Best Practice In Risk Management

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2 Best Practice In Risk Management Nicholas Bahr Principal/Regional Manager Booz Allen Hamilton October 22, 2014 Page 2

3 Agenda A Few Things To Consider Case Study Vision 2020 Page 3

4 A few things to consider Page 4

5 Effectively managing risk DOES make a difference in many ways Two Stadium Builds Two Very Different Results Miller Park Baseball Stadium (1999) Big Blue, one of the largest cranes in the world Collapsed during very high winds, killed three Out-of-court settlement paid to the victims families was $60M Property damage $100M, Stadium1 yr. late Builders compensated owners additional $20.5M for lost revenue Paul Brown Stadium (2000) Completed on time Safety record better than industry averages Reduced workers compensation claims Reduced liability costs with an overall savings of $4.6M Strong Safety Management System with its contractors, local OSHA office, and state and county safety officials Page 5

6 We also know that investing in safety not just saves lives but also saves money and increases productivity 60 to 80% fewer lost workday injuries than the national average by using system safety According to Goldman Sachs, companies that did not adequately manage workplace safety and health performed worse financially than those who did Over 40 percent of CFOs cited productivity as the top benefit of an effective workplace safety program Over 60 percent of CFOs reported that each $1 invested in injury prevention returns $2 or more Page 6

7 But, if we are having lower accident rates then why do we still have catastrophic accidents? Selected Disasters Flixborough, UK (1974) vapor cloud explosion killing 28, $232 million damage Bhopal, India (1984) toxic material release 2,500 fatalities Chernobyl, Ukraine (1986) fire & radiation immediately killing 31, radioactive particles impacts 3 billion people in northern hemisphere Space Shuttle Challenger, US (1986) killing 7 onboard, grounding manned space program 2 ½ yrs., costing $5 billion Phillips 66 Chemical, Houston, US (1989) explosion, killing 23, $750M in damage, additional $700M in lost revenue Selected Disasters Space Shuttle Columbia US (2003) crew of 7 killed leaving only 3 Shuttles, $13 billion Pike River Mine, New Zealand (2010) killed 29, country s worst mine disaster since 1914 and largest single accidental loss of life since 1979 Deepwater Horizon, Gulf of Mexico (2010) killed 7, sea floor oil gusher continued for 87 days, $41B in liability claims Fertilizer Plant, Texas, US (2013) explosion, 15 killed,150 buildings damaged or destroyed Garment Factory, Bangladesh (2013) Building collapsed, 1,129 killed,1 year after 2012 Dhaka garment factory fire killed 117 Catastrophic accidents occur in developed and developing economies no one is immune Page 7

8 Tightly coupled systems certainly increase challenges Increasing Operational Complexity New laws, regulations, and standards Organizational complexity Rapid increase implementing new technologies Human error and difficulty for humans to comprehend new systems Increased complexity of quality assurance Operational Reality Alternative Competitive Models Low-cost, technically acceptable Premium services Outsourced maintenance Alternative competitive models, outsourcing, and reduced profits Intensified competition from around the world Greater Interdependencies Interconnectivity and dependencies between systems Cyber-based control systems Dynamic interdependencies Increased international alliances Source: System Safety Engineering & Risk Assessment, 2 nd Edition Emerging Systemic Risks Business interruptions, supply chain risk Market instability and fluidity Increased movement of labor Increased public perception risk to brand Page 8

9 The Fukushima disaster is an illustrative example to better understand what is going on The Accident Fukashima Daiichi, Japan (2011) earthquake-induced tsunami 50-foot tsunami followed 9.0 earthquake All 3 reactor cores melted 19,000 dead from tsunami and quake 100,000 evacuated (1,000 killed during evacuation) No immediate deaths due to radiation exposure 11 reactors operating in the region shutdown automatically, as designed Quake moved Japan 8 ft. eastward, shifted Earth on its axis 4-10 inches Page 9

10 It is important to understand what went wrong What Went Wrong? Earthquake destroyed all six external power supplies Emergency diesel generators kicked on to supply electrical power to reactor cooling system But 16 feet of seawater drowned emergency power supply and electrical switchgear Control room dark, no instrumentation functioned Company and government officials gave confusing, incomplete and differing information Public sensed lack of responsibility to adequately inform in a timely way and regarding true impact Organizational and regulatory systems supported faulty rationales for decisions and actions Ambiguous roles and responsibilities in crisis management system Inadequate knowledge and training for emergencies Core reached 5000F, melted, exothermic reaction led to hydrogen explosion Page 10

11 Which lead to important lessons learned for the future Lessons Learned from the Investigation Prepare for the unexpected Corporate enterprise risk management should consider risks associated with low probability, high consequence events Establish strategies for staffing crews quickly in initial stages of multi-unit event Ensure primary and alternative methods for monitoring critical plant parameters and emergency response Clearly define and communicate roles and responsibilities Communication methods should support accurate and timely information Strengthen safety culture Source: Institute of Nuclear Power Operations, Special Report on the Nuclear Accident at Fukushima Daiichi Nuclear Power Station Page 11

12 How do we prevent Black Swans and lesser events? The Risk Management Pyramid Key Responsibilities and Tasks Safety & Risk Vision Sets the Vision for safety and risk Develops strategy and policy Shows leadership and commitment Risk Management Systems Risk Tool Box Safety and Risk Management Systems Systems approach cradle to grave Entire operating, regulatory, and public ecosystem Learn from other industries Share experiences at conferences Example NASA Hazard Reduction Precedence Safety culture review Fault Tree Analysis, Fishbone, HAZOP, etc. And many others Page 12

13 The Center for Chemical Process Safety has developed an innovated Vision 2020 A Guiding Vision By the year 2020, leaders in process safety will value and demonstrate actionable commitment to the competencies, communication, awareness and risk preparedness that prevent, minimize and mitigate all process safety incidents Source: Center for Chemical Process Safety (CCPS) Page 13

14 With core principles that help industry target and drive performance improvement Five Tenets for Industry Committed Culture Vibrant Management Systems Disciplined Adherence to Standards Intentional Competency Development Enhanced Applications of Lessons Learned Source: Center for Chemical Process Safety (CCPS) Page 14

15 And a call to action for all of society our leaders, our governments, the public Four Societal Themes Enhanced Stakeholder Knowledge Responsible Collaboration Harmonization of Standards Meticulous Verification To be passionate about protecting people and property Source: Center for Chemical Process Safety (CCPS) Page 15

16 Together we have to work to connect this puzzle The Safety Culture Puzzle Just Culture Trust Appropriate Fault Attribution Disciplinary Process Encouragement to voice safety concerns Just Culture Comprehensive View Of Safety Culture Continuous Improvement & Learning Continuous Improvement & Learning Organizational responsiveness to change Internal monitoring, continuous safety evaluation External learning of new tools and techniques Appropriate safety prioritization Encouragement to developing skills and knowledge Leadership, Management & Staff Involvement Communications & Information Flow Leadership, Management, & Staff Involvement Safety vision, mission Demonstrated leadership & management commitment Actions to support safety message Staff involvement in safety process Staff participation in changes Commonly understood goals Communications & Information Flow Reporting behavior Organizational reporting systems Feedback loop Effective communications Source: System Safety Engineering & Risk Assessment, 2 nd Edition Page 16

17 Thank you for your time and attention Nicholas Bahr Principal Regional Manager Booz Allen Hamilton Inc. Suite 1801, Etihad Tower #3 Abu Dhabi, United Arab Emirates Mobile Page 17

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