The ROI of PSMS: Element 3 – Risk Management

Risk Management and pipeline safety

This is the third segment in a series of articles discussing the value or benefits an organization may expect from implementing each of the ten elements of the American Petroleum Institute's Recommended Practice 1173 (API RP1173) – Pipeline Safety Management Systems (PSMS). In this article, I will explore the benefits of risk management, or conversely, the costs associated with not managing risk.

As I stated in previous articles, PSMS is not currently a requirement for pipeline operators even though many of the individual elements of RP1173, in whole or in part, are required by existing regulations (e.g., OQ, Risk/Integrity Management, Operational Controls/Procedures, etc.). The value PSMS provides is that it requires operators to manage various aspects of their operation with intentionality, holistically, and with a keen focus on risk and continuous improvement.

WHAT IS RISK?

There are many definitions of risk; ASME B31-8S, which is incorporated by reference into the pipeline safety regulations, contains the following interpretation of risk:

"Risk is typically described as the product of two primary factors:

the failure likelihood (or probability) that some adverse event will occur

and the resulting consequences of that event."

Stated differently, risk can be boiled down to "what can go wrong!". Recognizing that something can go wrong is the first step in managing or controlling such risks.

WHAT IS RISK MANAGEMENT?

Risk management is defined in API RP-1173 as a:

…systematic application of management policies, processes, procedures, finite financial and human resources, and practices to the tasks of identifying, analyzing, assessing, applying prevention practices, and mitigating risk to protect employees and contractor personnel, the general public, the environment, and the pipeline. API RP-1173 (3.1.38)

Risk management is the collective set of practices to identify what can go wrong and then implement controls to prevent such risks from occurring or mitigate the consequences of such risks if they do occur.

OBVIOUS BENEFITS OF EMBRACING RISK MANAGEMENT

Generally, the benefits associated with embracing and implementing a risk management program are straightforward and do not require much explanation or analysis. In addition to the apparent benefits derived from managing risks, such as ensuring the safety of employees, customers, the public, pipeline facilities, and the environment, there are many other benefits to be gained that are not quite as evident. The high-consequence nature of natural gas pipeline operations represents a moral, legal, and financial responsibility that pipeline operators cannot disregard.

That being said, when holistically looking at the benefits of risk management as envisioned by RP-1173, the intentional adoption of risk management practices throughout an organization provides certain intangible benefits that may not be readily apparent; as such, I offer the following overview of the less-evident risk management benefits for consideration.

THE NOT-SO-OBVIOUS BENEFITS OF EMBRACING RISK MANAGEMENT

Even though the concept of risk management is a bit of a "no-brainer," there are additional benefits to adopting a risk management approach that solicits input from the employee base at large. This can be looked at as "crowdsourcing" risk management. Imagine for a moment how powerful a risk identification and management program could be if you had all employees on the lookout for things that could go wrong and then suggest preventive or mitigative steps to address these risks. In many cases, through Corrective Action Plans (CAPS), the boots-on-the-ground employees, including contract employees, are in the best positions to identify risks – that is, what can go wrong!

As I have often said, one of the key benefits of a positive safety culture is that, from a risk management perspective, if an employee "Sees Something," they should also be motivated to "Say Something" without fear of retribution. Subsequently, management is expected to "Do Something" to address the identified risk. These are all good things! However, such a goal is short-sighted. Operators need to be more granular or detailed when asking employees to report on "what could go wrong." Employees must be encouraged – and perhaps incentivized – to recognize and report on things that could go wrong, not only from a general perspective but also "specific" to the job or task they are expected to perform. By doing so, an operator can significantly benefit from a more insightful recognition of risk brought to their attention by the employees who are "actually doing the work."

Benefits of Risk Management:

• Improved safety,
• Increased employee engagement in identifying and reporting risk,
• Reduced and/or mitigated incident costs,
• Lowered insurance rates,
• Improved company reputation in the eyes of employees, customers, the public, and regulators, and
• More appropriate allocation of resources.

In conclusion, the thoroughness of an organization's Risk Management Program and management's responsiveness to employee-identified risks ("See Something, Say Something") builds understanding and confidence in management's commitment to safety. Further, management's resource allocation to manage risk ("Do Something") demonstrates that commitment and enhances safety culture.

FUTURE ARTICLES

Be sure to stay tuned for future articles regarding the ROI of PSMS. Each element of PSMS will be examined and, hopefully, will help convince those on the fence that pursuing PSMS brings value to the organization in many ways – including, but not limited to, enhanced pipeline safety.

If you want to learn more about how Energy Worldnet can help you with your PSMS journey, do not hesitate to contact me at 317-523-7437.

(Note: While the title of this series, "The ROI of PSMS," may be a bit misleading, it does draw attention to the notion that implementation of PSMS involves certain costs and carries the expectation of specific benefits, both of which will vary from organization to organization. Technically, the ROI calculation is made by simply dividing the "quantified" net benefits by the costs of implementation (the investment). The resulting ROI percentage can be used for prioritizing competing investment opportunities. For purposes of this series, the notion of competing investments is not considered; instead, the series intends to identify PSMS-related benefits to inform the decision-making process regarding whether to move forward with PSMS or not.)

Steve Allen
Executive Director, Pipeline Safety
Energy Worldnet