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On Margin Of Safety

06 January, 2022 - 4 min read


Describes the capacity of a system to carry load beyond its actual capability.

Definition

Margin of safety originated from engineering but is applicable to any system. Describes the capacity of a system to carry loads beyond its actual capability. When designing such systems, the system should be able to support additional loads which are calculated using detailed analysis.

The primary question posed by this concept is how much stronger the system is than it usually needs to be for an intended load. Testing can be impractical when complex systems such as aircraft, buildings or bridges are involved. However, the structure’s ability to carry load must be determined to a reasonable accuracy by conducting a detailed analysis to avoid any unexpected failure.

Deep analysis

Margin of safety is used widely in many areas of life such as accounting, engineering, investing and time management to name just a few.

In its original form, a quantitative “margin of safety” is in fact called a “safety factor.” In structural engineering, the safety factor is calculated as follows:

  • Calculated by dividing the load required to cause failure by the maximum load expected to act on a structure.
  • A system with capacity of 6,000 pounds is used to carry no more than 1,000 pounds at a time, then the factor of safety is 6,000 / 1,000 = 6.

The above calculation is generalized to explain the concept. However, between various industries and engineering groups usage is inconsistent and confusing. The concept is heavily used in aerospace and industrial projects but not limited to those industries. Just like Factor of Safety, Margin of Safety is a widely known concept within the business world whether investing in a new project or personal investing. Margin of Safety allows room for an analytical error or bad luck to avoid sizable losses over time. Investing in future is unpredictable and margin of safety allows to protect us from that bad luck. Applying this concept in managing money protects any unexpected downside if the business or stock market were to tumble.

Factor of safety

The economics use of steel depends upon quality and its working stress. Structures have two main problems, buckling and bending, and theories in calculating these two properties in steel were established in 1759 and 1826. To arrive at a reasonable working stress, a Factor of Safety against failure was assessed and this was generally taken as a quarter of the average ultimate strength of material. London City Council determined the working stress of steel and introduced a higher Factor of Safety to allow for imperfections in the material.

Factor of Safety has evolved and even introduced in other industries mandated by the Federal Airworthiness Regulation.

Unless otherwise specified, a factor of 1.5 must be applied to the prescribed limit loads which are considered external loads on the structure. This is enforced by civilian and military transport authorities and has the force of law within the United States. — NASA

Margin of safety originated from engineering. Many structural projects within government and private sector apply Factor of Safety (FoS) to ensure the structural safety.

In engineering, a factor of safety (FoS), also known as (and used interchangeably with) safety factor (SF), expresses how much stronger a system is than it needs to be for an intended load. Safety factors are often calculated using detailed analysis because comprehensive testing is impractical on many projects, such as bridges and buildings, but the structure's ability to carry a load must be determined to a reasonable accuracy. Many systems are intentionally built much stronger than needed for normal usage to allow for emergency situations, unexpected loads, misuse, or degradation (reliability). — Wikipedia

Limitations

Clearly, the margin of safety model is very powerful, and we’re wise to use it whenever possible to avoid failure. But it has limitations.

If time and money are the most important resources, does it make sense to utilize those resources to fail-proof a material to such an extent that any extra unit spent on making it safe does not make it safer? For example, how do you account for weather conditions? Or, how do you account for future government policies when you are investing in a stock market? In both instances, while doing analysis, you have to realize we do not have control over external factors which makes it hard to fail-proof a structure or a system.

While also conducting detailed analysis, you have to ensure the biases baked into data or old set of data that is no longer relevant.

Judgement is another one. When it comes to things like terrorist attacks, people are not concerned about false alarms. However, using probability of an event can suggest a likelihood of an event such as terroristic attack is very low.

The margin-of-safety calculation can be exaggerated without careful judgment.