The following is a summary of visitor responses and comments on the case study presented on the Web site between December 2000 and April 2001. It is intended to be a factual portrayal of trends and individual comments without editorial input from EERI staff.
Review The Situation:
ABC Engineers is approached by one of their important clients to perform Probable Loss (PL) evaluations for two of its properties located in a region of high seismicity. (A PL evaluation is a common measure of the expected earthquake damage to an individual building or a group of buildings for a given level of seismic hazard and is widely used by many financial institutions to evaluate portfolio risk. There is a wide range of methodologies and software available to compute the PL, but they essentially work in the same manner, providing the expected earthquake loss as a percentage of the building's value.)
In this case, the client's insurance company is requiring the PL as a prerequisite for refinancing a loan. According to the insurance company's rules for providing financing, any building with a PL of 20% or higher would require a more extensive evaluation and possibly rehabilitation.
The first building, a large warehouse, is a one-story tilt-up structure constructed in the early 1980s. It has reinforced concrete walls and a wood-framed roof. The second building is a three-story office building constructed in the 1950s. It is a somewhat irregular, reinforced concrete frame structure with lightly reinforced masonry infill walls.
ABC Engineers completes the PL evaluation and submits a draft report to the client. This report indicates that the PL, computed as specified by the insurance company, for both structures is slightly greater than 20%. Based on their extensive experience with existing buildings, the engineers' opinion is that the tilt-up building is probably worse than the PL indicates and that the types of expected damage could be life-threatening. However, it is their opinion that the office building does not pose as great a risk as indicated by the PL value, and the expected damage, though costly, is not likely to be a serious risk to life safety. The client comes back to ABC Engineers asking if there is any way that the PL values for both buildings could be "refined" so that the results are less than the 20% limit.
What should ABC Engineers do?
Readers were asked to rate several possible actions - considering the interests of all stakeholders - based on the following scale. The actions are listed in no particular order, and the rating for each action is the average of the ratings gathered.
5 — Strongly Agree 4 — Agree 3 — Neutral 2 — Disagree 1 — Strongly Disagree
- Due to the importance of the client, ABC Engineers would like to do what they can to please the client. Therefore, they revise the evaluations so the PL values come up just below 20%. This can be done by changing some of the PL inputs in a manner that may stretch the truth, but could be justified. Average Rating: 1.8 (min: 1,max: 4)
- Refuse to revise the PL values. Even though they potentially could justifiably find some way to reduce the PL values, their professional obligation is to present the unbiased results in a manner that is consistent with the insurance company’s methodology. Average Rating: 3.6 (min: 1,max: 5)
- Refuse to revise the PL values. If additional evaluation studies or seismic rehabilitations were required, then ABC Engineers would likely get the work. Average Rating: 2.3 (min: 1,max: 4)
- Revise the PL for the office building but not for the warehouse. In attempting to balance their professional obligation with their obligation to the client, ABC can justify lowering the PL for the office building, which, in their expert opinion is not as bad as the PL indicates. However, since ABC believes that the warehouse is worse than the PL indicates, they cannot justify lowering the value. Average Rating: 2.0 (min: 1,max: 5)
- Proceed Revise the PL for the warehouse but not for the office building. ABC wants to try to balance their obligation to their client with their professional obligation to protect life safety. The warehouse, though expected to perform worse than the office building benefits from very low occupancy. Average Rating: 2.0 (min: 1,max: 5)
- Provide the client with a range of PL estimates and assist the client in working with the loan office to alter the refinancing rules. Average Rating: 3.5 (min: 1,max: 5)
Readers were asked what additional information would have put them in a better position to pick an alternative.
Based on the readers' comments, the following is a listing (in no particular order) of relevant information that would have assisted in making a better decision:
- Specific details on the PL method used, including how the various factors are considered.
- More specific information on seismic hazard, site conditions, and the expected damage to the building.
- More specific information on the building occupancy.
- Information about costs of insurance and potential costs of rehabilitation measures to lower the PL.
- 5. Comparisons using other PL methodologies, if available.
Readers were then asked to offer a suggested course of action for the ABC Engineers. The following is a brief summary of the suggestions. As is the nature of ethical dilemmas, there is no right or wrong answer, and many courses of action could be considered equally valid depending on individual values and/or interpretation of events.
Readers suggested various alternatives such as reviewing the PL inputs for accuracy and provide refinements if possible, performing more detailed analyses to justify a lower PL, and making recommendations for upgrades to lower the PL.
Some readers suggested that the engineers could provide additional comments and discussion on the PL values and building performance in an attempt to get the insurance company to accept a result that is slightly above the limit. However, these measures should be taken in a very open and clear manner.
One reader recommended stopping the work altogether and destroying the PL work, leaving the client to find another engineer. .
Comments on Questions for Further Thought:
Finally, readers were asked to respond to the following question:
Is it appropriate for engineers use their own opinions/experience to override the results from a specific procedure? What are the limits?