CONTACT INFORMATION
Campbell Institutenational safety council
call (630) 775-2063
web thecampbellinstitute.org
email [email protected] 900001825 ©2012 national safety council
A transformative force in EHS
this leading-edge knowledge is brought to you by the campbell institute
- 1 -
Executive Edge Track NSC Congress & Expo 2010
Executive Edge Session A (Technical Session 21)
Key Principles
of Operationalizing Risk:
What Leaders Really Need to Know
Moderator: Glenn Murray, ExxonMobil
Joe Stough, Syntex Management Systems
Bill Williams, Maersk Line, Inc.
Executive Edge Track NSC Congress & Expo 2010
- 2 -
Joe Stough, Syntex Management Systems, Founder & EVP
Start with an every day “analogy”:
The FICO score…
The Future of Measuring
Risk Management
Measuring organizational capability to
manage / reduce risk exposures (on
routine basis)
Executive Edge Track NSC Congress & Expo 2010
- 3 -
An Everyday Risk Management Leading Indicator
Definition of Leading Indicator
– A metric which is highly predictive of a specific outcome
FICO: a “model” risk management leading indicator
– Measures individual capability to reduce exposure to a “derogatory event”
– Highly predictive of rate of occurrence of derogatory events (defaults, etc.)
The FICO Story
– FICO analyzed a large data set (since mid-50’s) of credit activities and
lagging outcomes
– Factors predictive of “loss” performance leading indicators
– Used by bankers as business criteria
– Factors are actionable and routinely measurable as management
controls for consumers
– Reward those with best scores (lower interest, access to credit)
– Actionable improvements for those with lower scores
Executive Edge Track NSC Congress & Expo 2010
- 4 -
FICO: An Every Day Leading Indicator
….What are the top performers doing differently?
For a banker: How to “Get to Zero”? – Work ONLY with those who have score > 800
– Help others routinely improve ALL 5 “leading” factors
Actionable factors – Focus on underlying behavior needing improvement
– Not transparent to prevent “gaming”
FICO Score > 800 < 400
Lowest
Risk
Highest
Risk
Analogy to measuring Safety risk management – Accumulate large data set of leading activities and lagging outcomes
To find factors predictive of HSE (safety) loss outcome performance
– Factors must be actionable and routinely measurable as mgmt controls for line mgmt
Executive Edge Track NSC Congress & Expo 2010
- 5 -
Research, Data, Math to Measure Risk Management
Using a common data model – Incidents, investigations,
observations, audits, action items,
etc…
– Worker involvement in above
Millions of records of data – Spanning > 100 countries
– In 24 different languages
Users of IMPACT software – Each company with a central
database of events and actions
Goal: Leading metrics of organizational “risk management capability” – 2008: Studied data from over 100 operating units, defined over 200 potential “leading metrics”
– 2009: Studied correlations to incident event outcomes (TRIR) • Looking for leading metrics which predict performance outcomes
2010: Benchmarking initiative (using 2009 data) – Data from 14 global corporations, over 10,000 operating facilities, over 100 countries
– Studying 75 leading metrics seeking to strengthen correlations, provide leading benchmarks
Executive Edge Track NSC Congress & Expo 2010
- 6 -
Searching for the Actionable Safety “FICO” (Index)
Y = Loss Rates Lowest Highest
Getting to
Zero
Worst
Performers
The Data Set – Several years of data from several super-majors, some service companies, mid-sized energy
• Thousands of operating facilities spanning over 150 countries
– Millions of records from leading activities – alongside – over a million lagging events (incidents)
• Scope = any activity that can result in discovery of “risk exposure”
– Top 10% average TRIR = .16, average size of “sample” = 1.2 million hours
• However used a “weighted” TRIR for outcome metric in correlation analysis
Finding the factors predictive of performance – Started with criteria of routinely measurable, actionable metric definitions
• Started with a couple hundred leading metrics
– Statistical analysis + SME feedback filter down to a few predictive of outcome (weighted TRIR)
…Same FICO question: What are the top performers doing differently?
Executive Edge Track NSC Congress & Expo 2010
- 7 -
Action Execution % of total events with action
Rate of action (per wk hours)
% on-time complete findings
% lateness of late items
Other action items…
Leadership, Process % of events with leader involved
Mean days to supervisor response
Mean days to authorize action
% of events with risk or cause assessed
Other leadership / discipline metrics…
Reporting Culture Rate of reporting (per wk hours)
Distribution of involvement
Ratio of low to high (triangle)
Other reporting culture…
Data from Routine Activity Routine Measures
– Recordable injuries
– First aid injuries
– Near misses
– Supervisor walk-around
– Behavioral observation
– Safety issue suggestion
– Hazard ID’s
– Management of change
– Process hazard analysis
– Mgmt system assessment
– Formal risk assessment
– Task risk assessment
– Job hazard analysis
– The list goes on and on…
Reduced
Corrective action
completed, verified
Action
Items Action authorized
by leadership
Routine Activities
Assessed by
SME, Leaders
Risk Matrix
Root Causes
Exposure
Identified Reported
Accepted
by supervisor
Organizational Process
Rep
ea
t W
here
Ap
plic
ab
le
Executive Edge Track NSC Congress & Expo 2010
- 8 -
Vision: The Safety “FICO” Index of the Future
Reporting
Culture
Action
Execution
Leadership,
Process
Other….
Looking Ahead – Contractor selection per Index score
– Internal rewards per index score
– Index score replaces lagging metrics
Issues – Gaming the system
– Unintentional consequences
– Getting the most predictive “index”
Already found “actionable” factors which are predictive
but need more predictive power to be a Safety “FICO”… Better measurements of existing factors
New factors not yet analyzed
Other….
An “actionable” leading indicator.
Good at ALL factors minimized HSE losses Getting to ZERO.
- 9 -
Executive Edge Track NSC Congress & Expo 2010
Questions for the Audience
- 9 -
Executive Edge Track NSC Congress & Expo 2010
- 10 -
Executive Edge Track NSC Congress & Expo 2010
Executive Edge Session A (Technical Session 21)
Key Principles
of Operationalizing Risk:
What Leaders Really Need to Know
Moderator: Glenn Murray, ExxonMobil
Joe Stough, Syntex Management Systems
Bill Williams, Maersk Line, Inc.
- 11 -
Executive Edge Track NSC Congress & Expo 2010
Capt. Bill Williams (U.S. Navy, Ret.), A. P. Moller-Maersk
Operational Risk Management for Senior Leaders
Perspectives & Principles
- 12 -
Executive Edge Track NSC Congress & Expo 2010
A.P. Moller - Maersk Group
A.P. Møller - Mærsk A/S
Retail activities
Shipyards, other
industrial companies, interest in Danske Bank A/S, etc
Oil and gas activities
APM Terminals
Container shipping and related activities
Tankers, offshore and other shipping activities
- 13 -
Executive Edge Track NSC Congress & Expo 2010
Maersk Line Creating Opportunities
in Global Commerce
More than 500 container vessels with a total capacity of 1.9 million TEUs
Around 22,000 employees in over 125 countries
Global vessel network
Seamless door-to-door transport of all types of goods
Leading the way in developing solutions to reduce our environmental impact
Committed to advancing industry standardisation including the alignment and automation of processes across the transportation chain
- 14 -
Executive Edge Track NSC Congress & Expo 2010
Emma Maersk
- 15 -
Executive Edge Track NSC Congress & Expo 2010
Container Business Primary Activities
Trucking Equipment Management
Terminal Operations
Vessel Ownership & Management
Container Shipping
Logistics
Customhouse Brokerage & Warehousing
- 16 -
Executive Edge Track NSC Congress & Expo 2010
Our Customers
- 17 -
Executive Edge Track NSC Congress & Expo 2010
A. P. Moller-Maersk in North America
- 18 -
Executive Edge Track NSC Congress & Expo 2010
“The Sea merely lies in wait for the innocent…. but it stalks the careless and the ignorant.”
-- Anonymous
- 19 -
Executive Edge Track NSC Congress & Expo 2010
Residual Risk = Acceptable + Unidentified
Identified Risk
Identified
Unacceptable
Risk
Acceptable
Unidentified
Residual
Unacceptable (Eliminate)
Unacceptable (Control)
Total Risk
Types of Risks
- 20 -
Executive Edge Track NSC Congress & Expo 2010
Risk Management
▪ Success of Identifying Risk
▪ Used Auto + Auto Parts
▪ Customer terminated:
“No More Business”
▪ 65 current shipments
▪ 44 loaded
▪ 21 not loaded
- 21 -
Executive Edge Track NSC Congress & Expo 2010
- 22 -
Executive Edge Track NSC Congress & Expo 2010
- 23 -
Executive Edge Track NSC Congress & Expo 2010
- 24 -
Executive Edge Track NSC Congress & Expo 2010
- 25 -
Executive Edge Track NSC Congress & Expo 2010
- 26 -
Executive Edge Track NSC Congress & Expo 2010
- 27 -
Executive Edge Track NSC Congress & Expo 2010
- 28 -
Executive Edge Track NSC Congress & Expo 2010
- 29 -
Executive Edge Track NSC Congress & Expo 2010 Slide no. 29
Perspectives on Risk Management
▪ Individual
▪ Family
▪ Your Operational Facility
▪ Your Company
▪ Nation
▪ International
- 30 -
Executive Edge Track NSC Congress & Expo 2010
Strategies to Deal With Risk Downside
2009 President’s Safety Council
Strategies for Dealing With Risk (or not)
Avoidance
Transfer
Mitigate
Acceptance – Passive
Acceptance – Active
Contingency Plan
Work Around
- 31 -
Executive Edge Track NSC Congress & Expo 2010
Risk Appetite
What are the risks that we need to take to fit with our business strategy?
What risks are unacceptable to us?
What resources do we need to accept those risk?
What risks are our stakeholders willing to bear?
- 32 -
Executive Edge Track NSC Congress & Expo 2010
Risk vs. Reward
- 33 -
Executive Edge Track NSC Congress & Expo 2010
Most Individuals Look at Risk From a Set of Perspectives
▪ Individual perspective – What risk
can I personally accept?
▪ Family perspective - What risk
exposure should my family members have?
▪ Work perspective - What risk will
I tolerate in the workplace, even if I am out of the line of fire, none of my family members work there, and I’m not footing the bill?
- 34 -
Executive Edge Track NSC Congress & Expo 2010
Survey of Risk Tolerance
- 34 -
Executive Edge Track NSC Congress & Expo 2010
- 35 -
Executive Edge Track NSC Congress & Expo 2010
10 Principles of HSE Risk Management
- 35 -
Executive Edge Track NSC Congress & Expo 2010
- 36 -
Executive Edge Track NSC Congress & Expo 2010
Ten Useful Principles for Safety Risk Management
1. When you “own” the risk, don’t delegate your responsibility or authority to others
2. Do everything you can to mitigate risk that makes you feel uncomfortable
3. If you don’t do your job in managing risk, another stakeholder will do it for you
4. It’s not just about the risk in what you do, but in the people you have doing your work
5. Never underestimate the effort it takes to prevent low frequency, high-consequence events from happening
6. Exposure and risk changing constantly; the best leaders understand this and stay involved in managing change
7. The risks you haven’t identified can kill you just as easily as the risks you know about
8. Recognize the power of your organization’s culture, and how that culture supports or subverts your risk management efforts
9. “You got to know when to hold ‘em, know when to fold ‘em..”
10. Take your risk management responsibilities seriously; the life you save may very well be your own
- 37 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
1. When you “own” the risk, don’t delegate your responsibility or authority to manage that risk to others.
- 38 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
4. Every risk assessment has two equally important dimensions: (1) the operations – “what” you
do, and (2) the people you have doing
them
- 39 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
Real Risk Management
- 40 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
2. Do everything you can to mitigate the risk that makes you feel uncomfortable.
- 41 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
1993 Ford Aerostar Van
1998 Chevrolet Tahoe 1987 Oldsmobile Delta 88
1994 Misubishi Galant 1995 Ford Crown Victoria 1997 Oldsmobile Delta 88
1996 Honda Accord 1998 Mercury Grand Marquis
1991 Ford Ranger pickup truck
- 42 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
1991 Ford Ranger pickup truck 1 1998 Chevrolet Tahoe 1
1 Traded in, died of natural causes
- 43 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
1993 Ford Aerostar Van
1987 Oldsmobile Delta 88 1
1 1994 Misubishi Galant 1 1995 Ford Crown Victoria 1997 Oldsmobile Delta 88 1
1
1
1996 Honda Accord
2 1998 Mercury Grand Marquis
KIA Still Alive
1
2
- 44 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
3. If you don’t do your job in managing risks, another stakeholder will do it for you.
- 45 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 46 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
5. Never underestimate the amount of work it takes to keep low frequency & high impact events from happening.
- 47 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 48 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 49 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 50 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 51 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
6. Risk and exposure change constantly, successful operators know this, frequently look at their operations and exposures, and manage change.
- 52 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
9. “…You got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run…”
- 53 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 54 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 55 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
7. The risks you haven’t identified can kill you just as easily as the risks you know about.
- 56 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 57 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 58 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
- 59 -
Executive Edge Track NSC Congress & Expo 2010
Principles of HSE Risk Management
10. Good safety Risk Management helps you protect your people, but the life you save may really be your own.
- 60 -
Executive Edge Track NSC Congress & Expo 2010
Risk Management Conclusions
▪ Operations – and exposures change frequently; RM is a
dynamic process
▪ JHA/JSAs, risk profiles, process reviews and control
measures are typical safety leader tools for managing operational risk, but
▪ There is no substitute for involved leadership and mature,
risk-based management systems
▪ Much of risk management is instinctive, based on your
own experiences and training. But it is good to have a set of your own guidelines & principles which you can consider from time to time
- 61 -
Executive Edge Track NSC Congress & Expo 2010
Some Questions to Ponder…
▪ Despite my best efforts, am I missing intervention
opportunities because we aren’t reporting the right things?
▪ Is there a useful model that can be applied to reducing
exposures?
▪ We have so much data…How can I simplify the process so
I can focus on what is truly important?
▪ What are some predictive or leading indicators, that will
give me the biggest edge in controlling risks in the workplace?
- 62 -
Executive Edge Track NSC Congress & Expo 2010
Thank you
- 63 -
Executive Edge Track NSC Congress & Expo 2010
What’s Next? Return to this room tomorrow 8:00 – 9:30 am
for Executive Edge Session B: Aligning EHS
Leadership in Creating Business Excellence (Technical Session 44)
And Then... Here again 1:30-3:00 pm for
Executive Edge Session C: Safety in Action –
EHS Management System Implementation (Technical Session 66)
Workshops Following Each Session
Rooms 28A & 28B (Pre-registered participants only)