This paper describes an algorithm for forced outage rate (FOR) allocation to each section of an electrical distribution system subject to satisfaction of reliability constraints at each load point. These constraints include threshold values of basic reliability indices, for example, failure rate, interruption duration and interruption duration per year at load points. Component improvement potential measure has been used for FOR allocation. Component with greatest magnitude of credible improvement potential (CIP) measure is selected for improving reliability performance. The approach adopted is a monovariable method where one component is selected for FOR allocation and in the next iteration another component is selected for FOR allocation based on the magnitude of CIP. The developed algorithm is implemented on sample radial distribution system.