assessment of catastrophe risk in industry paul kleindorfer technology and operations management,...
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ASSESSMENT OF CATASTROPHE RISK IN INDUSTRY
Paul KleindorferTechnology and Operations Management, INSEAD
Ulku OktemRisk Management and Decision Processes Center, Wharton
School, University of PennsylvaniaNear-Miss Management LLC.
Content
• Catastrophic events and Near-Misses• Characteristics of Near-Misses and Near-Miss
management• Current research and conclusions
Ulku Oktem, FOCAPO 2012
Ulku Oktem, FOCAPO 2012
Catastrophic Events
• Characteristics: Low-probability, high-consequence events Unplanned events resulting in significant business
loss
• Causes: Natural hazards Major accidents
Supply-chain disruptions Product problems
Ulku Oktem, FOCAPO 2012
Near-Miss Management
Site vulnerability assessment should focus on: a) effective definition b) measurementc) auditing of performance - against Leading Indicators of Vulnerability and Resilience
ORGANIC INTEGRATION INTO OPERATIONS AND EMPLOYEE/MANAGEMENT RESPONSIBILITIES IS
ESSENTIAL
Ulku Oktem, FOCAPO 2012
Defining a “Near Miss”
Adoption to Financial Institutions:“Near-Miss is an event, a sequence of events, or an
observation of unusual occurrences that posses the potential for improving a system’s operability by reducing the risk of upsets, some of which could eventually cause serious damage”
DOE definition:“No barrier or only one barrier prevented an event from
having a reportable consequence.”
Original Wharton Study“An opportunity to improve environmental, health and
safety practice based on a condition, or an incident with potential for more serious consequences”
Ris
k P
erc
ep
tio
n
HighRisk
NoRisk
Significant-Loss Events
Minor-Loss Events
Major Accidents
Foreshadowing Events and Observations
Positive Illusions, Unsafe Conditions and Unobserved Problems –Unawareness, Ignorance, Complacency
Acc
iden
tsLa
ggin
g In
dica
tors
Nea
r-mis
ses
Lead
ing
Indi
cato
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Risk Pyramid
Near-Miss Risk Pyramid
Ulku Oktem, FOCAPO 2012
Ulku Oktem, FOCAPO 2012
Examples of Near Misses
• Bhopal, 1984• Concept Sciences, 1999• Barings Bank, 1995• Fannie Mae, 2008
• Paddington train crash, 1999• Sony battery case, 2006
• Biodiesel near-miss, 2007-2008
Ulku Oktem, FOCAPO 2012
Chemical Industry Review• Personal Near Misses
Observed and recorded
• Process Near Misses Not clearly defined, not systematically recorded
Operational Near Misses Not recognized
Known Catastrophic Events (major accidents) are generally the extension of process near-misses
Ulku Oktem, FOCAPO 2012
Content
• Catastrophic Events and Near Misses• Characteristics of Near Misses and Near-Miss
Management A powerful tool for risk management
• Current research and conclusions
Ulku Oktem, FOCAPO 2012
Characteristics of Near Misses
These characteristics form the base of “Leading Indicators”:
• Frequency• Actual Damage
• Maximum Potential Damage
Ulku Oktem, FOCAPO 2012
Near-Miss Management for Prevention of Catastrophe
Identification of early stress
signals
Elimination of the stressor
Core Concept for Near Miss
Ulku Oktem, FOCAPO 2012
Methodology
Three Pillars of Successful Near-Miss Management
Organic integration of
near-miss management
into the operational
fabric
Categorization of near misses
Tracking and monitoring of near misses
in each category
Ulku Oktem, FOCAPO 2012
Organic Integration
Every employee and manager has an active role and participates fully in the Near-Miss management process.
Ulku Oktem, FOCAPO 2012
Categorization
The overall risk has to be divided into meaningful categories that can be tracked.
Examples:Technology: 1. Process, 2. Procedures
Facility: 1. Mechanical Integrity, 2. Quality Assurance, 3. Process Hazard Analysis
Personnel: 1. Training, 2. Contractor Safety, 3. Management Leadership, 4, Operational Discipline, 5.Auditing, 4. Incident investigation, 5. Emergency Planning
Ulku Oktem, FOCAPO 2012
Tracking and Monitoring
Tracking and monitoring of Near Misses in each category should be based on the three characteristics:
• Frequency• Actual Damage• Potential Damage
Ulku Oktem, FOCAPO 2012
Tracking Example
Technology Facility Personnel
Frequency
Actual DamagePotential Damage
Sample Matrix for Near-Miss Tracking and Monitoring
Ulku Oktem, FOCAPO 2012
Near-Miss Management ProcessEight-Step Process
1. Identification
2. Disclosure
3. Prioritization
4. Distribution
5. Identification of Causes
6. Solution Identification
7. Dissemination
8. Resolution
Ulku Oktem, FOCAPO 2012
Content
• Catastrophic Events and Near-Misses• Characteristics of Near-Misses and Near-Miss
Management• Current research and conclusions
Ulku Oktem, FOCAPO 2012
Current Research
Personal Safety vs. Process Safety
Initial
•Wharton Risk Center study focus on Personal Safety
Recent
•Wharton-Chemical Engineering cooperative study focus expanded to Process Safety
Ulku Oktem, FOCAPO 2012
Do We Learn from Past Catastrophic Events?
2011 Wharton Study: In 2006 (after 2005 Katrina disaster) 1,299,000
new flood insurance policies were issued – compared to average of 850,000
Three years later only 43% of the households still had National Flood Insurance
Near Misses help corporations refresh their institutional memory and provide justification for
taking corrective action.
Ulku Oktem, FOCAPO 2012
Since most industrial catastrophes are the result of process safety issues, companies need to recognize the significance of differences between metrics to be used to assess personal safety and process safety.
Conclusions
A comprehensive Near-Miss management system - designed and implemented as an organic part of a company’s operational structure - can reduce significantly the occurrence and impact of catastrophes.
Industrial catastrophes are primarily, but not exclusively, driven by safety issues.
