0 Marsh RISK MANAGEMENT? EFU Risk Management Presented By: KHURRAM ALI KHAN

1 Marsh Relevance of Losses to (Engineering) Risk Management? Stages of Risk Management Risk Identification – what can go wrong Risk Quantification – probability and severity Mitigation – safeguards, hard and soft Risk Tolerance Criteria – Corporate, Legislative, Social Acceptability – ALARP As Low as Reasonably Practical Relevance of Losses ? EFU Risk Management

2 Marsh Relevance of Losses to (Engineering) Risk Management? Tolerability criteria and Mitigation requirements, both legislative or corporate, are often based on incident investigations – ASME Boiler codes written in blood spilled in the 19th and 20th centuries. Hauge street explosion, New York 1850, 67 dead SS Pennsylvania, Memphis 1858, 250 dead Town and son factory, Yorkshire 1869, 15 dead Rules for construction of Boilers issued in 1914 as an act of public service in response to numerous failures and mishaps in ships, factories, steel mills and woodworking shops – Management of Change procedures – post Flixbrough and 28 fatalities EFU Risk Management

3 Marsh Risk Evaluation – Risk Matrices Frequency of Losses helps quantify probability CONSEQUENCE - People / Reputation / Environment / Assets EFU Risk Management

Does Learning From Losses have a Shelf Life? To help with this question we will examine a 1912 loss, the most famous maritime disaster in history.

5 Marsh Recognise this Ship? EFU Risk Management

6 Marsh Recognise this Ship? The White Star Liners The Olympic EFU Risk Management

7 Marsh The Olympic: Commissioned 14 th June 1911 The Titanic: Commissioned 11 th April 1912 The White Star Liner Company EFU Risk Management

8 Marsh Sinking of Titanic, 15 April 1912 Owner: White Star Line Construction: Harland & Wolff, Belfast EFU Risk Management

9 Marsh Olympic Class of White Star Steamers Developed by JP Morgans White StarShipping Group Constructed by Harland & Wolff in Belfast included The Olympic, The Titanic and The Britannic Designed to compete with Cunard & German Shippers on the prestigious Transatlantic English Channel in the early 1900s Built for affluent travelers offering highspeed luxury – The prized Blue Riband was bestowed upon the ship with the fastest crossing. Held by Cunards Mauretania Reference: The Riddle of the Titanic, Gardiner et. al. Orion, 1998 EFU Risk Management

10 Marsh Sinking of Titanic, 15 April 1912 Details: – 882 ft 9 in (269.1 m) long, 92 ft 6 in (28.2 m) wide – Gross register tonnage of 46,328 tons – Steam from 29 boilers powered two reciprocating steam engines and one low-pressure Parsons turbine, which drove three propellers. – Possible top speed of 23 knots (43 km/h). EFU Risk Management

11 Marsh What has changed since 1912 Information technology – Computers, phones, radar Advanced materials – metallurgy, plastics, resins Huge advances in machinery design. Mass transit systems EFU Risk Management

12 Marsh Timeline 10 April 12:00 departure Titanic from Southampton on maiden voyage to New York (via Cherbourg and Queenstown) 12 April, reports of ice fields on course coming in 14 April, increasing ice field reports, course altered to south, speed maintained at 22 knots 14 April, night: moonless, clam seas, temperatures just below freezing 14 April, 23:00, Californian radioed more ice and mentioned it stopped for the night because of pack ice, answer from Marconi radio operator shut up, shut up, Im busy, Im working Cape Race EFU Risk Management

13 Marsh Timeline 14 April, 23:40 – iceberg directly ahead alarm from crows nest to bridge – First Officer Murdoch ordered helm hard to starboard and engines stopped – to prevent stern hitting iceberg, he then ordered helm hard to port, this manoeuvre came too early and – ships bow hit undersea shelf of ice, causing damage to riveted seams 14 April, 23:52 decision to restart engines by Ismay, increasing leak, with rivets popped open below water line over length of 90 m, allowing increasing amounts of water to enter damaged compartments, causing bow to sink, and water eventually to rise above watertight bulkheads terminating at E deck EFU Risk Management

14 Marsh Timeline 15 April, 00:10 distress calls started (SOS) 15 April, 00:19 engines stopped for last time 15 April, 00:27 first lifeboat lowered (with capacity for 65 people, carrying 27) 15 April, 00:35 distress rockets launched 15 April, 02:20 Titanic sinks 15 April, 04:10 Carpathia arrived on scene EFU Risk Management

15 Marsh What lessons can we (still) learn ?? Learning from previous Incidents Staff Selection Organizational Goals and Leadership Management of Change Material Integrity Emergency Planning EFU Risk Management

16 Marsh The Olympic – Prelude to Disaster Learning from Incidents and Staff Selection 21 st Jun 1911 – Upon commissioning crashed into & almost sunk O.L. Halenbeck in Manhattan 20 th Sep Crashed into the Naval Cruiser the HMS Hawke in Southampton 24 th Feb Knocked-off one of its twenty-six tone propellers on a well-known wreck in the Grand Banks Captained by Edward J. Smith. Were large displacement effects understood? How were people trained? EFU Risk Management

17 Marsh Staff selection and learning from previous incidents Regarded as very experienced but….. 27 th Jan Ran The Republic aground in New York 1 st Dec Ran The Coptic aground in Rio de Janerio 4 th Nov Ran The Adriatic aground outside New York History of running ships too fast through narrow passages.. and of not adequately training his officers Captain Smith was commissioned to command the Titanic EFU Risk Management

18 Marsh Setting the Right Culture Titanic was Unsinkable and specifically built to Compete for the fastest Atlantic crossing – This set the tone for poor decisions and leadership pressures Personnel competency and leadership (pressure to make fast crossing Incident investigation (no culture of near miss reporting and accident / incident investigation on previous events involving captain Smith) Decision by Ismay (White Star Managing Director) to start engines after impact and reach Halifax under own steam) Smith received at least six warnings of Ice from ships at dead stop in the area Titanic sped toward ice field at 22.5 knots vs a recommended 10 knots in such conditions No binoculars in the crows nest made early warning near impossible No need for lifeboats EFU Risk Management

19 Marsh Safety outweighing every other consideration Was the framed notice in the chart room of every White Star liner in 1912 EFU Risk Management

20 Marsh Setting the right culture … I faced a dilemma on the day, standing 20 metres from the explosion and the fire as to whether or not I should activate ESD 1, because I was for some strange reason, worried about the possible impact on production … EFU Risk Management

21 Marsh Quality Control and Material Identification Asset integrity (rivets of best rather than best-best quality with high concentration of slags) Shortage of skilled riveters Rivets popping contributed to speed of sinking Inferior quality of steel alloys is a genuine concern today Mix-up of materials is a known cause of incidents – 2nd fire at Texas City EFU Risk Management

22 Marsh Quality Control and Material Identification France: 6,500 faulty Chinese valves in use N Sud Robinetterie (SRI). Vannes Rigau S.A.S. On September 24, the regional newspaper La Provence reported that it had exclusive information, confirmed by Direction Régionale de lEnvironnement, de lAménagement et du Logement (DREAL – Regional Administration of Environment, Planning and Housing), that several thousand substandard Chinese-made valves were in use throughout French industry. The valves were reportedly delivered to Vannes Rigau S.A.S., in Lille, on the orders of its parent company in Marseille, Sud Robinetterie. The valves in question were described as corner or angle valves, globe valves, and flapper valves, in carbon steel, and certified by the German TÜV before their entry into France. According to La Provence, the valves have incorrect heat treatment, and are prone to leak at low temperatures. Expected to operate down to -10ºC, they can only be used down to +5ºC. It was alleged that one of these valves may have been involved in an un-reported incident at Totals Gonfreville site in April, 2009 EFU Risk Management

23 Marsh Management of Change Lowering watertight bulkheads to allow ease of movement of people – As the bow sank, water came above E deck, accelerating the sinking as there were no bulkheads to limit the ingress. – Hazard evaluation (requirement to be unsinkable relies on integrity of watertight compartments, see above) Was the decision to change the rivets a conscious one? Lifeboats had been reduced for 64 to 22 in favour of more expansive promenade decks cf Olympic design Insufficient to take the passengers and crew EFU Risk Management

24 Marsh Management Of Modifications As important as ever Norway's PSA criticizes StatoilHydro's safety culture In May 2008, StatoilHydros Statfjord A platform, discharged 400 m³ of oil from one of the shafts into the Norwegian North Sea. StatoilHydro was forced to evacuate 156 persons. EFU Risk Management

25 Marsh Management Of Modifications As important as ever Norway's PSA criticises StatoilHydro's safety culture LONDON, September – Norways Petroleum Safety Authority (PSA) has released a report attacking StatoilHydro's safety standards on the Norwegian continental shelf PSA indicated dissatisfaction with the quality of the risk assessment StatoilHydro and partners Industrikonsult AS (IK) and Aker Solutions AS carried out for the modification work on Statfjord A's utility shaft. It said they had failed to meet regulatory standards PSA issued an order to StatoilHydro to revamp its procedures for these types of projects by November 1. It also ordered that management of modification improvements be appreciably improved by December 1 PSA also ordered Aker "to identify and implement necessary improvements in the company's management of modification assignments, including identification of risk and use of information about risk in planning and executing hazardous work operations, including the selection of work methods and equipment, and follow-up of subcontractors" EFU Risk Management

26 Marsh Emergency Planning Major accident potential (worst case scenario sinking) was discounted. Emergency response arrangements (total lifeboat capacity of 1,172 for maximum number of passengers and crew of 3,547, however complying with regulatory requirements. – Original design had just about enough lifeboats The officers on board The Titanic had not trained with the lifeboats and were unsure of their holding capacity. Smith often claimed to have never faced a near disaster – Reportedly his performance deteriorated in the last two hours. Many people could not read the English signs There was not a standing safety-response plan.. the Women and Children first response was a (commendable) reaction more than a previously-agreed plan. EFU Risk Management

27 Marsh Lack of Emergency Planning – the results Lives Saved: 705 Lives Lost: 1500 Total passengers 2,205 Max Lifeboat Capacity 1,600 It wasnt until 45 minutes after the collision that officers commence preparing the lifeboats Twenty lifeboats were launched Officers feared that the ships davits & winches would not hold the weight of the recommended 70 people All but the last few lifeboats floated were half-filled It is a fact that had the Officers filled the lifeboats per their specification an additional 600+ people could have been saved. EFU Risk Management

28 Marsh Does learning have a shelf life? The lessons from Titanic are still relevant today There are good lessons which cross between industries Can we learn from the past….the Risk Engineering team would say yes! EFU Risk Management

29 Marsh Learning From Losses – The Insurance Perspective Much has been written on learning from incidents – Almost all clients have incident reporting systems – Few formal systems for third party incidents Major incidents occur relatively often somewhere – Focus has been mainly on personnel safety – Lessons do not appear to be new Major incidents continue to occur Lessons are well documented, but not always learnt by other organisations – A number of possible reasons for this exist EFU Risk Management

30 Marsh Risk Management and Losses Why is learning from losses difficult? EFU Risk Management

31 Marsh (Not) learning from positive results Learning from Transformer fires ? – See plenty of transformers with no dividing fire walls – See plenty of large transformers with no deluge systems EFU Risk Management

32 Marsh Classic Process Industry Losses around the World EFU Risk Management

33 Marsh Date2004 CountryAlgeria Fatalities27 Injuries80

34 Marsh Date2005 CountryIndia Fatalities13 Injuries300 Financial Loss (PD)USD 380m

35 Marsh So why do we not learn ? Distance effects Time effects Cultural effects Tunnel vision EFU Risk Management

36 Marsh Distance effects Local awareness Local media pressure Local regulatory effects Potential differences between multinationals and NOCs EFU Risk Management

37 Marsh Incident Timeline 1966 France 1974 UK 1975 UAE 1984 Mexico 1987 UK 1988 Brazil 1989 Indonesia 1992 France 1993 Venzuela 1998 Australia 2000 Kuwait 2004 Algeria 2005 USA 2005 UK EFU Risk Management

38 Marsh Time effects Time is a great healer Loss of experienced people Loss of corporate memory Young companies – Not just in the Middle East Understanding Risk can change with age of plant – Has worked fine for 20 years EFU Risk Management

39 Marsh Loss Trends and Analysis Losses by Age of Process Unit (excluding Nat Cat.) Only includes losses where age of process plant known (sample size of 79 losses) 65% of losses involve process units >30 years old Typical design life years Source: LIU Loss Database Losses by Age of Process Unit ,000 1,500 2,000 2,500 3,000 3,500 <10yrs10 to 20yrs20 to 30yrs>30yrs Total Loss (USD Millions) EFU Risk Management

40 Marsh Cultural effects It has not happened here Engineers like to believe things work – not consider failure Flawed assumptions re international standards Personnel safety vs Process safety Fear of litigation Fear of blame Difficulty in challenging upwards in some cultures EFU Risk Management

41 Marsh Tunnel vision Within a site Within a division Within a company Within the industry Unsinkable, built to compete Focus is on projects, rationalisation, expansion, staying afloat EFU Risk Management

42 Marsh Feyzin, France 1966 Date1966 CountryFrance Fatalities18 Injuries18 Extensive damage to nearby village

43 Marsh FEYZIN 1966 – The Lessons Design sphere drains / sample points – with fixed valve handles – to discharge outside shadow of sphere – no catch pits under spheres Improved training about: – importance of correct valve sequence and operating procedures – BLEVE can occur with water sprays and open relief valve Improved means and training about raising the alarm Coordination of emergency plans with public authorities to stop public traffic, etc. Improve fire brigade response times EFU Risk Management

44 Marsh The effect of distance, time, and language ? Feyzin – French spheres generally good – Japanese spheres poorer – Recent Japanese- designed installations below average – Recent survey found plant with most ball-valve handles removed EFU Risk Management

45 Marsh What was learnt from these 2 incidents? EFU Risk Management

46 Marsh 1998 – Australia 2005 – USA EFU Risk Management

47 Marsh Longford vs. Texas City Longford Royal Commission Report 1998 Those who were operating GP1 on 25 Sept 1998 did not have knowledge of the dangers associated with loss of lean oil flow and did not take steps necessary to avert those dangers. Nor did those charged with supervision of the operations have the necessary knowledge and the steps taken by them were inappropriate. Texas City Report 2005 Raffinate Splitter Startup Procedures and Application of Skills and Knowledge: Failure to follow the startup procedure contributed to the loss of process control. Key individuals (management and operators) displayed lack of applied skills and knowledge and there was a lack of supervisory presence and oversight during this startup. EFU Risk Management

48 Marsh Conclusions: how we can learn from mistakes Recognise barriers of time and distance – Keep the lessons alive Recognise cultural barriers Promote culture of learning – not blame Share positives and negatives Recognise limitations of national and international standards Look at other industries, Columbia 2003, Nimrod 2006 Extract value from your broker relationship.. Its a great potential knowledge transfer opportunity EFU Risk Management