1Marsh

RISK MANAGEMENT?

EFU Risk Management

Presented By: KHURRAM ALI KHAN

2Marsh

Relevance of Losses to (Engineering) Risk Management?

Stages of Risk Management

Risk Identification – what can go wrong

Risk Quantification – probability and severity

Mitigation – safeguards, “hard” and “soft”

Risk Tolerance Criteria – Corporate, Legislative, Social

Acceptability – ALARP “As Low as Reasonably Practical”

Relevance of Losses ?

EFU Risk Management

3Marsh

Relevance of Losses to (Engineering) Risk Management?

Tolerability criteria and Mitigation requirements, both legislative or corporate, are often based on incident investigations

– ASME Boiler codes written in blood spilled in the 19th and 20th centuries. Hauge street explosion, New York 1850 , 67 dead SS Pennsylvania, Memphis 1858, 250 dead Town and son factory, Yorkshire 1869, 15 dead “Rules for construction of Boilers” issued in 1914 as an act of

public service in response to numerous failures and mishaps in ships, factories, steel mills and woodworking shops”

– Management of Change procedures – post Flixbrough and 28 fatalities

EFU Risk Management

4Marsh

Risk Evaluation – Risk MatricesFrequency of Losses helps quantify probability

4 - Catastrophic C B A A

3 - Critical D C B A

2 - Marginal D D C B

1 - Negligable D D D C

1- Unlikely 2 - Occasional 3 - Probable 4 - Frequent

Increasing Frequency

Incr

easi

ng C

onse

quen

ce

CONSEQUENCE - People / Reputation / Environment / Assets

EFU Risk Management

Does Learning From Losses have a Shelf Life?

To help with this question we will examine a 1912 loss, the most famous maritime disaster in history.

6Marsh

Recognise this Ship?

EFU Risk Management

7Marsh

Recognise this Ship?

The White Star Liner’s The Olympic

EFU Risk Management

8Marsh

The Olympic: Commissioned14th June 1911

The Titanic: Commissioned11th April 1912

The White Star Liner Company

EFU Risk Management

9Marsh

Sinking of Titanic, 15 April 1912

Owner: White Star Line

Construction: Harland & Wolff, Belfast

EFU Risk Management

10Marsh

Olympic Class of White Star Steamers

Developed by JP Morgan’s White StarShipping Group

Constructed by Harland & Wolff in Belfast included The Olympic, The Titanic and The Britannic

Designed to compete with Cunard & German Shippers on the prestigious Transatlantic English Channel in the early 1900s

Built for affluent travelers offering highspeed luxury

– The prized ‘Blue Riband’ was bestowed upon the ship with the fastest crossing. Held by Cunard’s Mauretania 1907-1929

Reference: ‘The Riddle of the Titanic’, Gardiner et. al. Orion, 1998

EFU Risk Management

11Marsh

Sinking of Titanic, 15 April 1912

Details: – 882 ft 9 in (269.1 m) long, 92 ft 6 in (28.2 m) wide– Gross register tonnage of 46,328 tons– Steam from 29 boilers powered two reciprocating steam engines and one

low-pressure Parsons turbine, which drove three propellers. – Possible top speed of 23 knots (43 km/h).

EFU Risk Management

12Marsh

What has changed since 1912

Information technology– Computers, phones, radar

Advanced materials – metallurgy, plastics, resins

Huge advances in machinery design.

Mass transit systems

EFU Risk Management

13Marsh

Timeline

10 April 12:00 departure Titanic from Southampton on maiden voyage to New York (via Cherbourg and Queenstown)

12 April, reports of ice fields on course coming in

14 April, increasing ice field reports, course altered to south, speed maintained at 22 knots

14 April, night: moonless, clam seas, temperatures just below freezing

14 April, 23:00, Californian radioed more ice and mentioned it stopped for the night because of pack ice, answer from Marconi radio operator ”shut up, shut up, I’m busy, I’m working Cape Race”

EFU Risk Management

14Marsh

Timeline

14 April, 23:40 – “iceberg directly ahead” alarm from crows nest to bridge– First Officer Murdoch ordered helm hard to starboard and engines

stopped – to prevent stern hitting iceberg, he then ordered helm hard to port,

this manoeuvre came too early and – ship’s bow hit undersea shelf of ice, causing damage to riveted

seams

14 April, 23:52 decision to restart engines by Ismay, increasing leak, with rivets popped open below water line over length of 90 m, allowing increasing amounts of water to enter damaged compartments, causing bow to sink, and water eventually to rise above watertight bulkheads terminating at E deck

EFU Risk Management

15Marsh

Timeline

15 April, 00:10 distress calls started (SOS)

15 April, 00:19 engines stopped for last time

15 April, 00:27 first lifeboat lowered (with capacity for 65 people, carrying 27)

15 April, 00:35 distress rockets launched

15 April, 02:20 Titanic sinks

15 April, 04:10 Carpathia arrived on scene

EFU Risk Management

16Marsh

What lessons can we (still) learn ??

Learning from previous Incidents

Staff Selection

Organizational Goals and Leadership

Management of Change

Material Integrity

Emergency Planning

EFU Risk Management

17Marsh

The Olympic – Prelude to DisasterLearning from Incidents and Staff Selection

21st Jun 1911 – Upon commissioning crashed into & almost sunk O.L. Halenbeck in Manhattan

20th Sep 1911 - Crashed into the Naval Cruiser the HMS Hawke in Southampton

24th Feb 1912 - Knocked-off one of its twenty-six tone propellers on a well-known wreck in the Grand Banks

Captained by Edward J. Smith.

Were large displacement effects understood?

How were people trained?

EFU Risk Management

18Marsh

Staff selection and learning from previous incidents

Regarded as very experienced but…..

27th Jan 1889 - Ran The Republic aground in New York

1st Dec 1890 - Ran The Coptic aground in Rio de Janerio

4th Nov 1909 - Ran The Adriatic aground outside New York

History of running ships toofast through narrowpassages.. and of notadequately training his

officers Captain Smith was commissioned to command the Titanic

EFU Risk Management

19Marsh

Setting the Right Culture

Titanic was “Unsinkable” and specifically built to “Compete” for the fastest Atlantic crossing

– This set the tone for poor decisions and leadership pressures

Personnel competency and leadership (pressure to make fast crossing

Incident investigation (no culture of near miss reporting and accident / incident investigation on previous events involving captain Smith)

Decision by Ismay (White Star Managing Director) to start engines after impact and reach Halifax under own steam)

Smith received at least six warnings of Ice from ships at dead stop in the area

Titanic sped toward ice field at 22.5 knots vs a recommended 10knots in such conditions

No binoculars in the crows nest made early warning near impossible

No need for lifeboats

EFU Risk Management

20Marsh

‘Safety outweighing every other

consideration’

Was the framed notice in the chart room of every White Star liner in 1912

EFU Risk Management

21Marsh

Setting the right culture

“… I faced a dilemma on the day, standing 20 metres from the explosion and the fire as to whether or not I should activate ESD 1, because I was for some strange reason, worried about the possible impact on production …”

EFU Risk Management

22Marsh

Quality Control and Material Identification

Asset integrity (rivets of best rather than best-best quality with high concentration of slags)

Shortage of skilled riveters

Rivets popping contributed to speed of sinking

Inferior quality of steel alloys is a genuine concern today

Mix-up of materials is a known cause of incidents– 2nd fire at Texas City

EFU Risk Management

23Marsh

Quality Control and Material Identification

France: 6,500 faulty Chinese valves in use

N-090925-02 Sud Robinetterie (SRI). Vannes Rigau S.A.S. On September 24, the regional newspaper La Provence reported that it had exclusive information, confirmed by Direction Régionale de l’Environnement, de l’Aménagement et du Logement (DREAL – Regional Administration of Environment, Planning and Housing), that several thousand substandard Chinese-made valves were in use throughout French industry. The valves were reportedly delivered to Vannes Rigau S.A.S., in Lille, on the orders of its parent company in Marseille, Sud Robinetterie. The valves in question were described as “corner or angle valves”, “globe valves”, and “flapper valves”, in carbon steel, and certified by the German TÜV before their entry into France. According to La Provence, the valves have incorrect heat treatment, and are prone to leak at low temperatures. Expected to operate down to -10ºC, they can only be used down to +5ºC. It was alleged that one of these valves may have been involved in an un-reported incident at Total’s Gonfreville site in April, 2009

EFU Risk Management

24Marsh

Management of Change

Lowering watertight bulkheads to allow ease of movement of people– As the bow sank, water came above E deck, accelerating the sinking as there

were no bulkheads to limit the ingress.– Hazard evaluation (requirement to be unsinkable relies on integrity of watertight

compartments, see above)

Was the decision to change the rivets a conscious one?

Lifeboats had been reduced for 64 to 22 in favour of more expansive promenade decks cf Olympic design

Insufficient to take the passengers and crew

EFU Risk Management

25Marsh

Management Of Modifications As important as ever

Norway's PSA criticizes StatoilHydro's safety culture

In May 2008, StatoilHydro’s Statfjord A platform, discharged 400 m³ of oil from one of the shafts into the Norwegian North Sea. StatoilHydro was forced to evacuate 156 persons.

EFU Risk Management

26Marsh

Management Of Modifications As important as ever

Norway's PSA criticises StatoilHydro's safety culture

LONDON, September 27 2008 – Norway’s Petroleum Safety Authority (PSA) has released a report attacking StatoilHydro's safety standards on the Norwegian continental shelf

PSA indicated dissatisfaction with the quality of the risk assessment StatoilHydro and partners Industrikonsult AS (IK) and Aker Solutions AS carried out for the modification work on Statfjord A's utility shaft. It said they had failed to meet regulatory standards

PSA issued an order to StatoilHydro to revamp its procedures for these types of projects by November 1. It also ordered that management of modification improvements be appreciably improved by December 1

PSA also ordered Aker "to identify and implement necessary improvements in the company's management of modification assignments, including identification of risk and use of information about risk in planning and executing hazardous work operations, including the selection of work methods and equipment, and follow-up of subcontractors"

EFU Risk Management

27Marsh

Emergency Planning

Major accident potential (worst case scenario sinking) was discounted.

Emergency response arrangements (total lifeboat capacity of 1,172 for maximum number of passengers and crew of 3,547, however complying with regulatory requirements.– Original design had just about enough lifeboats

The officers on board The Titanic had not trained with the lifeboats and were unsure of their holding capacity.

Smith often claimed to have never faced a “near disaster”– Reportedly his performance deteriorated in the last two hours.

Many people could not read the English signs

There was not a standing safety-response plan.. the ‘Women and Children first’ response was a (commendable) reaction more than a previously-agreed plan.

EFU Risk Management

28Marsh

Lack of Emergency Planning – the results

Lives Saved: 705 Lives Lost: 1500

Total passengers 2,205 Max Lifeboat Capacity 1,600

It wasn’t until 45 minutes after the collision that officers commence preparing the lifeboats

Twenty lifeboats were launched

Officers feared that the ship’s davits & winches would not hold the weight of the recommended 70 people

All but the last few lifeboats floated were half-filled

It is a fact that had the Officers filled the lifeboats per their specification an additional 600+ people could have been saved.

EFU Risk Management

29Marsh

Does learning have a shelf life?

The lessons from Titanic are still relevant today

There are good lessons which cross between industries

“Can we learn from the past”….the Risk Engineering team would say yes!

EFU Risk Management

30Marsh

Learning From Losses – The Insurance Perspective

Much has been written on learning from incidents– Almost all clients have incident reporting systems– Few formal systems for ‘third party’ incidents

Major incidents occur relatively often somewhere– Focus has been mainly on personnel safety– Lessons do not appear to be new

Major incidents continue to occur

Lessons are well documented, but not always learnt by other organisations– A number of possible reasons for this exist

EFU Risk Management

31Marsh

Risk Management and Losses

“Why is learning from losses difficult?”

EFU Risk Management

32Marsh

(Not) learning from positive results

Learning from Transformer fires ?

– See plenty of transformers with no dividing fire walls

– See plenty of large transformers with no deluge systems

EFU Risk Management

33Marsh

“Classic” Process Industry Losses around the World

EFU Risk Management

34Marsh

Date 2004Country AlgeriaFatalities 27Injuries 80

35Marsh

Date 2005Country IndiaFatalities 13Injuries 300Financial Loss (PD) USD 380m

36Marsh

So why do we not learn ?

Distance effects

Time effects

Cultural effects

Tunnel vision

EFU Risk Management

37Marsh

Distance effects

Local awareness

Local media pressure

Local regulatory effects

Potential differences between multinationals and NOCs

EFU Risk Management

38Marsh

Incident Timeline

1966France

1974UK

1975UAE

1984Mexico

1987UK

1988Brazil

1989Indonesia

1992France

1993Venzuela

1998Australia

2000Kuwait

2004Algeria

2005USA

2005UK

EFU Risk Management

39Marsh

Time effects

“Time is a great healer”

Loss of experienced people

Loss of corporate memory

Young companies– Not just in the Middle East

Understanding Risk can change with age of plant– “Has worked fine for 20 years”

EFU Risk Management

40Marsh

Loss Trends and Analysis

Losses by Age of Process Unit (excluding Nat Cat.)

Only includes losses where age of process plant known (sample size of 79 losses)

65% of losses involve process units >30 years old

Typical design life 25-30 years

Source: LIU Loss Database

Losses by Age of Process Unit

0

500

1,000

1,500

2,000

2,500

3,000

3,500

<10yrs 10 to 20yrs 20 to 30yrs >30yrs

To

tal L

oss

(US

D M

illio

ns)

EFU Risk Management

41Marsh

Cultural effects

“It has not happened here”

Engineers like to believe things work – not consider failure

Flawed assumptions re “international standards”

Personnel safety vs Process safety

Fear of litigation

Fear of blame

Difficulty in challenging upwards in some cultures

EFU Risk Management

42Marsh

Tunnel vision

Within a site

Within a division

Within a company

Within the industry

“Unsinkable”, “built to compete”

Focus is on projects, rationalisation, expansion, staying afloat

EFU Risk Management

43Marsh

Feyzin, France 1966 Date 1966Country FranceFatalities 18Injuries 18Extensive damage to nearby village

44Marsh

FEYZIN 1966 – The Lessons

Design sphere drains / sample points– with fixed valve handles– to discharge outside shadow of sphere– no catch pits under spheres

Improved training about:– importance of correct valve sequence and operating procedures– BLEVE can occur with water sprays and open relief valve

Improved means and training about raising the alarm

Coordination of emergency plans with public authorities to stop public traffic, etc.

Improve fire brigade response times

EFU Risk Management

45Marsh

The effect of distance, time, and language ?

Feyzin– French spheres

generally good– Japanese

spheres poorer– Recent

Japanese-designed installations below average

– Recent survey found plant with most ball-valve handles removed

EFU Risk Management

46Marsh

What was learnt from these 2 incidents?

EFU Risk Management

47Marsh

1998 – Australia 2005 – USA

EFU Risk Management

48Marsh

Longford vs. Texas City

Longford Royal Commission Report 1998

“Those who were operating GP1 on 25 Sept 1998 did not have knowledge of the dangers associated with loss of lean oil flow and did not take steps necessary to avert those dangers. Nor did those charged with supervision of the operations have the necessary knowledge and the steps taken by them were inappropriate”.

Texas City Report 2005

Raffinate Splitter Startup Procedures and Application of Skills and Knowledge:

“Failure to follow the startup procedure contributed to the loss of process control. Key individuals (management and operators) displayed lack of applied skills and knowledge and there was a lack of supervisory presence and oversight during this startup.”

EFU Risk Management

49Marsh

Conclusions: how we can learn from mistakes

Recognise barriers of time and distance– Keep the lessons alive

Recognise cultural barriers

Promote culture of learning – not blame

Share positives and negatives

Recognise limitations of national and international standards

Look at other industries, Columbia 2003, Nimrod 2006

Extract value from your broker relationship .. It’s a great potential knowledge transfer opportunity

EFU Risk Management