best practices for operational risk management

Best Practices for Operational Risk ManagementInformation, Insight & Improvement

Todd Lunsford, Sr. Manager Solution EngineeringOperational Excellence & Risk ManagementOctober 9th, 2013

Copyright © 2013 IHS Inc. All Rights Reserved.

Purpose & agenda

All too often performance is measured by lagging indicators as we try to drive a proactive culture of safety first. Learn how to predict safety performance in a way that is actionable and measureable, and turn your risk management data into predictive analytics for operational excellence. Hear descriptions of industry best practices for benchmarking your own operational risk management program.

1. The problem asset-intensive organizations are facing today

2. How better information can lead to insight & improvements

3. The journey to operational excellence

2


Todd’s 11-year IHS journey

3


= more than 20 ski days

Score10893

Complete “honey-do” lists (on-time rate)Keep kids while wife goes out (duration)Help around the house (total # jobs)Compliment wife (total # times)

Behavior

4

Leading indicators of Todd’s # of ski days


QUESTION for the audience:

0.39Stable total recordable incident rate (TRIR), using 200k hrs.

The problem asset-intensive organizations are facing today

Copyright © 2013 IHS Inc. All Rights Reserved.7

The rate of catastrophic incidents has not changed

7

Source: Dr. Tom Krause, Organizational Psychologist, Founder of BST Delivered at IHS CERA Week 2013

Based on BST study: ‘Serious Injury and Fatality Prevention Study”

“A reduction in less serious injuries does not necessarily correspond to a proportionate reduction in serious incidents and fatalities.”

— Thomas Krause Ph.D. (Behavioral Science Technology, Inc.)


Corporate leaders are addicted to lagging metrics

Days Away from Work Total Recordable Injuries

Injury AVG Workforce HoursWorked First Aid Actual Target

NumberDAFWRate

TargetRate Actual Target

NumberTRI

RateTargetRate

Employee 0 0 0 0 0 0.000 0.000 0 0 0.000 0.000

Contractor 0 0 0 0 0 0.000 0.000 0 0 0.000 0.000

Workforce 0 0 0 0 0 0.000 0.000 0 0 0.000 0.000

Limited insight = limited ability

to prescribe or recommend

improvements


QUESTIONS for the audience:

• How does your reporting culture compare with other similar organizations?• Does your organization have a good level of action item

activity?• Is your workforce engaged?• Are your leaders responsive?• How well do you perform key process steps (root cause

analysis, risk evaluation, lessons-learned, etc.) compared to others.• Is your organization risk driven and sensitive to risks?• Is your organization learning-minded? How does it compare to

others?


A tale of two sites

Significant PSM Incident

Culture of Ingenuity

Clean Record

Culture of Discipline


Business process

discipline

Behaviors

Organizational factors

Leadership

examples

Risk sensitivity

What if you could gain additional insight into your culture?

11


What if you could monitor and improve cultural factors at these sites?

Recordable Rate (lagging)

Event Rpt Ratio (as %)

% On-Time Actions IMPACT Index

Reporting Culture

Action Execution

Leader / Process

Site 1 2.50 37% 67% 4.79 2.10 24% 75%

Site 2 3.10 22% 62% 5.25 1.40 17% 41%

Site 3 1.70 83% 95% 17.10 7.50 54% 57%

Site 4 1.30 75% 77% 7.10 4.10 72% 91%

Site 5 0.95 93% 75% 22.00 18.30 46% 72%

Site 6 5.10 5% 34% 5.20 6.10 64% 80%

Corp Mean 2.44 53% 68% 10.24 6.58 45% 24%

1st Quartile 0.51 91% 87% 4.10 1.50 93% 90%

50% Level 1.75 63% 64% 9.70 6.30 71% 31%

Managed KPI Scorecard Executive Analysis ONLY

A simple scorecard example

Engage the workforce in reporting events and fixing issues on time at Site 6 to improve safety culture and ultimately lower incident

rates

“You can’t manage what you can’t measure.”

– William Hewlett 12

How better information can lead to insight & improvements


0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5

The goal of leading indicator statistical analysis

TRIR of over 1 million

incidentsLowest Highest

Orders of magnitude worseSustaining near zero

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Research: Answer the Question…

What are the actionable, measurable differences that lead to the below results?


Cross Customer /

Industry Dataset

Metrics Factors IndicatorsD

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Data Extraction/Calculation Factor Analysis Predictive Modeling

Subject Matter Expertise and Insights

Performance Outcomes

OE benchmark indicator analytics Insight driven analytical process


Business process measurement = insight into culture

Unplanned Events Injuries Spills/Releases Product/Service Quality Property Damage Security Transportation Near misses

Planned Events Audits & Assessments Management of Change Risk Assessments Hazard ID’s Deviations Findings Non-conformancesThe list goes on and on…

Iterate Where

Applicable

Risk ExposureIdentify Failed

Controls

Implement / Repair

Controls

Measure

Potential Risk

Obtain /

Review Date

Exposure to Loss

Reduced

No Loss

Low

Hi

Leadership Feedback

Reporting Culture 1

Work

Practice Steps

1a

1b

2

Risk

Reduction

Cycle

Reported

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Reporting Culture Metrics

Leadership Responsiveness

Metrics…

Risk-Driven Metrics

Process Execution

Metrics

Action Effectiveness

Metrics

Learning Mindedness

Metrics


Example: leadership responsiveness

Mean days for

supervisor

response

Iterate Where Applicable

Risk Exposure Identify Failed Controls

Implement / Repair

Controls

Measure

Potential Risk

Obtain /

Review Date

Exposure to Loss

Reduced

No Loss

Low

Hi

Leadership Feedback

QHSE Reporting Culture 1

QHSE Work

Practice Steps

1a

1b

2

Risk

Reduction

Cycle

Reported

Accepted by supervisor

via email

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0% 25% 50% 75% 100%

87%

84%

80%

77%

69%

61%

60%

59%

55%

51%

36%

30%

2%

2%

0%

0% 25% 50% 75% 100%

84%74%

73%72%

71%68%68%

67%62%

61%55%

43%21%

2%1%

0% 25% 50% 75% 100%

79%

78%

78%

77%

75%

71%

70%

63%

62%

56%

53%

26%

21%

4%

1%

0% 25% 50% 75% 100%

84%

84%

78%

77%

71%

70%

65%

64%

48%

45%

42%

14%

6%

1%

0%

Process Execution Learning Minded

Risk Driven Operating Discipline Index

Asset 1Asset 2Asset 3Asset 4Asset 5Asset 6Asset 7Asset 8Asset 9Asset10Asset11Asset12Asset13Asset14




Real world example–prescriptive analytics Benchmark metrics


3b3a21Near Miss0

40

80

120

160

Fire Explosion Avg Days for Iv

Spill/Release Avg Days for Iv

Injury/Illness Avg Days for Iv

All Avg Days for Iv

II&R specifies “one-month” completion time for investigations on Level 2 and Level 3 incidents. To be effective, time requirements for investigations actually should vary according to the complexity and risk potential of the incidents.

30 days

Real world example – prescriptive analytics Average days for investigations


Data Metrics Factors Indicators

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Data Extraction and Calculation Factor Analysis Predictive Modeling


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P

rog

ress

ive

Op

erat

ing

Dis

cip

line

Par

adig

m

ReportingCulture

Process Execution

RiskDriven

Learning-Mindedness

Progressive benchmark indicatorsOE benchmark indicator analytics


Leading IndicatorScorecards. Benchmarking.

LeaderResponsiveness

Manage with naturally-produced leading indicators

21

Reporting Culture

ProcessDiscipline

Action ItemExecution

The journey to operational excellence


How do you get there?


The journey to operational excellence

Engage the Workforce

Manage with Progressive Leading KPIs

Optimize Business Processes

Data Efficiency on a Common Platform

IT Integration

Data Integrity

Compliance

Improved reporting culture

Improved risk mitigation

Reduction of incidents

through continuous

improvement

Improved organizational

effort and disciplineDeep

Broad

Initial

World

Class


OE processes must be analytics ready

Enterprise-wide

Platform

Many

Silo’s

Aggregate Quantities,

-- or -- Subjective

Full Process Execution,

-- and – Objective

“Ideal for Analytics”


Are you ready?

Enterprise-wide

Platform

Many

Silo’s

Aggregate Quantities,

-- or -- Subjective

Full Process Execution,

-- and – Objective

“Ideal for Analytics”

Incident

Audit

BBS

Risk Assessment

MOC

MOC


Accelerating continuous improvement

27

Continuous Improvement

Cycle #1

Analytic Readiness

Continuous Improvement

Cycle #2

Implementation

Analytics

Potential Policy, Procedure And

System Changes

Opportunitiesfor Improvement

BreakthroughInsights

PerformanceIndicators

Apply Change

AnalyticsReadiness

Operational Excellence


Next steps?

Questions? THANK YOU!Todd LunsfordSolution Engineering Manager, [email protected] email us at [email protected]

mailto:[email protected]

mailto:[email protected]

best practices for operational risk management

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