Int. J.

Production Economics 140 (2012) 579–585

Contents lists available at SciVerse ScienceDirect

Int. J. Production Economics

journal homepage: www.elsevier.com/locate/ijpe

Optimal budget planning for investment in safety measures

of a chemical company
Yuji Sato n
Graduate School of Policy Science, Mie Chukyo University, 1846 Kubo, Matsusaka, Mie 515-8511, Japan

a r t i c l e i n f o abstract

Article history: The objective of this study was to develop a framework for optimizing budget planning for investment
Received 14 April 2010 in safety measures in a chemical company. Decision making for strategic investment for safety is
Accepted 10 May 2012 complicated due to the intangible factors that enter into both the evaluation and choice of appropriate
Available online 15 June 2012
safety measures, and the individual situation of plants. This study addressed these issues by combining
Keywords: Linear Programing and Analytic Hierarchy Process, showing how to quantify inherent risks within
Budget planning chemical plants and how to optimize budget planning for safety within a chemical company.
Investment for safety & 2012 Elsevier B.V. All rights reserved.
Quantification
Intangible factor
LP
AHP

1. Introduction
With growing interest in global environmental issues, chemi-
cal companies need to take responsibility for reducing plant-
based risks such as fires, explosions or leakages, given their
potentially devastating human and environmental consequences.
In addition to taking responsibility, companies need to adopt
strategic investments for risk management, which is inseparable
from profit generation, due to the increasing focus on account-
ability to stakeholders.
Decision making for strategic investment for safety is compli-
cated, particularly in chemical companies, where the introduction of
plant safety measures is critical to the success of risk management.
In optimizing investment in safety measures, safety managers must
evaluate and choose safety measures when making decisions about
strategic investment, which are usually costly and surrounded by
uncertainty over the likely effects of the different safety measures
available. The difficulties arise mainly from intangible factors, such
as the safety manager’s judgment of criteria, that enter into the
evaluation and choice of appropriate safety measures, particularly
given the rapidly changing technological environment. Thus, deci-
sion-making regarding budget allocation, relying heavily as it does
on experience, knowledge, as well as intuition, means that the
evaluation and choice of appropriate safety measures often lacks
transparency and traceability.
n
Tel.: þ81 598 29 1122; fax: þ81 598 29 1014.
E-mail address: ysatoh@1988.jukuin.keio.ac.jp
Given the need for necessary and sufficient risk management
within chemical plants, a variety of approaches have been
proposed. However, the number of studies on budget allocation
for safety measures within chemical companies is limited because
of inherent plant-based risks, which results in a lack of a
‘‘standard’’ framework of optimization for the allocation. Chemi-
cal companies surrounded by uncertainties, such as unexpected
losses from disasters and envisaged economic effects of safety
measures, have therefore tried to optimize budgeting as the case
may be by, for instance, consulting professional analysts for
safety. While from the perspective of the uncertainty of the
results of the investment, such as potential benefits or unex-
pected costs of early stage manufacturing technology, budget
planning for investment in safety measures is similar to that for
new technologies in manufacturing (Tan et al., 2011), which
serves as a useful reference for this issue.
As Beaumont (1999) ascertained, the criteria that firms use to
make investment decisions in manufacturing technology are:
how firms manage the introduction of new technology, whether
firms experience unanticipated effects from new technology, and
what factors impede or assist its implementation. Some of these
factors can only be clarified once the investment is implemented.
Although decision makers for investments are not completely
ignorant of what the future might be, investment decisions are
made under conditions of uncertainty. Frank (1998) considered
the nature and acceptable level of risk, together with manage-
ment’s personal attitude to risk. O’Brien and Smith (1993) also
noted that investment in advanced manufacturing systems must
be made while taking into account factors that are difficult to
predict. In the paper, they discussed how a decision process might

0925-5273/$ - see front matter & 2012 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.ijpe.2012.05.030
580 Y. Sato / Int. J. Production Economics 140 (2012) 579–585
be designed and managed, and proposed the application of the
Analytic Hierarchy Process (AHP). Most previous studies, includ-
ing Frank (1998) and O’Brien and Smith (1993), however, focused
solely on the efficacy and efficiency of each safety measure in
conjunction with cost minimization, without taking into account
the sustainability of the company.
On the other hand, quantitative definitions of risk have been
established (Kaplan and Garrick, 1981; Apostolakis, 1990), and
Probabilistic Safety (Risk) Assessment methods have been heavily
used in risk analyses in the nuclear and aerospace sectors, as well
as in chemical companies (Garrick and Christie, 2002; Davies,
2002; Labeaua et al., 2000). Based on the solid quantitative model
of risk assessment, the application of these methods to the
optimization of budget planning for investment in safety mea-
sures might be an option. In the application, however, the
assumptions of modeling are often hard coded, which means that
not only the validity of the model but also modeling flexibility
and modularity are harmed (van der Zee.,2004). In addition, how
to quantify intangible factors in the evaluation and choice of
appropriate measures is a critical issue in the application.
This paper aims to address these issues. Dealing with intangi-
ble factors in the evaluation and choice of appropriate safety
measures, a framework for optimizing budget planning for
investment in safety measures is proposed. Unlike previous
studies, the framework is based on the actual situation of a
chemical company, and the optimization process proposed in this
paper considers not only cost minimization but also global
environmental protection, which offers quantitative justification
for the budgeting for safety measures.
The optimization of budget planning is accomplished by combin-
ing two methods of operational research. One is a traditional
technique for optimization, Linear Programming (LP), which is used
to optimize the planning for investment in safety measures in terms
of the criteria of global environmental protection and cost mini-
mization. The second method is an innovative decision support
method, the AHP, which is able to incorporate quantitative and
qualitative judgments into evaluations and can then be used in
coming up with the parameters employed in the LP.
Section 2 describes what the problem is in a chemical
company, how to solve the problem, and what the solution for
the problem would be. In Section 3, an LP model optimizing
budget allocation as well as the application of the AHP deriving
parameters employed in the model are shown. Section 4 intro-
duces a case study verifying the approach proposed in this paper,
and Section 5 concludes this study and proposes future research.
2. Problem description
The goal of this section is to develop a framework for
optimizing budget planning for investment in safety measures
in a chemical company. In developing the framework, an addi-
tional review of past accidents within the plant of the company
should be undertaken by building on the chemical company’s
existing accident response manual. In order to support the
process, interviews with the organization maintaining statistics
in this field, such as the Ministry of Economy, Trade and Industry
in Japan, would be an option. A focus group with safety managers
in the plant is then held to capture the depth and richness of risk
within the plant. In this process, the issue of risks within the plant
would be discussed with the professional analyst for safety.
Therefore, the framework proposed in this paper is based on a
safety and reliability study of the chemical plant carried out by
safety managers.
The framework reflects intangible factors in the evaluation and
choice of appropriate safety measures, while it considers global
environmental protection issues as well as cost minimization.
Although many approaches to budget allocation in risk manage-
ment have been previously proposed, most have neglected
intangible yet critical factors within the allocation or just focused
on cost minimization in risk management. Global environmental
protection, not just straightforward actions such as CO2 controls
but also implicit support for preserving the environment, must be
taken into account. Seen in this light, the approach proposed in
this paper is critical to the sustainability of the company.
In order to optimize a budget allocation for risk management,
chemical companies must consider not only necessary and
sufficient expenditures but also their social responsibility so as
to avoid accidents that might seriously damage the environment.
That is, optimizing budget planning for investment in safety
measures entails not only minimizing costs for risk management
but also integrating the economic, legal and social engineering
perspectives within the framework. In this paper, LP is applied to
settle the issue of the optimization. Linear functions describing
the relationship between expenditures for safety measures and
the achievement record of each safety measure in comparison
with the initial estimate each year is formulated. Then by solving
the LP, the budget planning for safety within a chemical company
is optimized.
The rationale for the linear approximation is the difficulty in
identifying a function representing the relationship between the
expenditures and the achievement record. The relationship might
be a non-linear function (most likely, a concave function), and
even a non-linear problem could be solved mathematically;
however, it is not easy to precisely identify a function. On the
other hand, every function can be represented as a linear function
by piecewise linear approximation, which implies the segmenta-
tion of risk reduction plans (processes) in the optimization of the
budget planning. In addition, dealing with each plan (process)
based on many years of experience is likely to be more familiar to
practitioners than precisely identifying the function with abstruse
mathematics. Thus, the linear approximation of the relationship
and the use of the function in optimizing budget planning in a real
case could be justified. These approaches would be easily under-
stood by practitioners, thus enhancing the applicability of the
approaches.
On the other hand, the LP has budget constraints as well as
non-negative conditions, which imposes a ceiling on the expen-
ditures for safety measures. In the event of accidents, companies
would fully expense what they must cover for restoration to the
original state in order to assume responsibility for the damage
they had caused. The budget ‘‘plan’’ for risk reduction, however,
includes preventive measures for safety as well as countermea-
sures based on the estimation as to how much they should
expense for future reliability, which are not necessary expenses
for a particular budgeting. Furthermore, companies need to invest
not only for safety but also for items such as R&D and welfare for
employees; they must ‘‘balance’’ their budget allocation for each
field they are responsible for. Thus, optimization of the allocation
would have upper-limit constraints.
In the framework, the achievement record, called ‘‘percentage
complete,’’ is employed as one of the parameters in this paper.
The percentage complete is an original measure predicting the
state of risk in the chemical company, which has actually been
employed for many years in the company surveyed in this study.
The concept of the percentage complete is drawn from the idea of
‘‘plan-do-see cycle’’ management. During the ‘‘plan’’ phase, inves-
tigation of the plant based on the actual number of incidents of
past years is carried out by safety managers and professional
analysts for safety, and a risk reduction plan as well as
budget allocation for investment in safety is designed. In this
phase, what the actual number of incidents during the target
 Y. Sato / Int. J. Production Economics 140 (2012) 579–585
period will be is unknown; therefore, predicting index of the state
of risk following the ‘‘do’’ phase is necessary. After the phase, the
company will confirm the actual state of risk and will be able to
evaluate how each safety measure will have functioned. The
company will then design a budget allocation for the subsequent
year at the ‘‘see’’ phase. On the other hand, the percentage
complete used to be estimated based on safety managers’ intui-
tions or many years of experience in the company. The estimation
process is thus a black box process, which is not traceable nor
leads to systematic optimization of budget planning. Therefore,
the company needs to clarify the estimation process in a
transparent way.
3. Optimization of budget planning
3.1. LP model
The optimization of the budget planning for investment in
safety measures is carried out using the following three steps to
evaluate the efficacy of safety measures and formulate LP, which
optimizes the planning for safety within a chemical company.
Step 1. Propose risk reduction scheme within a chemical plant in a
sequence of transparent decisions
An evaluation of the efficacy of safety measures for the
chemical plant is carried out based on the safety and reliability
study, and safety managers then propose a risk reduction plan for
the chemical plant. This step clarifies the scheme of risk reduction
in a transparent way.
Step 2. Describe the relationship between given budget amounts for
safety measures and the total degree of risk reduction within the
plant as a linear function
The relationship between expenditures and the degree of risk
reduction for each safety measure is clarified. In this process, the
degree of importance of each safety measure is quantified by the
AHP, and the percentage complete of each safety measure is
approximated by the linear function, which calculates the degree
of risk reduction. This step enables systematic optimization of the
budget planning.
Step 3. Optimize the budget planning for investment in safety
measures
An LP model optimizing budget planning for investment in
safety measures is formulated. The LP consists of an objective
function maximizing the degree of risk reduction with given
resources (i.e., cost minimizing of budget amounts for safety
measures with allowable risk level) and of constraints that
include not only budget constraints but also the constraint of
global environmental protection.
Let wD ¼{wdi } and wM ¼{wmij }, respectively denote the weight
of dimensions and that of safety measures for a risk reduction
plan elicited by safety managers, where diAD and mijAM show a
set of dimensions and safety measures, respectively. Further, let
P¼{pij} denote the percentage complete of each safety measure.
Then the degree of risk reduction can be defined as an index
representing how high the risk level of the plant would be one
year later:
XX
Degree of risk reduction ¼ w w p ð1Þ
i j di mij ij
As shown in (1), the degree of risk reduction is calculated as a
ratio of risk level, which is not based on the number of past
accidents within the plant. The rationale for the definition is the
581
fact that the model studied in this paper considers the predicted
risk level based on the evaluation of each safety measure and its
expected effect on risk reduction. In (1), the weights of each
dimension and safety measure, di and mij, are quantified through
discussion among those in the focus group within the plant,
reflecting the consensus of safety managers. The percentage
complete pij, on the other hand, is estimated by linear function
based on the given resources.
Let Imij denote the expenditure for a safety measure mij.
Suppose the percentage complete pij can be approximated by a
linear function of the budget amount for each safety measure
P
i,j LðImij Þ, then the problem of ‘‘maximizing the degree of risk
reduction’’ with budget constraint for each safety measure would
be formulated as the linear problem shown below.
nX X o
Max i j
wdi
wm ij
LðI mij
Þ , ð2Þ
X
s:t I
j mij
r Di ðbudget constraint of dimension di Þ, ð3Þ
0 r Imij ð4Þ
The objective function (2) of this LP consists of the degree of
risk reduction, which is the product of the weight of each
dimension wdi , that of each safety measure wmij and the linear
approximation of the percentage complete of each safety measure
LðImij Þ. The linear constraints (3) and (4) are the budget constraint
for each dimension and non-negative condition. This LP has, by
nature, a convex feasible region, and thus derives optimal solu-
tions, which in turn optimizes the budget planning for investment
in safety measures for the chemical plant.
3.2. Quantification of intangible factors
The budget optimization model clarifying how to allocate
limited resources (e.g., people, goods and capital) to precaution-
ary safety measures includes the intangible factors, wD and wM, as
the parameters of the LP. The LP, therefore, needs to quantify
these factors in implementing optimization.
One of the tools for analyzing the decision-making process for
supporting multi-criteria decision making is the Analytic Hier-
archy Process (AHP), developed by Saaty (1980). The AHP takes
the subjective judgment of each decision-maker as input and the
quantified weight of each alternative as output. Therefore, not
only objective issues but also more subjective issues without
theoretical values can be easily quantified. The AHP has thus been
widely used for decision-making (e.g., economic problems, policy
evaluation and urban planning) (Vargas, 1990; Saaty, 1994).
The advantage of the application of the AHP is to be able to
make the evaluation and choice of appropriate safety measures
transparent and traceable, even though the safety manager’s
judgment relies heavily on not only experience and knowledge
but also intuition. The quantification of wD and wM is undertaken
using questionnaires consisting of the AHP-formatted questions.
Omitting the details of the procedure here, safety managers were
required to answer a series of questions formatted by the AHP to
derive the weights for the dimensions and safety measures of the
risk reduction plan, since pairwise comparison functions better
than traditional questionnaires in quantifying human perception
(Sato, 2004). They conducted pairwise comparisons of all possible
combinations of dimensions, such as ‘‘Which safety measure do
you think is more important for the risk reduction of your plant,
measure A or measure B?’’ This process facilitates clarification of
the priority of the different dimensions and competing safety
measures of the risk reduction plan.
582 Y. Sato / Int. J. Production Economics 140 (2012) 579–585

4. Case of a Japanese chemical company
This section introduces the procedure and the result of the
case study verifying the approach proposed in this paper. The case
study was carried out at a Japanese chemical company (whose
name cannot be disclosed due to a confidentiality agreement).
4.1. Risk reduction scheme of a chemical company
Although the chemical company has tried to reduce the
number of accidents, the current safety status of the plant is not
satisfactory. Each division causes some type of accident, and
facility error has become a major cause of accidents. What is
worse is that the number of accidents increased 80% from 2007 to
2008, after they had succeeded in reducing the number of
accidents in 2007. The bar chart in Fig. 1 shows the changes in
the number of accidents since 2000. These results require that the
company take preventive action immediately.
16
Leakage
14 Fire
number of observation
To reduce risks, the company undertook case studies for share-
holders, and consulted a professional analyst for the safety of
chemical plants. A focus group with safety managers in the plant
classified risks within the plant based on three dimensions as follows:
Equipment (hazardous object facilities, poisonous object facilities,
utility facilities, construction); Human (education and training, unsafe
actions, security); Regulation and others (compliance, design review,
inspection system). Based on the classification, concrete safety
measures for risk reduction consisting of company-wide projects
and activities within the plant were proposed, and a risk reduction
scheme was developed as illustrated in Fig. 2.
Within the chemical plant, the safety managers were first
required to evaluate the degree of importance of dimensions
wD ¼{wdi } and that of safety measures wM ¼ {wmij } (i¼1, y, 3;
j¼1, y, 7) for risk reduction. Table 1 summarizes the results
obtained from the questionnaire formatted by the AHP. The
numbers in the wD and wM columns represent the weights for
safety measures normalized by the l1-norm within each dimen-
sion. In terms of the importance of dimensions, some managers
emphasized the importance of Equipment, and others that of
Human. In the aggregate, the safety managers weighted Human
90
(wd2 ) most, 0.390. For the safety measures, tank preservation
80
(wm13 ) ranked highest, 0.201, among the safety measures for

12 Total 70 Equipment; OHSMS (Occupational Health and Safety Manage-

cumulative total

60 ment System; wm25 ) ranked highest, 0.303, among those for

10
50 Human; and fire code observance (wm32 ) ranked highest, 0.329,
8
40 among those for Regulation.
6
30
4 20
2 10 4.2. Linear approximation of the percentage complete (example)
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 year In this section, the relationship between expenditures for
safety measures and the degree of risk reduction within the plant
Fig. 1. Changes in the number of accidents within the company. is clarified. In the process, how to approximate the percentage

Dimensions Measures

Projects Activities

Hazardous object facility Emergency inspection

Electricity intentional preservation

Poisonous object facility Static electricity measure

Equipment Environmental risk hedge activity
Utility facility Tank preservation

Incinerator abolition
Constructions FMEA
Risks within the plant

Education, training Superintendent arousal Natural calamity measure

Human Unsafe action License institution

Security Security intensification

OHSMS

Design review Equipment Management System

Zero-emission activity

Regulation Compliance Fire code observance

5S-activity
Inspection system Inspection system establishment

Fig. 2. Scheme of risk reduction.

 Y. Sato / Int. J. Production Economics 140 (2012) 579–585 583

Table 1 Percentage complete

Degree of importance of dimensions and that of safety measures for risk reduction.
Estimated percentage complete
Dimensions wD Measures wM
Pipeline network
Equipment wd1 :0.365 Emergency inspection wm11 :0.161
Static electricity measure wm12 :0.135
Tank preservation wm13 :0.201
FMEA wm14 :0.114
Effluent treatment facility
Electricity intentional preservation wm15 :0.190 Electricity facility
Environmental risk hedge activity wm16 :0.124
Incinerator abolition wm17 :0.0745

Human wd2 :0.390 Superintendent arousal wm21 :0.190

Security intensification
Natural calamity measure
License institution
OHSMS
Regulation wd3 :0.245 Equipment management system
Fire code observance
Inspection system establishment
Zero emission activity
‘‘5S’’ activity
complete was discussed by safety managers of the company and
professional analysts for safety because the percentage complete
is supposed to be linearly approximated. Two issues were raised
in the discussion: one was the justification for the linear approx-
imation of the percentage complete; the other was the secondary
effect of the expenditures for related safety measures to the
percentage complete of a primary safety measure, due to mutual
relationships among different measures.
In the justification of the linear approximation, simple and
piecewise linear approximations were compared for all safety
measures shown in Fig. 2. For example, a measure ‘‘Emergency
inspection (m11)’’ consists of three inspections of pipeline net-
work, electricity facility, and effluent treatment facility, each of
which is an independent facility within the plant. Fig. 3 illustrates
the conceptual diagram of simple and piecewise linear approx-
imations. As shown in the figure, the degree of concavity of the
relationship determines the precision of the approximation: the
lower the concavity between no expenditures and full expendi-
tures for measures is, the higher the precision of the approxima-
tion is. A linear function obtained from simple approximation did
not succeed in approximating estimated percentage complete
precisely; the difference, however, was not significant from a
practical point of view. As a result of the discussion, simple
approximation was confirmed to be sensible and was justified to
be employed in this case. On the other hand, the discussion noted
that in cases where the difference between estimated percentage
complete and simple approximation would be significant, piece-
wise linear approximation should be employed.
In terms of the secondary effect, several ways of approxima-
tion were proposed and examined. For example, the expenditures
for the safety measures ‘‘FMEA (m14)’’ has a secondary effect on
the percentage complete of ‘‘Emergency inspection (m11),’’ p11,
which is, therefore, determined by the primary measure m11 and
the secondary measure m14. Suppose p11 can be linearly approxi-
mated by aIm11 þ bIm14 . Safety managers of the company and
professional analysts for safety recognized that the effect of Im14
to p11 was less than that of Im11 . Therefore, sensitivity analysis was
carried out by perturbing the coefficients a and b in order to
determine adequate values of a and b. As a result, b ¼ 1/2 is
concluded to be adequate where a ¼1. Since the value of b, 1/2,
was discovered through the safety managers’ many years of
experience but having no empirical evidence, the discussion
emphasized that a sensitivity analysis of coefficients would be
wm22 :0.186 Simple approximation
wm23 :0.161
wm24 :0.161
wm25 :0.303 0 Expenditures
wm31 :0.196
Fig. 3. Conceptual diagram of simple and piecewise linear approximations.
wm32 :0.329
wm33 :0.128
wm34 :0.130
wm35 :0.217
necessary in every application of the approach proposed in this
paper. Table 2 summarizes the results of the linear approximation
of pij. A relationship matrix R ¼{rst} (s, t¼ m11, y, m35), represent-
ing mutual relationships among safety measures is defined and
employed in the following formulation of the LP, where rss ¼1,
rst ¼1/2 when a safety measure t has a secondary effect to the
percentage complete of a primary measure s, otherwise rst ¼0.
The constant bij in the table denotes necessary and sufficient
expenditures to achieve 100% complete for each safety measure
estimated by the safety managers. In this paper, coefficients in the
linear approximation are assumed to be the reciprocal values of
100% complete, 1/bij. As noted above, the secondary effect of the
expenditures for related safety measures to the percentage
complete of a primary safety measure is then assumed to be half
of the ratio 1/bij of the primary measure. As a result, the
parameters of the LP optimizing budget planning of the company
can be represented as shown in Table 2. For example, the
percentage complete of ‘‘Emergency inspection (m11),’’ p11, can
be linearly approximated by 0.00667Im11 þ0.005Im14 , since ‘‘FMEA
(m14),’’ relates to ‘‘Emergency inspection (m11),’’ and b11 ¼ 150 and
b14 ¼100. A diagonal matrix E ¼diag(1/bij) representing sufficient
expenditures to achieve 100% complete is defined and employed
in the following formulation of the LP. The percentage complete
pij can then be described as REI, where I¼{Imij }.
4.3. Budget optimization within the plant (example)
This section presents an example to illustrate the application
of the framework optimizing budget planning for investment in
safety measures within the plant. The framework is based on the
actual case shown in Tables 1 and 2. Based on the tables, the
objective function maximizing the degree of risk reduction can be
described as (5), where the percentage complete is approximated
by the linear functions of the budget amount for each safety
measure. The linear constraints (6)–(9) are the budget constraints
for each dimension and non-negative condition.
nX o
Max i
wd i
wmij
REI , ð5Þ
X
s:t: I
j m1j
r 250 ðbudget constraint of EquipmentÞ, ð6Þ
X
I r 50 ðbudget constraint of HumanÞ, ð7Þ
j m2j
X
I
j m3j
r 35 ðbudget constraint of RegulationÞ, ð8Þ
0 r Imij ,ði ¼ 1,. . .,3; j ¼ 1,. . .,7Þ, ð9Þ
584 Y. Sato / Int. J. Production Economics 140 (2012) 579–585

Table 2
Linear approximation of the percentage complete.
P
Dimensions D#
i Measures #
bij 1/bij Related measures pij ¼ i,j LðI mij Þ

Equipment D1 ¼ 250 Emergency inspection (m11) 150 0.00667 m14 p11 ¼0.00667 Im11 þ 0.005 Im14
Static electricity measure (m12) 75 0.0133 – p12 ¼0.0133 Im12
Tank preservation (m13) 80 0.0125 – p13 ¼0.0125 Im13
FMEA (m14) 100 0.0100 – p14 ¼0.01 Im14
Electricity intentional preservation (m15) 110 0.00909 m12, m14 p15 ¼0.00665 Im12 þ0.005 Im14 þ 0.00909 Im15
Environmental risk hedge activity (m16) 50 0.0200 m11, m14 p16 ¼0.00333 Im11 þ0.005 Im14 þ 0.02 Im16
Incinerator abolition (m17) 150 0.00667 m13, m14 p17 ¼0.00625 Im13 þ0.005 Im14 þ 0.0667 Im17

Human D2 ¼ 50 Superintendent arousal (m21) 50 0.0200 – p21 ¼0.02 Im21

Security intensification (m22) 75 0.0133 – p22 ¼0.0133 Im22
Natural calamity measure (m23) 50 0.0200 m21, m22 p23 ¼0.01 Im21 þ 0.00665 Im22 þ 0.02 Im23
License institution (m24) 25 0.0400 m21, m22 p24 ¼0.01 Im21 þ 0.00665 Im22 þ 0.04 ub¼Im24
OHSMS (m25) 50 0.0200 m21, m22 p25 ¼0.01 Im21 þ 0.00665 Im22 þ 0.02 Im25

Regulation D3 ¼ 35 Equipment management system (m31) 15 0.0667 – p31 ¼0.0667 Im31

Fire code observance (m32) 10 0.100 m14 p32 ¼0.005 Im14 þ 0.1 Im32
Inspection system establishment (m33) 18 0.0556 – p33 ¼0.0556 Im33
Zero emission activity (m34) 14 0.0714 m31, m33 p34 ¼0.0333 Im31 þ0.0278 Im33 þ 0.0714 Im34
‘‘5S’’ activity (m35) 13 0.0769 m31, m33 p35 ¼0.0333 Im31 þ0.0278 Im33 þ 0.0769 Im35

#: million JPY.

where, wdi and wmij are those listed in Table 1, E ¼diag(1/b11, safety managers of the chemical company. Based on the retro-
1/b12, y, 1/b35), I ¼{Im1j , Im2j , Im3j }, and spective interview focusing on the differences between the actual
m11 m12 m13 m14 m15 m16 m17 m21 m22 m23 m24 m25 m31 m32 m33 m34 m35 and estimated budget allocation and the change in the state of
2 3
risk at the company following the analyses, both the quantifica-
m11 1 n tion of the degree of importance, wD and wM, and the estimation
m12 6
6 1 7
7 of the percentage complete of each safety measure, Pn, are
6 7
m13 6 1 7 persuasive, resulting in a consensus of the allocation for the
6 7
m14 6
6 1 7
7 company. Table 4 summarizes the feedback obtained: each row
6 7
m15 6 n n 1 7 represents how 14 safety managers of the company thought
6 7
m16 6
6n n 1 7
7 about the results of each quantification. As the table shows, more
6 7
m17 6 n n 1 7 than 70% of the respondents thought that the outputs of the
6 7
m21 6
6 1 7
7 framework proposed in this paper were true or rather true.
6 7
R ¼ m22 6
6 1 7
7
m23 6
6 n n 1
7
7
6 7
m24 6 n n 1 7 5. Conclusions
6 7
m25 6
6 n n 1
7
7
6 7
m31 6 1 7 This paper focuses on the optimization of budget planning for
6 7
6 7 investment in safety measures of a chemical company, and the
m32 6 n 1 7
6 7 correlation between safety measures and the degree of risk
m33 6
6 1 7
7
6 7 reduction. Inherent risks at the chemical plant are quantified
m34 4 n n 1 5
m35 n n 1
based on both concrete safety measures for risk reduction and the
consensus of safety managers in the plant. In addition, the degree
n ¼1/2 and blanks are 0. of risk reduction is evaluated based on the importance and the
Table 3 summarizes the optimal solution derived from the LP. percentage complete of safety measures for risk reduction.
The numbers in the Inmij and Pn columns respectively represent the Furthermore, not only the cost effectiveness of investment in
optimal expenditures for each safety measure mij and its esti- safety measures but also their effects on global environmental
mated percentage complete. In terms of the risk level, the degree issues are considered, thus optimizing the budget planning for
of risk reduction from the year 2008 (set 1) to 2009 under the safety measures.
obtained budget allocation is 0.588, which implies the estimated Two open-ended questions remain. First, how to enhance the
risk level one year later would be reduced from 1 to 0.412. This precision of the linear approximation of the percentage complete
result just shows an example of the optimization of budget of each safety measure. The relationship between budget
planning. The process, on the other hand, is based on the actual amounts and the percentage complete of each safety measure
case at a Japanese chemical company, which could easily be just might not lend itself to linear approximation. In such cases,
applied to an actual planning after the linear approximation of the the process of a safety measure needs to be segmented so as to
percentage complete of each safety measure. formulate an LP model. Second, how to establish a feedback
procedure to refine the safety managers’ subjective judgments
4.4. Feedback from the chemical company in the evaluation of safety measures. Since the quantification
process of the degree of importance of safety measures developed
The results derived from the approach proposed in this paper here is based on safety managers’ intuitions or many years of
give quantitative justification for budget planning for investment experience, improving their judgments taking on broad objective
in safety measures and a rational basis for decision making for plant data is crucial.
 Y. Sato / Int. J. Production Economics 140 (2012) 579–585 585

Table 3
Results of the optimization.

Dimensions D#
i wD Measures wM Imn ij Pn wDx wMx Pn

Equipment D1 ¼250 wd1 :0.365 Emergency inspection wm11 :0.161 30.4 0.355 0.0209
Static electricity measure wm12 :0.135 30.1 0.402 0.0198
Tank preservation wm13 :0.201 69.3 0.867 0.0635
FMEA wm14 :0.114 15.3 0.153 0.00638
Electricity intentional preservation wm15 :0.190 49.6 1.00 0.0694
Environmental risk hedge activity wm16 :0.124 50.0 1.00 0.0452
Incinerator abolition wm17 :0.0745 5.29 0.0947 0.00258
sub total 0.228

Human D2 ¼50 wd2 :0.390 Superintendent arousal wm21 :0.190 0.000 0.000 0.000
Security intensification wm22 :0.186 0.000 0.000 0.000
Natural calamity measure wm23 :0.161 5.54 0.203 0.0127
License institution wm24 :0.161 16.5 0.937 0.0587
OHSMS wm25 :0.303 27.9 1.00 0.118
sub total 0.190

Regulation D3 ¼35 wd3 :0.245 Equipment management system wm31 :0.196 1.66 0.111 0.00532
Fire code observance wm32 :0.329 10.0 1.00 0.0806
Inspection system establishment wm33 :0.128 0.000 0.000 0.000
Zero emission activity wm34 :0.130 10.3 1.00 0.0318
‘‘5 S‘‘ activity wm35 :0.217 13.0 1.00 0.0532
sub total 0.171

Degree of risk reduction: 0.588

Estimated risk level 1 year later: 0.412

#: million JPY.

Table 4
Feedback from the chemical company.

Items True (%) Rather true (%) Neutral (%) Rather false (%) False (%) DK (%)

Quantification of wD and wM 28.6 42.9 14.3 7.1 7.1 0.0

Estimation of the percent complete P 21.4 50.0 7.1 0.0 14.3 7.1

N ¼14.

Acknowledgments
The author is grateful to the anonymous referees and the
discussants at the 16th International Working Seminar on Pro-
duction Economics for their valuable comments that have sig-
nificantly improved this paper.
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