(54du) Managing Operational Risks in an Integrated Manner—Extracting Value While Enhancing Safety

The Chinese chemical industry is the largest in the world and is a global leader in the production, storage, and transport of chemicals. However, as the accident in the Chinese port city of Tianjin showed last year, it can have a devastating impact on the local community, company, and government reputation. The explosion last year in the vibrant Tianjin economic zone killed 165 people, injured nearly 800, destroyed more than 300 buildings, damaged 12,400 cars and more than 7,500 shipping containers and caused an estimated $1.1B damage to the city and one of China’s busiest seaports. Though the government held company executives accountable for poor safety management and local officials for insufficient safety oversight, it must be remembered that the chemical industry is a major source of economic growth and pride in many Chinese provinces. The challenge that the Chinese chemical industry, as well as other companies face, is how to appropriately ensure safety during operations, while still creating expected company growth.

In general, the processing industry is rapidly changing, and we cannot look at process safety management in isolation from all enterprise risks. Industries now operate in a complex environment with constantly changing challenges and limited view of potential risks ahead. There are various macro driving forces that impact a company’s safety and business success. Some of them are: economic downturn and cycles creating operational uncertainty; product margin and price volatility resulting in less money for maintenance; increased local and international competition adding pressure to produce faster and cheaper; Evolving regulatory environment generating uncertainty of new requirements; technology breakthroughs such as remote maintenance monitoring through increased SCADA collection introducing new data management challenges; and increased business operating complexity such as management of long international supply chains. Each can have a tremendous impact on process safety and make it difficult for a company to understand how to be successful while still being a leader in process safety management.

Because many companies look at risk (including process safety risk) through silos, their approach is fragmented. For example, workplace health, safety, and environment, are managed to ISO 14000 and the new 45000 standards, chemical process safety management through Decree 591, “Regulations on Safe Management of Hazardous Chemicals” (and its sub-regulations), quality management through ISO 9000, etc. and many other standards such as project management risk, and integrity management risk. Our view is that companies should look at all the operational risks that can impact a company’s business objectives in an integrated fashion and understand how to best protect people and assets while still extracting business value from operations, no matter the internal or external cause.

The complex nature of operational risks poses many challenges to proper recognition and effective risk management. Diverse stakeholders such as employees, suppliers, regulators, plant operators, and even shareholders all look at risk differently and separately. This leads to unclear risk ownership and silos across company departments. Because operational risks are many times disconnected from plant operations and front-line workers, it means that the risk impact or mitigation owner is not always obvious. Understanding the relationships and interdependencies is essential to break the risk silos across the organization.

To best protect enterprise value and extract new enterprise benefits, an integrated operational risk management (ORM) approach should be adopted. The ORM approach should be tightly linked to the enterprise strategic planning, take an integrated view of operational risks (including PSM), consider all stakeholders and their needs, manage operational risks while balancing returns and most importantly, be dynamic and adaptive to the changing environment of the world.

Once operational risks are understood and managed, the resilient companies can rapidly adapt and respond to internal or external events—changes, disruptions, opportunities or, threats—and continue operations, sustaining and enhancing business performance. This is done by establishing effective ORM capabilities at every level and across the entire enterprise, tightly linked to decision-making and resource allocation.

There are numerous benefits to implementing an integrated approach to operational risk management. Some of the operational benefits are improved integrated safety performance, enhanced business resilience and agility to manage major disruptions in the supply chain, increased reliability and reduced production losses, and better customer service delivery and quality. Financial benefits include higher profitability and return from optimization of capital allocations and investment, cost reduction due to decreased need for rework and reprocessing, decreased risk perception resulting in easier access to capital and lower cost of debt and optimization of insurance coverage. There are also numerous reputational and compliance benefits including: protection of market share due to high reliability and service quality, strengthened trust among shareholders, improved reputation amongst regulators and increased level of compliance with laws and regulations. And the most important of all—increased and sustainable process safety management!