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

Copyright © 2013 IHS Inc. All Rights Reserved. Purpose & agenda 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. 1. The problem asset-intensive organizations are facing today 2. How better information can lead to insight & improvements 3. The journey to operational excellence 2

Copyright © 2013 IHS Inc. All Rights Reserved. Todd’s 11-year IHS journey 3

Copyright © 2013 IHS Inc. All Rights Reserved. = more than 20 ski days 4 Leading indicators of Todd’s # of ski days

Copyright © 2013 IHS Inc. All Rights Reserved. QUESTION for the audience: 0.39 Stable total recordable incident rate (TRIR), using 200k hrs.

The problem asset-intensive organizations are facing today

Copyright © 2013 IHS Inc. All Rights Reserved. 7 The rate of catastrophic incidents has not changed 7 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” “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.)

Copyright © 2013 IHS Inc. All Rights Reserved. 8 Corporate leaders are addicted to lagging metrics Days Away from WorkTotal Recordable Injuries Injury AVG Workforce Hours Worked First AidActual Target Number DAFW Rate Target Rate Actual Target Number TRI Rate Target Rate Employee Contractor Workforce Limited insight = limited ability to prescribe or recommend improvements

Copyright © 2013 IHS Inc. All Rights Reserved. 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?

Copyright © 2013 IHS Inc. All Rights Reserved. A tale of two sites Significant PSM Incident Culture of Ingenuity Clean Record Culture of Discipline

Copyright © 2013 IHS Inc. All Rights Reserved. Business process discipline Behaviors Organizational factors Leadership examples Risk sensitivity What if you could gain additional insight into your culture? 11

Copyright © 2013 IHS Inc. All Rights Reserved. What if you could monitor and improve cultural factors at these sites? A simple scorecard example Engage the workforce in 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

How better information can lead to insight & improvements

Copyright © 2013 IHS Inc. All Rights Reserved The goal of leading indicator statistical analysis TRIR of over 1 million incidents Lowest Highest Orders of magnitude worseSustaining near zero 14 Research: Answer the Question… What are the actionable, measurable differences that lead to the below results?

Copyright © 2013 IHS Inc. All Rights Reserved. 15 Cross Customer / Industry Dataset MetricsFactorsIndicators Data Extraction/CalculationFactor Analysis Predictive Modeling Subject Matter Expertise and Insights Performance Outcomes OE benchmark indicator analytics  Insight driven analytical process

Copyright © 2013 IHS Inc. All Rights Reserved. Business process measurement = insight into culture 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… Iterate Where Applicable Risk Exposure Identify Failed Controls Implement / Repair Controls Measure Potential Risk Obtain / Review Date Exposure to Loss Reduced No Loss Lo w Hi Leadership Feedback Reporting Culture 1 Work Practice Steps 1a1a 1b1b 2 Risk Reduction Cycle Reported 16 Reporting Culture Metrics Leadership Responsiveness Metrics … Risk- Driven Metrics Process Execution Metrics Action Effectiveness Metrics Learning Mindedness Metrics

Copyright © 2013 IHS Inc. All Rights Reserved. Example: leadership responsiveness Mean days for supervisor response Iterate Where Applicable Risk Exposure Identify Failed Controls Implement / Repair Controls Measure Potential Risk Obtain / Review Date Exposure to Loss Reduced No Loss Low Hi Leadership Feedback QHSE Reporting Culture 1 QHSE Work Practice Steps 1a1a 1b1b 2 Risk Reduction Cycle Reported Accepted by supervisor via 17

Copyright © 2013 IHS Inc. All Rights Reserved. 18 Process Execution Learning Minded Risk DrivenOperating 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 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 Real world example–prescriptive analytics  Benchmark metrics

Copyright © 2013 IHS Inc. All Rights Reserved. 19  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. 30 days Real world example – prescriptive analytics  Average days for investigations

Copyright © 2013 IHS Inc. All Rights Reserved. 20 Progressive Operating Discipline Paradigm Reporting Culture Process Execution Risk Driven Learning- Mindedness  Progressive benchmark indicators OE benchmark indicator analytics

Copyright © 2013 IHS Inc. All Rights Reserved. Leading Indicator Scorecards. Benchmarking. Leader Responsiveness Manage with naturally-produced leading indicators 21 Reporting Culture Process Discipline Action Item Execution

The journey to operational excellence

Copyright © 2013 IHS Inc. All Rights Reserved. 23 How do you get there?

Copyright © 2013 IHS Inc. All Rights Reserved. 24 The journey to operational excellence Engage the Workforce Manage with Progressive Leading KPIs Optimize Business Processes Data Efficiency on a Common Platform IT Integration Data Integrity Compliance Improved reporting culture Improved risk mitigation Reduction of incidents through continuous improvement Improved organizational effort and discipline Deep Broad Initial World Class

Copyright © 2013 IHS Inc. All Rights Reserved. OE processes must be analytics ready Enterprise-wide Platform Many Silo’s Aggregate Quantities, -- or -- Subjective Full Process Execution, -- and – Objective “Ideal for Analytics”

Copyright © 2013 IHS Inc. All Rights Reserved. Are you ready? Enterprise-wide Platform Many Silo’s Aggregate Quantities, -- or -- Subjective Full Process Execution, -- and – Objective “Ideal for Analytics” Incident Audit BBS Risk Assessment MOC

Copyright © 2013 IHS Inc. All Rights Reserved. Accelerating continuous improvement 27 Continuous Improvement Cycle #1 Analytic Readiness Continuous Improvement Cycle #2 Implementation Analytics Potential Policy, Procedure And System Changes Opportunities for Improvement Breakthrough Insights Performance Indicators Apply Change Analytics Readiness Operational Excellence

Copyright © 2013 IHS Inc. All Rights Reserved. Next steps?

Questions? THANK YOU! Todd Lunsford Solution Engineering Manager, IHS or us at