The Chair and deputy Chair of the IRMs Energy Special Interest Group (SIG), Alexander Larsen and Grant Griffiths review the role of risk management within the Energy Industry and discuss their observations and recommendations. The SIG has created a committee which is not just limited to oil and gas but encompasses other parts of the industry including renewables and nuclear.
Energy is vital to everything we do, it powers cars, homes and businesses. There are approximately 7 billion people in the world and astonishingly, almost 1 billion of those still don’t have access to electricity, prominently from developing nations. Therefore there is still huge amount of work to do to get electricity to everyone in these regions.
There is an ongoing transition in the energy industry taking place around the world moving from the oil and gas sectors to the use of renewables and electricity. Several challenges are facing the industry, due to the growth in population and the corresponding increase in demand.
With the ever increasing threat from climate change, there is a requirement to do the right thing for the environment. In addition to decarbonisation there is also new technology and digitisation transforming the industry.
“There is a drive towards doing the right thing for the environment, all stakeholders and investors in the industry”
Grant Griffiths, Deputy Chair of IRM Energy SIG
Risk management is at the heart of the decision making and strategy within the energy industry. The IRM SIG prepare research and publication discussing risk management in the energy industry and how well it is embedded and understood.
As 2020 has presented unprecedented challenges with Covid-19 there has also been challenges with OPEC and the global oil and gas prices. There are changes in global supply chain, transition in energy and diversification of energy supply.
A lot of these risks present as threats but can they can also be opportunities. Resilient and flexible organisations have been able to react to the pandemic by adapting their business models and quickly mobilising their workforce to be home based while continuing operations.
Risk Management needs to be embedded throughout the organisation to help key decision makers an ensure there is a positive risk culture. Staff need to be trained at all levels so when they see a risk they know who to report it to and how. Ultimately risk and resilience training can decrease the threats risk presents and increase opportunities.
“Staff are a critical component of successful risk management.”
Alexander Larsen, Chair of IRM Energy SIG
The IRM offers training to all levels of an organisation and courses are put together by risk practitioners and industry experts. Looking to the future, risk techniques such as horizon scanning and scenario testing will help an organisation be prepared for any possible event. Risk awareness and embedding risk processes will determine how successful an organisation will be in driving strategic decisions in the energy industry.
As Chair of the Energy Special Interest Group for the IRM, Alexander Larsen was asked to provide an overview of the role of risk management within the Energy sector in the current climate.
Risk management is a part of every aspect within the Energy industry; operations, production, safety or related to projects and decision making, schedules and budget.
From a strategic point of view for the Energy sector, there is a consideration for entering the renewables market. Is this the right move?
Entering into the renewable market may result from buying another organisation or merging. Need to consider whether the organisations are compatible with their business models and ensure the right investments and technology.
Risk Management is a key part to all these strategic decisions. Therefore, it’s important that sufficient training is provided, not just to Risk Managers but the board, executives and all key decision makers.
The IRM offer courses to all levels of an organisation and training is put together by risk practitioners and industry experts.
With the devastating effect of Covid-19, organisations and economies are suffering more than ever around the world. Risk Management plays a vital role in creating agile resilient organisations and now is the time to think about the future.
What can we do to prepare for another pandemic?
How will we cope with another lockdown?
How can we support our employees and customers?
To be prepared for any incident and make risk-based decisions, an effective risk and resilient framework is key. Organisations must assess emerging risks and face a post Covid world where more technology and less face to face interaction will become the new business norm.
Dr Mark Vine has over thirty years experience as an HSE Manager and Management Consultant with extensive experience in oil and gas, chemicals, government, transport, insurance, NGO’s and development banks. His experience covers the full lifecycle from mega and major projects through to operations.
Mark is a recognised subject matter expert in HSE MS and Operations Management Systems (OMS) development, implementation and assurance with a focus on sustainability, Environmental and Social Governance (ESG), process safety, behavioural based safety, asset integrity management and Operational Excellence (OE).
LR Consultants is a unique boutique consultancy that provides high value management consulting services to the global energy, chemical process, mining, banking and financial service industries.
LR Consultants is headquartered in Dubai, United Arab Emirates and is supported by an extensive global network of highly experienced independent consultants with executive and senior management industry experience in capital projects delivery and operational excellence.
1 OVERVIEW
As a business leader or senior manager it is natural that you should be continually asking questions that challenge to improve the performance of your business management system.
LR Consultants experience suggests that the following questions reflect the foremost concerns of business leaders:
Are you increasingly frustrated that your projects or business strategy is failing to deliver expected and timely results to your key performance indicators?
Is your projects or business management system overly complex, costly to operate and/or experiencing low recognition and involvement amongst your workforce?
In a rapidly changing business world is your projects or business management system not proving to be resilient and is it unable able to respond effectively to market changes and emerging risks?
Is your project or business management system unsuitable to deliver compliance to the Environmental Social and Governance (ESG) expectations of donor financing institutes who follow IFC Equator Principles and World Bank requirements?
If the answer to any of these questions is affirmative then the solution should be to invest in Operational Excellence.
This LR Article provides the basics to Operational Excellence (OE) and how to achieve the benefits through the transformation to an enterprise wide Operating Management System (OMS).
2 WHAT IS OPERATIONAL EXCELLENCE?
There is no unique internationally accepted definition of OE. Some of the more well known definitions are provided in Table 1.
“Operational Excellence achieves and sustains outstanding levels of performance that meet or exceed the expectations of all their stakeholders”
OE is not the same as Continuous Improvement (CI) which has been promulgated by the ISO suite of management system standards. A comparison of the LR Consultants OE cycle against the ISO CI cycle is provided in Figure 1.
Figure 1 LR Operational Excellence and ISO Continuous Improvement Cycles Compared
A CI business is one that follows a process of improve, sustain, measure and monitor. The business then repeats the cycle over and over again to create a culture of CI. A significant downside is that CI often has no goal or destination to meet and it can be a slow and unreliable journey to deliver results.
OE delivers integrated performance across revenue, cost, and risk. Conversely to CI, it focuses on meeting operating and stakeholder driven results through the CI of the operational processes and culture of the organisation.
The goal of OE is to develop one single, integrated enterprise wide management system with a strategic results and stakeholder based direction, driving visualised risk optimised business processes and workflows. The second component of OE, a culture of Operating Discipline, is commonly described as “doing the right thing, the right way, every time”. According to BTOES this Operating Culture is built upon the guiding principles of leadership, integrity, questioning attitude, always problem solving, daily CI mind set, level of knowledge, teamwork and influencing workforce behaviours.
An OE organisation is more agile and able to identify and manage emerging threats and to rapidly transform itself than its CI counterpart. OE organisations are inherently more resilient and adaptable to changes to stakeholder concerns and market conditions.
These relationships can be visualised using the LR Model for OE shown in Figure 2. The LR Model (under development) is designed for high risk or safety critical industries (oil and gas, power, chemicals, pharmaceuticals, transport, mining and nuclear) and to meet the requirements of sustainability. It is fully compliant with IFC Equator Principles and ESG requirements.
The LR OE Model delivers ISO compliance as a minimum requirement and has Plan-Do-Check-Act (PDCA) as an integral part of its DNA. It delivers sustainable business results and can be applied across the cradle to grave to rebirth business lifecycle.
Figure 2 LR Risk Optimised Model for Operational Excellence
Figure 2 depicts “Risks” as a separate element associated with business process controls. In reality “Risks” are distributed and embedded in all elements of the LR model. Risk management is critical to ensuring that business strategy and processes are optimised and prioritised towards meeting key performance indicators. Emerging risks require timely management and worker adaptation of existing business or operating processes in order to ensure that the business remains resilient to changing market conditions and aligned with any adjustment to business strategy.
OE has been formally defined by the European Foundation for Quality Management (EFQM) through their EFQM Model for OE shown in Figure 3.
Figure 3 EFQM Model for Operational Excellence (EFQM, 2018)
The EFQM Model is a globally recognised management framework which allows organisations to achieve success by measuring where they are on the path towards transformation, helping them understand the gaps and possible solutions available, and empowering them to progress and significantly improve their organisation’s performance.
Both the LR Consultants and EFQM Models for OE can both be used in enterprise wide management system design, implementation, benchmarking and transformation for immature and mature businesses alike.
A key difference between the LR and EFQM approaches is that the LR OE Model has been designed for safety critical industries and is able to distribute risk criticality through all elements and processes of the model. Risk optimised business processes are shaped and prioritised by the critical findings of the enabling risk assessment. This is a key reason why ISO management systems create the risk silos and traditionally fail to manage systemic process safety and asset integrity risks.
3 FUNDAMENTAL CONCEPTS AND THEMES FOR OPERATIONAL EXCELLENCE
The fundamental concepts of OE (shown in Figure 2) outline the essential foundation for achieving sustainable excellence for any organisation. The concepts can be used as the basis to describe the attributes of an excellent organisational culture. They can also serve as a common language for senior management.
OE covers a number of risk themes (with a focus on risk reduction results) that should be assessed and managed for all projects, facilities, activities, products and services for which your business is partially or wholly responsible or accountable. An illustration of the OE risk themes typically used in capital intensive safety critical industries is provided in Figure 5.
4 OPERATIONAL EXCELLENCE AND OPERATING MANAGEMENT SYSTEMS (OMS)
OE Models can be used to design, develop, benchmark and transform the enterprise wide management system.
Many organisations are commercially driven to satisfy the disparate needs of the many ISO management system standards often creating overly complex, inefficient and costly to operate management systems. ISO driven management systems, particularly in the case of safety critical industries fall far short in managing process safety and asset integrity risks.
The solution to efficient and effective OE delivery is to develop an Operating Management System (OMS), also referred to as an Integrated Management System (IMS). The term OMS is preferred in this Article.
An OMS is a complete framework that combines all aspects of an organisation’s systems, processes, and any standards that the business follows.
An OMS is used for controlling risk, delivering high performance and achieving Operational Excellence.
“Operating” applies to every type of company activity, including concept design, engineering, construction, commissioning, operations, inspection, maintenance and decommissioning, throughout the entire value chain and lifecycle of the business and its products.
The development of an OMS that incorporates Equator Principles and ESG requirements fully satisfies the project financing requirements of donor Banks and External Credit Agencies.
An illustration of an OMS framework created from the integration of individual ISO and non-ISO management systems is provided in Figure 6. An important part of integration is to upgrade the minimum requirements of ISO based management systems to incorporate industry best practice.
Figure 6 Integration of Individual Management Systems into an OMS
5 WHAT ARE THE BENEFITS OF OMS AND OE?
The benefits of OMS and OE investment to your business are summarised in Table 2.
Table 2 Summary of OMS and Operational Excellence Benefits
Over 150 risk managers, insurance professionals and CEO’s attended the impressive Four Seasons Hotel in Jumeirah Beach, Dubai, for the 2016 Middle East and Africa Risk & Insurance Awards held by Strategic Risk & Global Reinsurance Magazine.
I had personally only attended a couple of Awards Ceremonies over the years and never as a nominee for an award. Lukoil, who I was respresenting, had gone all out by reserving what ended up being a full table of Lukoil executives and managers. Feedback was positive from organisers too suggesting that the attendees had brought a level of enthusiasm and support rarely seen at awards ceremonies.
I have to thank my colleageus for their genuine and enthusiastic support and top management for reserving the table in the first place.
It was a fantastically successful night for Lukoil who were nominated in 2 categories, Risk Communication Strategy of the year & Risk Manager of the year, something that only a handful of other companies managed to accomplish. Even more impressive was the fact that Lukoil won awards in both categories they were nominated for! No other company succeeded in winning more than one award making it a fantastic evening for the oil and gas company who has been pushing ahead with Risk Management despite pressures in the market and with other oil giants cutting their staff in the thousands.
A special mention to Qatar Foundation who have been nominated a few years in a row now for various awards and who i feel a strong affiliation with having helped develop the Risk Management program a few years ago. The risk department have done an excellent job in pushing forward with Risk Management and championing it across the organisation whilst developing it further and continuing to increase risk maturity!
For me personally, its been a tough couple of years here in Iraq. Working in isolation, in a difficult environment, on a shift basis and in a dangerous environment. Its been stressful and challenging but the award has made my effort and time well worth the while and I have to thank Lukoil for the ongoing support of risk management, my colleagues for supporting the process and always being transparent and honest when identifying risk and helping me understand very technical aspects of oil and gas.
This award is a highlight of my career and I look forward to continuing to add value to the risk management professsion anyway I can.
This is more of an entertaining blog post as I plan to discuss some of the rather unpleasant creatures that you can find around the site and whilst I will be outlining the various types of creatures that employees on site need to be aware of (and that companies need to manage appropriately), I will also be covering how some of these can actually cause a loss of power or damage to equipment.
Part 1 covers dogs, cats, mice and desert foxes whilst part 2 covers snakes and part 3 covers spiders, scorpions and insects.
Stray dogs
There are a surprising number of stray dogs around the site. Often this is welcome for employees on site and many will have a little play with them or give them some water or food during the hotter months. However there are some risks to having stray dogs around site, especially in a country with many diseases still present that we are not used to in the west.
Perhaps the biggest risk is that of rabies. With so many stray dogs and rabies known to be present in Iraq, there is a risk of a dog bite leading to rabies in employees. There have been some incidents of this nature already in Iraq so special precautions should be taken.
Apart from rabies, any dog bite can lead to infection and many of the stray dogs have been ill treated in the past and may turn on a human at any time if it feels frightened.
Other less worrying risks are worms, fleas and ticks from the dogs.
A solution to the problems of stray dogs could be for the organisation in question to arrange a “trap and vaccinate” programme which will not only be beneficial to safety of staff but could provide a much needed after hours activity for volunteer staff whilst also building an ethical reputation for the organisation in a industry that is hounded by negative climate and environmental press. Additionally, with the organisation safe in the knowledge that the dogs are healthy, the camps on site could provide a safe haven for the dogs and providing employees with some much needed company on site.
Cats
Each site and camp have a handful of cats that usually hang around the canteen area waiting for food. Again, like dogs, most people welcome this and enjoy spending time with the cats and taking care of them. Whilst there is no major risk from the cats, in fact it is an opportunity as they can keep the mice population down, there is the usual issue with fleas, ticks, worms etc.
Companies can introduce policies for cats (as previously mentioned with dogs) including providing medicine for animals on site or camp.
Mice
something that was unexpected for me was the amount of mice found in Iraq. During certain months there are a large number of mice around the camp and in the offices. Whilst this doesn’t sound like much of a risk, there have been some major risks that have occurred from this already and that companies should be aware of.
Mice are attracted to optical cables for some reason and this can lead to them eating through cables leading to outage of networks and even power, getting stuck in power outlets to the extent that they end up causing a short circuit or even a fire in a building. THere are ways to ensure that mice are not attracted to the cables by having stringent cable handling procedures such as wearing gloves in order to ensure no bodily oils are left on cables. Additionally food restrictions can be implemented in areas with cables.
Another risk is mice in the kitchen and getting into food or contaminating food which might lead to wide spread disease or illness and major downtime of staff.
A solution to this problem tends to be mice traps, although other less humane traps are often used in many places. Another option is to use the cats that are on site as a natural deterrent. Desert foxes
Since arriving in Iraq I have seen at least 2 or 3 Desert foxes. Whilst they don’t pose a threat to operations or projects, it is a really nice sight to see these foxes in their natural habitat. Perhaps this is the major risk. The risk that these foxes are losing their habitat and being forced off their land as we have done with so many other animals around the world.
Unfortunately, unlike in many countries, where there are more stringent environmental regulations and requirements for building on land (or sea), there are often less developed requirements in regions such as Iraq. This shouldn’t stop organisations from working in line with other country standards and create a set of organisation policies geared towards positive environmental preservation and build a genuine ethical reputation.
A Guide to Risk Management 