The Institution of Mechanical Engineers (IME) is located in about as upscale a part of London as you could wish for—next to beautiful Green Park with its ducks and pelicans and within a stone’s throw of 10 Downing Street. Inside the Edwardian magnificence are brochures describing ‘sustainable’ engineering and various schemes for carbon mitigation. There is also a life size mock-up of a V8 petrol engine from one of the latest Jaguar automobiles. Some may query the ‘sustainable’ nature of the V8. But the explanation is in the accompanying blurb. The monstrous motor’s cylinder head is made of recycled aluminum! So next time you squidge-up a beer can and lob it into the recycling, you will be doing your bit for the environment—thanks to Jaguar.
I was at the IME for a one day conference on Process Safety, subtitled—‘are you doing enough to prevent major disasters?’ We will be reporting from this very informative event in next month’s Oil IT Journal—but to whet your appetites and to provide fodder for my editorial I will move on to the conclusions of the conference.
The first consensus seems to be that major accidents over the past few decades have led to a better understanding of risk management. Current thinking revolves around a combination of the James Reason’s ‘Swiss cheese’ analysis (www.oilit.com/links/1110_51) of how defenses and barriers can be penetrated by an accident ‘trajectory’ and the development of a mitigation strategy based on a ‘best bang for the buck’ model.
Members of the pipeline ‘Geogathering’ community which assembled recently (Page 4) will recognize the approach as conforming broadly to the formula that evaluates risk as the product of the likelihood of occurrence and the impact of a subsequent event. This has led to the identification of high consequence areas as key to regulation-driven maintenance of the US pipeline system. See this month’s lead for a rather compelling examination of what can happen if such ‘data driven’ maintenance programs are not maintained themselves.
Using such techniques it is at least theoretically possible to develop a mitigation strategy that keeps the risk exposure down to a certain level. What that level is depends of course on how many ‘bucks’ you are prepared to throw at the problem.
The second consensus to emerge from the Process Safety conference was, logically enough, that if safety is a matter of spending money, then those in charge of the purse strings should be involved in the decision making process. This has translated, in the UK at least, to calls for better education of company boards and C-Suites in risk management. Training plant and refinery workers in safety is well established, but training the board in risk management? Actually this is exactly what the Cogent sector skills council is doing with a one day course for senior execs.
One can’t help feeling that the desire to engage the board in risk management is a bit of buck passing. Maybe it would be better to just present them with a bill or a few alternatives with some headline differences—for $10 million we will have a major accident every 50 years, for $20 million every 100—or some such.
I am also a little uncomfortable about calling in the silk suits specifically on ‘risk.’ Not because they will be unfamiliar with this kind of analysis—but because it is actually rather close to many other facets of board-level activity. Risk analysis is well entrenched in the financial end of the business. What used to be called reserve estimation is now termed prospect ‘risking.’ All sorts of fancy math is brought to bear on just about every link in the decision-making process—like calculating the value of information, keeping a portfolio on the ‘efficient frontier’ and Monte Carlo analysis for all.
You can see where this is leading to, a humongous enterprise risk model that arbitrates every buck spent across every ‘opportunity.’ A new pressure gauge here? A new seismic survey? Hire a geologist? Or a safety engineer?
I really don’t know what the answer to all this is. If I did I probably wouldn’t tell you, I would set up the next big management consultancy since Andersen. But enterprise level IT systems attempt to provide a holistic view and the same risk analytical techniques are used in more or less all fields. So there is a kind of logical inevitability that something like this may be attempted sooner or later. Perhaps it is already an option in SAP. A good project for an Excel-savvy intern perhaps.
On the other hand, if every department—from process, exploration, IT and whatever is rushing to ‘educate’ the C-Suite before taking a decision, that is putting rather a heavy load on the board’s shoulders.
In the upstream, current work practices combine a healthy skepticism for the outcomes of number crunching activities like ‘risking’ a prospect. Ultimately decisions are made on the basis of managerial judgment, gut feeling, flair—whatever you want to call it. I expect that in process safety it is probably not all that different.
My 2 cents is that we may have a language problem. Words like ‘risk management’ and ‘mitigation’ tend to make people believe that by following a set of procedures, risk can be eliminated. Far from being a safe outcome, this is may contribute to a dangerous situation of complacency. This is the paradox of risk management—that the more we mitigate, the more complacent we get—and expose ourselves to the ‘stuff’ that will inevitably happen. Alongside the safety system, we need a culture of fear—that encourages observant critical individual behavior. As Ian Travers of the UK HSE Executive said in his keynote, managers need to ‘stay skeptical.’
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