Balancing Resource Tensions & Managing Risk at the Frontline
Companies are still working in silos when it comes to Process Safety and Operational Risk Management.
Organizations make business-critical decisions by focusing largely on the need to continue production. But such decisions often do not account for safety and risk factors. Too many companies base their capital and operational expenditures exclusively on financial and resource availability. As we see in the 2020 PSM/ORM Survey Report, 71% of respondents acknowledged that conflicting priorities normally occur between different departments or between decision-makers, and that such conflicts act as a barrier to improved process safety and operational risk.
Let’s take a step back. For any project, there are four dimensions: human resources, physical equipment, , time and budget. Companies need to make sure these all theseareas align in a way that ensures the success of the project, and the success of the project ultimately requires that the risks posed to all project elements have been understood and can be carefully managed. This consideration of risk can help companies make better-informed decisions for how to allocate budgets, both at the macro level (major capital expenditures) and the micro level (schedulers prioritizing or deferring safety-critical maintenance).
Let us explore the tensions between resources and how such tensions impact risk at the frontline.
We have identified three major tensions that can impact frontline operational risk management. These tensions boil down to the planning phase of an operation or project, ultimately providing areas of focus which could have a positive impact on your risk management.
Every year, most departments within larger production companies advocate for the dispersal of budgets to improve safety and reduce risk. But there is a pool of money each year, and that’s it. Asset reliability, process safety, new technologies—without a doubt, there are difficult choices to be made.
Sometimes it’s simply a matter of which department shouts the loudest or who has the most persuasive arguments for how their budget will yield the most in terms of cost savings and revenue growth. The tension on optimizing operational expenditures is where the pressure on departmental budgets come in. There are also capital expenditures, one-off projects to address either production improvements or the management of operational and safety risk in the broadest terms. Failure to receive budgetary approval in these areas can have serious consequences for frontline operations.
Potential Impacts on Frontline Operations
- Higher risk of a major accident with injuries and environmental damage
- Longer times between essential equipment inspections
- Increased risks of prolonged downtime and production losses arising from equipment failures and damage
- Maintenance or turnaround overruns (longer because of poor planning)
- Deferral of safety critical maintenance and resulting backlog increases (32%, according to the 2020 PSM/ORM Survey data)
Human Capital & Technological Tensions
The way that people work is changing. In many industries, technological improvements are transforming the way we carry out our day-to-day tasks. A wind farm, for example, doesn’t require as many people on a daily basis as an oil platform would. These shifts resulting from changing technology more often than not reduce the number of frontline staff. With COVID-19 this transformational drive is accelerated. People need to continue to be productive, but not necessarily be physically present at work
For many primary production industries, lower commodity prices have driven reduction in head count as well. And from a risk management point of view, fewer employees on site at a hazardous facility reduces human risk exposure unless there’s not enough people to perform the required work. “The coronavirus pandemic and the oil crash it spurred are accelerating a digital transformation that was already underway as oil and gas companies drove to boost efficiency, cut costs and make money at lower commodity prices,” according to a recent article in the Houston Chronicle. Total, the Paris-based energy company, among other energy companies, are already very active in this transition. “Real-time data analytics, the Internet of Things, automation, artificial intelligence and agile methodology will be used to improve industrial efficiency, energy performance and availability rates,” according to Total’s website.
As recent industry news consistently reminds us, software and online solutions are assisting companies to safely execute such transitions. Manufacturers can digitalize processes and provide information to support effective decision-making at critical steps along the path to both lower costs and improve the likelihood of a successful outcome when making risk-related decisions. Nevertheless, companies will need to manage the risks associated with such a digital transition.
Particularly in the hydrocarbon industry, many companies have been historically slow to innovate. But now that feeling is dissipating. Companies are fearful that if they don’t act, they will fall behind and lose out to their competitors. Digital tools are replacing legacy services and processes. “On its current course and speed, the [Oil & Gas] industry could now be entering an era defined by intense competition, technology-led rapid supply response, flat to declining demand, investor skepticism, and increasing public and government pressure regarding impact on climate and the environment,” according to a recent McKinsey report. Our safety and risk management experts, along with our environmental sustainability consultants are seeing these tendencies emerge as well in their daily contact with clients. A major transition is underway.
Human Capital Risks to be Managed at the Frontline
- Increased risk of human error
- Less-qualified/inexperienced staff requiring more oversight
- Additional training time for new employees to be brought up to speed
- Mentors are less available
The pandemic and economic changes have given many companies the impetus and time to consider the need for technologies to help achieve operational resilience, leveraging capabilities to visualize, forecast, simulate, prevent and mitigate risk. The results of our 2020 PSM/ORM Survey highlight a predictable shift from static to dynamic and simulated risk management. Doing so will help companies prioritize or better support effective decision-making when it comes to operational expenditure and capital expenditure budgets.
The goal is for companies to balance productivity and risk with a single shared view of the operational reality across departments—that leads to making better decisions. With a shared view, you can understand the potential impacts. Siloed information just doesn’t give the full picture of the systems and data. When the dots are connected, you can see the entire picture, the potential ramifications both to production and risk. Sphera calls this Integrated Risk Management.
Operating safely can be very profitable. However, according to our survey, 49% of respondents felt their company was unaware of major accident hazard risk exposure. “But if companies can make that risk visible and improve transparency, they are well on their way to taking greater control of the ongoing and inevitable technological transition we are witnessing during these unusual times.