army Corps of Engineers to
have the ASFPM certification recognized by
authorities nationwide, so when an organiza-
tion is specifying flood mitigation products,
they would require ASFPM certification.
FLOOD ABATEMENT PRODUCTS IN
HIGH DEMAND FOLLOWING SANDY
PS DOORS vice president Cory Melland
notes that his firm is deeply involved in help-
ing firms in the zones impacted by Hurricane
Sandy. Were working with many custom-
ers right now, providing services to firms
that were impacted and firms that want to
protect against the next Sandy. We see flood-
control products pouring into that market,
many of which are not tested, and building
owners are wary. They want to optimize
their spending and they are scrutinizing the
credentials of manufacturers. To be able to
provide a legitimate third-party certification
means they dont have to take our word for
it; someone else has tested our products and
validated them for performance and quality.
WHATS NEXT?
FM Approvals has been working to educate
manufacturers in North America, Europe
and Asia on the benefits of achieving the
FM APPROVED mark for flood abatement
products.
This year, FM Approvals has created a
flood team to help streamline the availability
of information on flood mitigation products
and expedite manufacturer inquiries to help
increase the availability of FM Approved
flood mitigation products worldwide. The
52 [ Reason ] ISSUE 2 : 2014
THE WHOLE INSURANCE
INDUSTRY HAS TO WAKE UP!
SAYS AQUAFENCE CEO FRED DAHL
I think one area where Sandy has had a real impact and represents a shift
in thinking is where accountability is placed. In the past, the amount of
money available for preventive measures has been very limited. I believe
that businesses and other organizations are beginning to realize they cant
ignore the catastrophe risk or rely on others to protect them. We know that
every US$500 spent on flood mitigation is worth at least US$10,000 in damage
prevented. Natural disasters are always going to happen. Its the lack of human
preparation that leads to losses. We enjoy working with both FM Approvals and
FM Global because we understand each other and share common goals.
I think the whole insurance industry has to wake up and adopt a similar
approach to FM Global. I wish everyone had such a thorough approach to loss
prevention.
team will also serve as a resource to assist worldwide in support of FM Globals
FM Global field engineers and flood special- growth, notes Bob Azimi, FM Approvals
ists in their work with clients. manager of business development for the
FM Approvals is also working to Americas. As always, our goal is to help
develop relationships with flood mitigation make FM Approved products available in
governmental agencies, trade associations local markets around the world. We are shar-
and authorities having jurisdiction (AHJs) ing our standards and expertise wherever we
in Asia and Europe to potentially develop can. The impact of flooding and the potential
certification programs similar to the ASFPM for flooding in both developed and develop-
program in the United States. ing countries is huge. There are many exam-
We are seeing a lot of interest among ples where regional flooding has had a global
European manufacturers of flood control impact on commercial markets. We are being
productswhich tend to be small to mid- far more proactive and reaching out to make
size companieswho want not only to pro- contacts in every market in which we oper-
mote their products in Europe, but also to ate, always with the goal to help customers
enter the U.S. market, probably as a result prevent losses through proper planning and
of Hurricane Sandy, notes Jean-Philippe certified flood mitigation products.
Roisin, FM Approvals manager of business FM Approved temporary perimeter
development for Europe, the Middle East barriers and opening barriers can be found
and Africa. Even small companies view in the organizations online Approval Guide,
their market on a global basis. We are hoping a Web-based publication of FM Approvals,
to develop this interest into locally available approvalguide.com.
FM Approved products in the near future.
FM Approvals is extending its reach
RISK IMPROVEMENT: ALWAYS A WISE INVESTMENT
At FM Global, sometimes the return is even better than anticipated. Over the
past four years, our clients installed automatic sprinklers throughout more than
200 million square feet (18.6 million square meters) of their properties. Thats
just one example of the many steps our clients have taken to reduce risk.
The resultfewer and less severe losses, leading to favorable financial perfor-
mance and a membership credit of approximately US$465 million, to be issued
to all eligible clients upon renewal or anniversary from June 30, 2014 through
June 29, 2015.
We thank our clients for their commitment to loss prevention.

FM GLOBAL MEMBERSHIP CREDIT HISTORY

US$2.5 BILLION SINCE 2001

2014/2015 US$465 million

2013/2014 US$435 million

2010/2011 US$391 million

2008 US$360 million

2007 US$341 million

2004 US$316 million

2001 US$237 million

For more information, visit fmglobal.com/membership

 Reading, Writing
and Risk Management 101

The Spencer/RIMS Risk Management Challenge gives

undergraduate upstarts a chance to cut their teeth on real-life
case studies, and impress the industry on a high-profile stage

F
or risk management students,
the Spencer-RIMS Risk Man-
agement Challenge is their
national championship. This year, the
top students from the best risk manage-
ment programs in the country vied for a
spot in the finals at the Risk Insurance
and Management Societys Annual
Meeting. The top three teams earned an
opportunity to compete in front of 200
industry professionals at the four-day
annual conference that attracts more
than 10,000 people from the risk and
insurance industry.
Its crazy to think that we, as stu-
dents, had an opportunity to speak in
front of these people, said Joseph Nee-
ley, captain of the runner-up team from
Florida State University. To have all
these people, with all this experience in
the industry, coming up to us and con-
gratulating us on what we had done, it
was incredible.
The Spencer-RIMS Risk Manage-
ment Challenge was developed three
years ago to give risk management stu-
dents an opportunity to showcase their
skills on the national stage. The Chal-
lenge was the creation of Debbi Little
who, at the time, was director of the
Risk and Insurance Studies Center at
Virginia Commonwealth University
(VCU) in Richmond, Virginia, USA.
She felt that risk management needed
its own national championship.
There are several other collegiate
challenges, explains Little. The Fed-
eral Reserve runs one for economics stu-
dents. Theres one for HR students and
theres a real estate challenge. So why
not risk management?
The collegiate real estate challenge
was run by one of Littles colleagues at
Villanova University, who suggested
Little spearhead a national risk manage-
ment challenge. Several schools have
their own challenges, Little explained,
but there were none at the national level.
So Little approached the Spencer Educa-
tional Foundation, an organization that
works to fund educational opportunities
for risk managers and insurance leaders.
Little has been associated with
Spencer since she was a student in the
1990s. It was actually a Spencer scholar-
ship that allowed her to return to school
as a nontraditional student in her 30s. The
availability of the Spencer scholarship
helped steer her toward risk management
and launched her 20-year career.
So Spencer has always been near
and dear to my heart, Little explained.
Established in 1979, the Spen-
cer Educational Foundation provides
scholarships and educational grants to
promote and encourage undergraduate,
graduate and doctoral study of risk man-
agement. It is affiliated with RIMS and
is named after the late Robert S. Spencer.
Spencer was a leader in the development
of the risk management discipline and
past president of RIMS.
Since its formation, the Spen-
cer Educational Foundation has been
a leader in the education of future risk
managers. The Foundation has awarded
more than 740 scholarships totaling
US$5.3 million. It has also awarded
US$2.2 million in grants to universities
and professional institutions for educa-
tional programs and conferences.
FM Global has always seen the
value in risk management educa-
tion. In 2008, FM Global contributed
US$525,000 to the Foundation, the
largest gift in the Foundations 30-year
history. The gift included funds for indi-
vidual scholarships and US$300,000
earmarked to assist universities in
developing new loss prevention-related
courses.
Colleges and universities are
invited to apply for an annual Loss Pre-
vention Education Grant. Applicants
can receive up to US$50,000 for creat-
ing either undergraduate course curri-
cula or a graduate course that provides
future risk managers with a greater
understanding of the value of engineer-
ing in loss prevention.
Additionally, the Foundation has
sponsored internships to get risk man-
agement students realworld experience
and has developed a Risk Manager in
Residence program to get risk managers
to share their expertise in the classroom.
Through the program, risk managers
with a minimum of 10 years of expe-
rience are invited to spend from one to
three days on campus lecturing on the
principles of risk management.
As part of the RIMS Anita Benedetti
Student Involvement Program, Spencer
awards US$30,000 annually so select
students can attend educational sessions
at the RIMS Annual Conference. The
conference includes more than 120 edu-
cational sessions, keynote presentations,
special events and an expansive exhibit
hall with more than 400 exhibitors. And
ISSUE 2 : 2014 [ Reason ] 55
 this year, for the first time, it hosted the
Risk Management Challenge.
The Risk Management Challenge
was a perfect fit for Spencer. Little was
awarded a grant to develop the contest in
2012, and the Spencer-RIMS Risk Man-
agement Challenge was born.
The contest is designed to get stu-
dents as close as we can to a real-world
experience, said FM Globals senior vice
president of engineering and research
Brion Callori, who was recently elected
Spencer Foundation Chairman. They
have to pull together everything theyve
learned into one case study. It highlights
the need for presentation skills and shows
these students that a risk manager needs to
understand an entire business and the risks
that result.
The competition tests teams of risk
management students on their ability to
apply their knowledge to a real-world
scenario. Teams of three or four students
are invited to submit a 10-page paper to
address the risks outlined in a case study.
The top teams are then invited to make an
in-person presentation at RIMS, with the
top three teams advancing to the finals.
I really liked the team aspect,
Neeley said. Everyone on our team
took initiative and had something they
wanted to work on. Some were better at
56 [ Reason ] ISSUE 2 : 2014
public speaking. Some were better at the
written part. We really played off each
others strengths.
The challenge is not an academic
exercise, with technical twists designed
to trip up students or test their book
knowledge of risk management con-
cepts. The case studies are actual risk
management scenarios, provided by risk
managers associated with RIMS.
The general quality of the papers
was good to excellent, and there were
a couple that were absolutely excep-
tional, explains FM Globals Mary
Breighner, vice president, global prac-

Going from writing the paper in the
classroom to doing the presentation on
a big stage presents a challenge that
really keeps the students on their toes.
And the insurance industry observers love
it. They are very impressed with these
students and the work theyve done.
Former Director of the Risk and Insurance Studies Center
tice leader for education, health care
and public entities, who has served as
a judge for all three years. The schools
and teams view this challenge as wor-
thy of a good deal of effort, and that
is evident in the final papers and the
presentations.
In the first year, students were asked
to develop a program merging two risk
management divisions together at Coca-
Cola. Last year, students responded to
a request for proposals (RFP) for risk
management consulting for the World
Road Cycling Championships, a nine-
day event planned for 2015 that features
12 championship races, 1,500 athletes
and 450,000 spectators.
This year, the case study was pro-
vided by Dan Kugler, the retired risk
manager for Snap-on Inc., a global man-
ufacturer of tools, equipment and diag-
nostics. Each team was asked to make a
presentation to win the brokerage busi-
ness for the US$3.1 billion company.
The contest definitely gave me
insight into what risk managers actu-
ally do and how the whole RFP process
works, said Alex Andrews, the VCU
team captain. Just the experience of
speaking in front of all those people I
think helped a lot. Ive spoken in front
of other students, but it was different in
Debbi Little
at Virginia Commonwealth University
front of professionals. The whole setup
in the auditorium with the big screen, the
microphones and the professionals there
was a bit intimidating.
The RFP presented to the teams
required them to assist in the risk iden-
tification and assessment; prioritize and
develop a risk treatment option focusing
on financial hazards and operational and
strategic risk; assist in the development
of the risk register, identify an assess-
ment process; and assist in contingency
planning. All in only 10 pages.
The biggest thing for us was the
page limit, said Cathleen Gabriel, the
captain of the winning four-member
team from Temple University. How
were we going to get all this content
in 10 pages? We took an enterprise
risk management approach looking at
the hazards, operational, strategic and
financial risks. We each took one of the
quadrants. We had never prepared an
RFP before, and Snap-on is a very large,
complex company. So we each had to
narrow it down and only talk about the
most pertinent risks.
Teams had six weeks to research and
write their papers. A team of 10 judges
then determined the top teams. Of the 15
teams that submitted papers, nine were
invited to present at RIMS. In total, 35
students had the opportunity to participate
in RIMS through the contest.
Id been to a couple of conferences
before, but they didnt touch the size and
magnitude of RIMS. It was a little over-
whelming, Neeley added. I couldnt
believe how many people were willing
to reach out to us. A number of people
came up to us, gave us their cards and
said to call them if we needed anything.
The Challenge was held at VCU the
first two years and was added to RIMS
to generate more awareness within the
industry. It also added to the exposure
and the pressure for the students.
We definitely raised the profile of
the competition by having it at RIMS,
Callori added. A lot more people are
aware of it now, and it was a really great
opportunity for the students to network
and make connections in the industry.
Following 20-minute presentations
by each team, the top three teams were
presented a second time in the finals.
Temple came out on top, earning the
US$4,000 first prize. It was the second
straight win for a team from Temple.
They were followed by Florida State
University and Virginia Commonwealth
University, which was the winner of the
first Challenge in 2012.
The three finalists did the most
comprehensive analysis in terms of rec-
ognizing the major risks and suggesting
good risk treatment options, Breighner
added. The scores for the three final-
ists were incredibly close. The task was
to present themselves as a potential bro-
ker, and I left feeling I could do busi-
ness with these people based on their
professionalism. For more informa-
tion, visit spencered.org.

TAKING RISK
Undergrads opt for a risk management curriculum and a career in the
insurance industry

It only took one risk management class at Temple University, and Cathleen Gabriel was
hooked.
The class was mandatory for international business majors, and as soon as I took
that class I fell in love with the subject matter, she explained. Its amazing how risk
management touches on so many aspects of a business.
Gabriel, a Spencer scholarship recipient, just graduated with a Bachelors degree
in Business Administration with a double major in international business and risk man-
agement and insurance. Captain of the Temple risk management team, she will soon be
starting a job as a financial lines underwriting analyst. Her team, also including William
Thorsson, Martin Leicht and Steven Costa, captured the third annual Spencer-RIMS Risk
Management Challenge in April.
The Challenge attracted students from some of the top risk management programs at
15 universities from around the country. The top three teams then made presentations in
front of 200 industry professionals. Teams from the University of Florida and Virginia Com-
monwealth University finished second and third. Its great to get to network and see whats
out there for students, said Alex Andrews, the VCU team captain, who was attending his
second RIMS conference. I learned about a couple of jobs that I didnt even know existed.
This was such a great opportunity, Andrews continued. You could really see how
this kind of experience really comes close to what happens in the real world.

Photo credit: RIMS
ISSUE 2 : 2014 [ Reason ] 57
 [ the DIGITAL ]

Find this exclusive video coverage on our website!

Working
Together with
The Hershey
Company
A critical new facility in
Malaysia, Hersheys
first manufacturing site
in Asia, requires intense
collaboration with the
FM Global team.

Talking Points Global Matters

Kirsten Shawn, risk manager, Brandywine Rachel Yin, codes and standards, talks about
Realty Trust, discusses her philosophy on her work in greater China.
safety.

Find this video coverage

on our magazine website,
fmglobal.com/reason.

Membership Credit
Have a look at our membership credit video,
a thank you to our clients for their commit-
ment to loss prevention.

58 [ Reason ] ISSUE 2 : 2014

THE TEN QUALITIES OF A
SUPER- RESILIENT FACILITY

Adequate Water Supply

Sprinklers are supplied by water adequate both in volume and pres-
sure from sources such as public water mains, a gravity tank, fire
pump and suction tank, a natural body of water, or a suitable com-
bination. Pumper connections are utilized, allowing the public fire
service to reinforce the system further. Facility management is mind-
ful of how occupancy changes, new buildings or extensions, and the
introduction of more hazardous processes or storage arrangements in
existing buildings may increase water supply requirements, and of
how any new neighboring facilities in the area may increase demand
on the public water supply.

The University of Pittsburghs urban campus,

with large water mains on a public system, can
still present water-supply challenges. Main-
taining an adequate water supply is an ongoing effort by
environmental, health and safety (EH&S) and facilities
management staff who make sure fire pumps are tested
and confirm adequate water pressure for new projects.
Recently, the university constructed new residence halls
at the highest elevation on campus. The need to ensure an
adequate water supply for automatic sprinklers was dis-
cussed early in the FM Global plan review stage. Thanks
to preplanning, the student residences have adequate fire
protection waterand a great view from the hill.

YVONNE MARIE KEAFER, UNIVERSITY OF PITTSBURGH

Read about all ten qualities of a super-resilient

property at fmglobal.com/reason.
QUALITIES
of a
SUPER-RESILIENT
PROPERTY
FM Global Corporate Offices PRSRT STD
P.O. Box 7500 U.S. POSTAGE

Reason
Johnston, RI 02919-4923 PAID
USA PROVIDENCE, RI
PERMIT NO. 107

ISSUE 2 : 2014
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FPO
Reason is printed entirely on Forest Stewardship Council (FSC)-certified paper. If you no longer wish to receive Reason, please contact our customer service
department by phone: +1 (1)401 477 7744, (1)877 364 6726 (toll-free in Canada and United States) or email: customerservices@fmglobal.com.

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