Best Practices for Operational Risk Management

1. Best Practices for Operational Risk Management Information, Insight & Improvement Todd Lunsford, Sr. Manager Solution Engineering Operational Excellence & Risk Management October 9th, 2013

2. Purpose & agenda 2 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. The problem asset-intensive organizations are facing today How better information can lead to insight & improvements The journey to operational excellence

3. Todd’s 11-year IHS journey 3

4. Leading indicators of Todd’s # of ski days = more than 20 ski days 4

5. QUESTION for the audience: Stable total recordable incident rate (TRIR), using 200k hrs.

6. The problem asset-intensive organizations are facing today

7. The rate of catastrophic incidents has not changed • “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.) 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”

8. Corporate leaders are addicted to lagging metrics Limited insight = limited ability to prescribe or recommend improvements

9. 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?

10. A tale of two sites

11. What if you could gain additional insight into your culture? 11

12. What if you could monitor and improve cultural factors at these sites? A simple scorecard example Engage the workforcein 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

13. How better information can lead to insight & improvements

14. The goal of leading indicator statistical analysis Research: Answer the Question… What are the actionable, measurable differences that lead to the below results? TRIR of over 1 million incidents Lowest Highest Sustaining near zero Orders of magnitude worse 14

15. OE benchmark indicator analytics • Insight driven analytical process Subject Matter Expertise and Insights Cross Customer / Industry Dataset Metrics Factors Indicators Performance Outcomes D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D Index D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D Data Extraction/Calculation Factor Analysis Predictive Modeling

16. Business process measurement = insight into culture Reporting Culture Metrics Leadership Responsiveness Metrics… Risk-Driven Metrics Reporting Culture 1 Obtain / ReviewDate Hi Reported Low No Loss 1a Measure Potential Risk Exposure to Loss Risk Reduction Cycle Work Practice Steps Process Execution Metrics 1b Risk Exposure Identify Failed Controls 2 Iterate Where Applicable Implement / Repair Controls Reduced Leadership Feedback Action Effectiveness Metrics Learning Mindedness Metrics 16 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-conformances The list goes on and on…

17. Example: leadership responsiveness Accepted by supervisor via email Mean days for supervisor response 1 QHSE Reporting Culture Obtain / ReviewDate Hi Reported Low No Loss 1a Measure Potential Risk Exposure to Loss Risk Reduction Cycle QHSE Work Practice Steps 1b Risk Exposure Identify Failed Controls 2 Iterate Where Applicable Implement / Repair Controls Reduced Leadership Feedback 17

18. Real world example–prescriptive analytics • Benchmark metrics Process Execution Learning Minded Asset 1 Asset 2 Asset 3 Asset 4 Asset 5 Asset 6 Asset 7 Asset 8 Asset 9 Asset10 Asset11 Asset12 Asset13 Asset14 Asset 1 Asset 2 Asset 3 Asset 4 Asset 5 Asset 6 Asset 7 Asset 8 Asset 9 Asset10 Asset11 Asset12 Asset13 Asset14 Risk Driven Operating Discipline Index Asset 1 Asset 2 Asset 3 Asset 4 Asset 5 Asset 6 Asset 7 Asset 8 Asset 9 Asset10 Asset11 Asset12 Asset13 Asset14 Asset 1 Asset 2 Asset 3 Asset 4 Asset 5 Asset 6 Asset 7 Asset 8 Asset 9 Asset10 Asset11 Asset12 Asset13 Asset14

19. Real world example – prescriptive analytics • Average days for investigations 30 days • 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.

20. OE benchmark indicator analytics • Progressive benchmark indicators Data Data Data Data Metrics Metrics Metrics Metrics Factors Factors Factors Factors Indicators Indicators Indicators Indicators Progressive Operating Discipline Paradigm Learning- Mindedness D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D Risk Driven D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D Index Index Index Index D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D Process Execution D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D Reporting Culture D D D D D D D D Data Extraction and Calculation Data Extraction and Calculation Data Extraction and Calculation Data Extraction and Calculation Factor Analysis Factor Analysis Factor Analysis Factor Analysis Predictive Modeling Predictive Modeling Predictive Modeling Predictive Modeling

21. Manage with naturally-produced leading indicators Action Item Execution Leader Responsiveness Reporting Culture Process Discipline Leading Indicator Scorecards. Benchmarking.

22. The journey to operational excellence

23. How do you get there?

24. The journey to operational excellence Reduction of incidents through continuous improvement Manage with Progressive Leading KPIs World Class Improved organizational effort and discipline Optimize Business Processes Deep Improved reporting culture Improved risk mitigation Engage the Workforce Broad IT Integration Data Integrity Compliance Initial • Data Efficiency on a Common Platform

25. OE processes must be analytics ready Enterprise-wide Platform “Ideal for Analytics” Many Silo’s Aggregate Quantities, -- or -- Subjective Full Process Execution, -- and – Objective

26. Are you ready? “Ideal for Analytics” Enterprise-wide Platform MOC Incident BBS Audit MOC Risk Assessment Many Silo’s Aggregate Quantities, -- or -- Subjective Full Process Execution, -- and – Objective

27. Accelerating continuous improvement Operational Excellence • Continuous • Improvement • Cycle #2 • Performance • Indicators • Breakthrough • Insights • Opportunities • for Improvement • Continuous • Improvement • Cycle #1 • Analytics • Readiness • Analytics • Potential Policy, Procedure And System Changes Apply Change • Analytic • Readiness • Implementation

28. Next steps?

29. Questions? THANK YOU! Todd LunsfordSolution Engineering Manager, IHStodd.lunsford@ihs.comor email us at ehs-sustainability@ihs.com