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Managing Operational Risk to Ensure Business Continuity
Managing Operational Risk to Ensure Business Continuity
DuPont Sustainable Solutions
July, 2011
Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, and The miracles of science™ are registered trademarks or trademarks of DuPont or its affiliates.
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Objective
To provide an understanding of the DuPont Process Safety Management System and why the system works for successful companies
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Defining Risk
• Risk is the potential for loss, calculated by combining possible or foreseeable consequences with realistic probability (or frequency) of occurrence.
• Operational risk is a portion of a business’s total risk profile, specifically the operations or process related aspects—potential losses resulting directly from the business’s operations.
• Risk is the potential for loss, calculated by combining possible or foreseeable consequences with realistic probability (or frequency) of occurrence.
• Operational risk is a portion of a business’s total risk profile, specifically the operations or process related aspects—potential losses resulting directly from the business’s operations.
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Unsafe Acts and Conditions
First Aid Incidents
Major Incident
Fatality
Quasi incidente
Catastrofe
Incidente con grosse perdite
Incidente con perdite minori
Unsafe Acts and Conditions
First Aid Incidents
Major Incident
Fatality
Near Miss
Catastrophic Incident
Major Technical Incident
Minor Loss Incident
Beha
viou
ral I
ncid
ent P
yram
id
Technical Incident Pyramid
Operational Risks
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1. Management Leadership & Commitment
How DuPont Manages Safety and Risk - Step 1
• Establish Policy
• Commit Resources
• Provide for and Encourage
Employee Involvement
• Establish Clear Accountability
• Verify Compliance
• Participate Personally
Management Leadership and Commitment - Responsibilities
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1. Management Leadership & Commitment
2. Build a Safety Culture
How DuPont Manages Safety and Risk - Step 2
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1. Management Leadership & Commitment
2. Build a Safety Culture
How DuPont Manages Safety and Risk - Step 3
3. Implement PSM Program
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1. Management Leadership & Commitment
2. Build a Safety Culture
4. Operational Discipline
How DuPont Manages Safety and Risk - Step 4
3. Implement PSM Program
Leadership by Example
Functioning Capability/Sufficient
Resources
Employee Involvement
Active Lines of Communication
Strong Teamwork
Common Shared Values
Up to date Documentation
Practice Consistent with
Procedures
Absence of Shortcuts
Excellent Housekeeping
Pride in the Organization
Operational Discipline Characteristics
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Typical Operational Risks
• Employee / Public Health and Safety
• Environmental Damage
• Physical Assets
• Business Interruption
• Employee / Public Health and Safety
• Environmental Damage
• Physical Assets
• Business Interruption
• Regulatory Compliance
• Reputation, Public Support and Right to Operate
• Employee Retention / Morale
• Product Liability
• Business Value / Market Capitalization
• Community Economic Impact
• Regulatory Compliance
• Reputation, Public Support and Right to Operate
• Employee Retention / Morale
• Product Liability
• Business Value / Market Capitalization
• Community Economic Impact
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Top Operational Risk Factors
• Inadequate identification / evaluation of operational risks
• Integrity of facilities
• Competing priorities, i.e., production, quality, costs
• Insufficient resources, both quantity and capabilities
• Poor training of employees and contractors
• Inadequate management of change
• Weak compliance-to-procedures culture
• Failure to manage process safety risks differently from workplace safety
• Weak audit function
• Ineffective leadership
• Inadequate identification / evaluation of operational risks
• Integrity of facilities
• Competing priorities, i.e., production, quality, costs
• Insufficient resources, both quantity and capabilities
• Poor training of employees and contractors
• Inadequate management of change
• Weak compliance-to-procedures culture
• Failure to manage process safety risks differently from workplace safety
• Weak audit function
• Ineffective leadership
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What Is Operational Risk Management?
An integrated management system that identifies, evaluates, and controls a manufacturing process’ operational risks in a way that catastrophic incidents are prevented that could impact:
People – the public, employees and contractors
The Environment – local community / work sites
Business – lost assets, business opportunities, loss of customers, loss of shareholders
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DuPont Process Safety Management Model
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Why the model works for Successful Companies
Management Leadership and Commitment is in the center of the wheel
“Safety is a line management responsibility. If we can’t do it
safely - we won’t do it at all”
E.I. DuPont (circa 1817)
“Management must demonstrate their commitment by articulating a clear message on the importance of process safety and matching that message both with the policies they adopt and the actions they take.”
Baker Panel Report (January 2007)
Management Leadership and Commitment is in the center of the wheel
“Safety is a line management responsibility. If we can’t do it
safely - we won’t do it at all”
E.I. DuPont (circa 1817)
“Management must demonstrate their commitment by articulating a clear message on the importance of process safety and matching that message both with the policies they adopt and the actions they take.”
Baker Panel Report (January 2007)
Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, and The miracles of science™ are registered trademarks or trademarks of DuPont or its affiliates.
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Leadership Responsibilities
• Leaders must have a clear vision of the ultimate goal of the
company’s process safety management efforts
• Leaders must set the goals and strategic objectives
• Leaders must insure sufficient, quality resources are dedicated to
PSM system requirements
• Leaders must hold their line organization accountable for PSM
implementation and results.
• Leaders must recognize and reward PSM accomplishments
• Leaders must drive continuous improvement through the use of
metrics and audits
• Leaders must lead…felt leadership
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Leadership Accountability
• Leaders must have a clear vision of the ultimate goal of the
company’s operational risk management efforts
• Leaders must set the goals and strategic objectives
• Leaders delegate specific responsibilities and tasks to individuals
in the organization
• Leaders must hold their line organization accountable for
implementation and results
• Leaders must recognize and reward accomplishments
Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, and The miracles of science™ are registered trademarks or trademarks of DuPont or its affiliates.
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Why the model works for Successful Companies
Operational Discipline encircles all the technical elements
Everyone doing the job right…every time
A strong culture of following procedures
Operational Discipline encircles all the technical elements
Everyone doing the job right…every time
A strong culture of following procedures
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Operational Discipline Characteristics
OPERATIONALOPERATIONALEXCELLENCEEXCELLENCE
LeadershipLeadershipby Exampleby Example
ExcellentExcellentHousekeepingHousekeeping
EmployeeEmployeeInvolvementInvolvement
PSRMPSRMResourcesResources
OrganizationalOrganizationalPridePride
NoNoShortcutsShortcutsActiveActive
CommunicationsCommunications
PracticesPractices==
ProceduresProcedures
Up-To-DateUp-To-DateDocumentationDocumentation
StrongStrongTeamworkTeamwork
SharedSharedValuesValues
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Performance is a function of the Management Systems and the Level of Execution
=
Management Standards
Operational Discipline
Operational Effectiveness
x
State of Implementation
State of Operational
Effectiveness
State of Safety
Standards
60%60%
30%30%
18%18%
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Why the model works for Successful Companies
A single governance process A single governance process
Common corporate metrics
Common risk classification protocol
Common audit protocol
Common corporate metrics
Common risk classification protocol
Common audit protocol
Common incident investigation / classification approach
Continuously upgraded via global networks
A common goal of Operational Incidents
Common incident investigation / classification approach
Continuously upgraded via global networks
A common goal of Operational Incidents
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PSM Metrics
PRINCIPLE
What you don’t measure, will not improve. What you don’t audit, will not be sustained
● Metrics need to developed at all levels
Strategic / Corporate
Leadership / Site
By Element
● Metrics should be tracked/reviewed at least monthly
● Leaders must establish what is acceptable performance and how it will respond when it is or is not acceptable
● Metrics drive Continuous Improvement
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DuPont Metrics ApproachAll operating units report Quarterly to Corporate 10 PSM Metrics
1. # of Process Safety Incidents, including severity
2. # of open and overdue Incident Recommendations
3. # of scheduled, open and overdue PHA’s
4. # of open and overdue PHA Recommendations
5. # of open and overdue 1st Party PSM Audit Recommendations
6. # of open and overdue 2nd Party PSM Audit Recommendations
7. # of OP’s and SWP’s (Procedures) overdue for review/revision
8. # of overdue MI Tests/Inspections for PSM critical components
9. # of scheduled, open and completed Emergency Drills
10. # of Approved Extensions to PSM Action Items
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Why the model works for Successful Companies
Integrated into all business processes Integrated into all business processes Resource allocation /
prioritization
Capital projects planning and execution
Personnel succession planning
Performance management
Training and development
Contractor selection / retention
Acquisition due diligence
Resource allocation / prioritization
Capital projects planning and execution
Personnel succession planning
Performance management
Training and development
Contractor selection / retention
Acquisition due diligence
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Why the model works for Successful Companies
Flexible and adaptable to many industries Flexible and adaptable to many industries Currently in use in industries as diverse as Chemicals, Upstream and Downstream Oil & Gas, Power Generation, Food Processing, Mining (Surface and Sub-surface), Metals Processing (Alumina, Steel, Gold, Nickel, Coal) and Pipelines/Storage.
Also, is being incorporated in Major Projects processes that construct these same facilities
Currently in use in industries as diverse as Chemicals, Upstream and Downstream Oil & Gas, Power Generation, Food Processing, Mining (Surface and Sub-surface), Metals Processing (Alumina, Steel, Gold, Nickel, Coal) and Pipelines/Storage.
Also, is being incorporated in Major Projects processes that construct these same facilities
Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, and The miracles of science™ are registered trademarks or trademarks of DuPont or its affiliates.
The DuPont Approach to Improving Process Safety
Performance
The DuPont Approach to Improving Process Safety
Performance
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To assist clients to achieve sustainable results, we use a structured approach for culture and process change
Plan Transition
Plan Transition
Assess Current State
Assess Current State
Implement Changes
Implement Changes
Envision Future State
Envision Future State
Develop the change planDevelop the change plan• What must be done?• When must it be done?• By whom?• How?• Assign accountability
Develop the change planDevelop the change plan• What must be done?• When must it be done?• By whom?• How?• Assign accountability
Make the changesMake the changes• Guide process teams in
design and development• Craft appropriate training• Rollout changes• Train staff• Measure Results
Make the changesMake the changes• Guide process teams in
design and development• Craft appropriate training• Rollout changes• Train staff• Measure Results
Get management commitment to Get management commitment to changechange• Understand current state and performance reasons• Gain a common perspective of what
change is necessary• Prioritize change actions• Mobilize the organization
Get management commitment to Get management commitment to changechange• Understand current state and performance reasons• Gain a common perspective of what
change is necessary• Prioritize change actions• Mobilize the organization
Examine culture and safety Examine culture and safety processes & systemsprocesses & systems• Perception • Organization & Structure• Policies & Processes• Performance analysis• How work gets done - Execution
Examine culture and safety Examine culture and safety processes & systemsprocesses & systems• Perception • Organization & Structure• Policies & Processes• Performance analysis• How work gets done - Execution
Sustain Changes
Sustain Changes
Sustain the change Sustain the change Keep it current• Audit to maintain progress• Create a learning and development curriculum
Sustain the change Sustain the change Keep it current• Audit to maintain progress• Create a learning and development curriculum
3-5 years
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About assessment of current state
What?
● A broad-based, data and hypothesis-driven, process-oriented assessment of the client based on 22 elements, looks at how client currently does things and what opportunities exist for us to help them improve.
How?
● Follow a rigorous method to gather information from data and safety perception surveys and form (several) initial hypotheses1 about the client, then
● Gather more detailed information in the field to prove, disprove, revise, and/or create new hypotheses, then
● Pull all that information together to identify and prioritize their issues/problems, then
● Develop recommendations to solve the “critical few” problem(s), and finally
● Present the business case to implement these changes with DuPont assistance
Outputs
● Assessment report that identifies strengths, opportunities and recommendations
● Element wise benchmarking against world class
● Safety perception survey results
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Example of PSM Assessment Results
Based on PSM elements for a mining and chemical company
0
1
2
3
4
5
Lead
ersh
ip
PSIPHA
MO
C-PM
CO-T
,F QA
Trai
ning
PSSR MI
EPRIN
C INV
Auditin
gO
P&SWP
CSM
Fundamentals
Awareness
Skills
Excellence
World Class
Low Site Score
Composite Score
High Site Score
NOTE: Multiple sites were involved. The range and average of the results are shown.
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Envision future state
What?
● Facilitate leadership aligned thinking on desired future state that can be clearly and visually articulated to the broader organization
How?
● Interact one-one with top management to gain individual insights and expectations
● Collate and analyze the leadership expectations versus current state as established from the assessment
● Prepare and facilitate a workshop that includes brainstorming with the top management including the board if possible.
● Contents of the workshop will include where are now? Why? Where do we want to be? By When?
Outputs
● Leadership that understands current state
● Aligned leadership on future vision and direction
● Communication package that can be used consistently articulate leadership vision
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Plan the transition
What?
● Developing a phased roll out plan that is practical in achieving the desired future state as articulated by top management.
How?
● Form a cross functional team
● Develop an overall roadmap to move from current state to the desired future state
● Quantify the resources required to move from current state to the desired future state in terms of financial, human and technological resources
● Gain alignment and commitment on resourcing the plan
● Communicate to the broader organization
Outputs
● Roadmap that represents a phased plan to achieve desired state in the time-frame that has been agreed by the top management
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Implementing the plan
What?
● Facilitating the execution of the transition plan through continuous support from consultants who have hands-on operational experience to achieve desired state of safety culture and performance.
How?
● Coaching leadership, managers and supervision in defining expectations, monitoring performance and demonstrating desired behaviours at corporate and site Levels (e.g. one-one coaching)
● Consulting in establishing/upgrading standards/procedures tools and processes for effective PSM management in critical areas (e.g. PSM Committee structure, PSM standards development)
● Training and skill building for leaders, managers and supervisors to managing PSM as an integral part of their daily routines (e.g. accountability for process safety, communication, etc)
● Implementation Assistance to ensure that established standards/procedures and tools are implemented successfully and effectively. (e.g. troubleshooting with respect to implementing work permit systems)
Outputs
● Depends on the scoping with the client
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Recommended Approach to Effective Implementation
Coaching Coaching Coaching
Practical Application
Client lead & Expert review
Practical Application
Expert lead
Content Finalization through task teams
Wo
rks
ho
p 1
Wo
rks
ho
p 2
Wo
rks
ho
p 3
Practical Application
Client lead & Expert support
Performance metrics to sustain change
Deliver
Top management involvement
Transformation
Practical Application: Skills transfer is tested and coaching is provided in the field
Experiential workshops: Formal classroom sessions focused on knowledge transfer & skill development related to skills needed to drive the change program. Sessions provide the conviction and motivation for the change program.
Performance metrics to sustain change: Selecting and implementing performance metrics with a focus on leading metrics to sustain the improvement initiatives.
Expert and Experiential coaching: On-the-job coaching to build capabilities and confidence to drive the change.
Content finalization through task teams: Development of best practice Management System content.
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Sustaining PSM Performance and Culture
What?
● To facilitate sustaining the gains from transition and ensure continual improvement.
How?
● Develop a process for auditing and driving continuous improvement
● Develop a learning and development curriculum to ensure that all levels of the organization have knowledge and skills that are current and relevant to perform their roles
● Benchmark with external agencies to maintain the momentum
Outputs
● Tools to facilitate sustenance of PSM performance and culture
Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, and The miracles of science™ are registered trademarks or trademarks of DuPont or its affiliates.
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Features of a Well-Implemented PSM System
• PSM is integrated into the other business processes
• There is a full understanding of one’s process hazards
• Everyone’s roles and responsibilities are well defined and executed well
• Sufficient commitment of resources; people and money
• Facility is designed, operated, and maintained at a world-class level
• Continuous improvement is achieved via the use of metrics, audits and ever strengthening standards
• A goal of zero process incidents is pursued by all
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• Avoidance of catastrophic events that injure people, facilities, business and the environment
• Improved Sustainability
• Improved productivity and reduced downtime
• Improved quality and customer satisfaction
• Sustained “right to operate”
• Improved employee morale
• Improved credibility in the investment community
Business Benefits of PSM
CCPS Benchmarking Study
• 2 Qualitative Benefits
Corporate Responsibility
Business Flexibility
• 2 Quantitative Benefits
Risk Reduction
Sustained Value
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DuPont Process Incident PerformanceNumber of PSI's vs. % Audit Scores
0
20
40
60
80
100
120
140
160
180
200
# o
f P
SI's
50
55
60
65
70
75
80
85
90
95
100
% A
ud
it S
co
res
# of PSI's Audit Scores
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Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, and The miracles of science™ are registered trademarks or trademarks of DuPont or its affiliates.
DuPont PSM Leadership Model
Trained , Knowledgeable, Capable People in all roles Adequate resources
Financial Support Knowledge Management
Cat A PSM Incidents
Cat C PSM Incidents/Near misses/ Key Learnings
Metrics & Recommendations from Incidents , PHA & Audits
Leadership Safety Culture, Commitment, Accountability, Resources, Involvement
Foundational
Cat B PSM IncidentsLagging
Indicators
Leading Metrics
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Conclusion
Successful leaders identify, evaluate and mitigate operational risks through:
• Implementing comprehensive, integrated management systems
• Fostering a positive, trusting and open culture
• Pursuing and achieving the goal of zero significant operational incidents
Successful leaders identify, evaluate and mitigate operational risks through:
• Implementing comprehensive, integrated management systems
• Fostering a positive, trusting and open culture
• Pursuing and achieving the goal of zero significant operational incidents
“It is imperative that leadership set the ‘tone at the top’ of the organization and establish appropriate expectations regarding process safety performance.”
Baker Panel Report (January 2007)
“It is imperative that leadership set the ‘tone at the top’ of the organization and establish appropriate expectations regarding process safety performance.”
Baker Panel Report (January 2007)
Copyright © 2011 DuPont. All rights reserved. The DuPont Oval Logo, DuPont™, and The miracles of science™ are registered trademarks or trademarks of DuPont or its affiliates.
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