Operational Risk Management A Clear Path to Proactively Managing Risk and Ensuring Operational Continuity

Transcription

1 SAP Executive Insight Paper Operational Safety and Risk Management Operational Risk Management A Clear Path to Proactively Managing Risk and Ensuring Operational Continuity

2 Without a consistent way to manage people, assets, and process safety, companies are more susceptible to risks that drive up costs and can cause serious incidents. You must proactively manage and reduce operational risk, but it requires discipline. This SAP Executive Insight Paper answers the following questions: What can we do to ensure operational continuity? How can we give our people the skills and tools necessary to ensure safe operations? How can we manage operational risks while delivering return on investment?

3 At a Glance Executive Summary Many organizations are under pressure to increase workplace and process safety, improve asset performance, and gain visibility into operational risks before incidents occur. The fact is, asset-intensive industries continue to suffer from unplanned downtime, failure to meet planned production rates, and too many safety and environmental incidents. As long as operational risks are not proactively managed, companies will struggle to improve profitability because of production interruptions, lost productivity, collateral damage to their brand, and loss of shareholder value. For corporate officers, catastrophic events can now have life-altering consequences. CEOs and COOs must sign documents that confirm compliance across all facilities so it s no longer acceptable to say, I didn t know. And as a result, they need multiple, effective riskreduction strategies. At the same time, COOs face unpredictable economic conditions, increasing competition, higher operational costs, supply chain concerns, and an aging asset infrastructure and workforce. These trends are challenging COOs and safety business leaders to make plants safer and more reliable by increasing visibility into and control over assets, processes, and people. The ultimate goal is to increase operational continuity across operations so that everything happens in a controlled, intentional, and safe manner. Barriers to Operational Continuity The question is how exactly do you achieve operational continuity and move toward a zero-incident safety record? Given the incredible complexity and variability across plants, this is not obvious. Many companies in asset-intensive industries operate more like loose confederations than unified organizations because of inconsistencies in key areas such as: People When standardizing operations, you may need to account for huge variations in knowledge and experience between employees, as well as contractors. People can also introduce many small, undocumented variations in processes and procedures that can lead to catastrophic events. Assets Operating assets may differ widely in age, mechanical integrity, technological sophistication, and overall reliability. Processes Manufacturing processes are quite complex, and operating personnel often deviate from approved procedures either because they believe it is an insignificant change or because they think their way is better. Disparate processes increase complexity, operational risk, and cost. Visibility The IT infrastructure at plants can vary from archaic and stand-alone to state-of-the-art and fully integrated. Systems can use proprietary data formats and inconsistent master data definitions and reporting, making it impossible to have the unified reporting essential for planning, decision making, and effective management. The Path Forward SAP recommends a proactive path forward that allows operations executives to drive alignment across each of these areas (described above) as part of enterprise transformation, enabling operational continuity and ultimately, sustainability: Step 1: Identify risks Perform a comprehensive risk analysis to assess operational risks across your enterprise and the effectiveness of operational controls. Once you understand the highest risks, you can define and put into operation improved plans and processes, which may include new policies and procedures, enabling technology, employee training, and more. This helps you transform operations, manage execution, and ensure changes are executed consistently across plants. Step 2: Record and learn from all incidents Implement a comprehensive incident management program. Injuries, spills, and other incidents are an indication that a risk was not adequately managed. Near misses and observations of unsafe acts and conditions should be analyzed for organizational learning and preventive action. This requires a system that is easy to use and fosters a safety culture where everyone reports and learns from incidents. Step 3: Deploy analytics for ongoing visibility and control Use analytics to monitor day-to-day operational activities and have visibility into whether people are doing what s required to deliver real improvements in safety and operational continuity. These tools provide visibility into key risk and performance indicators based on historical and real-time data. Automatic monitoring of leading indicators enables operations leaders to make changes that improve outcomes. The following sections explore this path forward in more detail, with a focus on helping operations executives to: Understand the enabling technologies Lead the change to a proactive safety culture Plan for reducing risks while accelerating progress SAP Executive Insight Paper Operational Risk Management 3

4 The Essential Components Leverage Technology to Achieve Operational Continuity ArcelorMittal Brasil Mill products ArcelorMittal Brasil is one of Latin America s main steelmaking companies, with a significant presence in the long and flat carbon steel sectors. The company chose the SAP Environment, Health, and Safety Management application to replace its disparate collection of legacy health and safety solutions. As a result, ArcelorMittal Brasil standardized its processes and set a benchmark for excellence within the global ArcelorMittal group. Results Greater access to consolidated environment, health, and safety (EHS) data with online analytics and management reports Single solution for standardized EHS management Real-time integration of EHS practices throughout facilities and business areas Improved collaboration with health service providers, clinical labs, and insurance companies Ability to negotiate better insurance rates Operational continuity requires consistent execution enabled by better process integration and information management. By replacing fragmented systems and reactive management practices with an integrated solution and automated processes, management gains visibility and control across global operations, resulting in informed, proactive operational risk management. In practical terms, you need: Analytics and performance management systems for visibility and control These applications help align objectives between corporate and operations, so summary and detailed information can be shared at all levels and functional boundaries. You can: Monitor operational risk scorecards Align sustainability objectives by using dashboards and key analytics to monitor performance Identify, assess, control, and manage your risk portfolio Use a closed-loop process to ensure consistent execution of corrective and preventive actions Environment, health, and safety (EHS) management processes to improve operational safety and performance The right EHS system lets you identify and control EHS risks to prevent incidents and management system failures. You can: Identify and assess key risks Create comprehensive EHS risk and control registers and prioritize riskreduction activities Capture incidents and near misses to identify root causes and prevent recurrences Align operating procedures with risk-based safety instructions and provide them to workers Ensure workers have the right training, certifications, and competencies Act to reduce operational risk without compromising safety Maintain a holistic view of EHS risks that is visible to everyone Integrated software that provides a shared framework of data and work processes to maximize collaboration and effective risk management across functional areas Safe operations require good communication and close collaboration between production, maintenance, EHS, and other departments, as each has key information needed to run operations safely. By integrating key data and processes, you can minimize data conflicts and gaps to maximize asset productivity. You can: Execute guided procedures and workflows in areas such as work clearances, work permitting, corrective actions, and incident investigations Make key operational safety data automatically visible to workers via integration between instruments, equipment, and enterprise software Improve data integrity and the meaningfulness of reports by sharing common data structures Improve process visibility for each asset to ensure safe operation Automate data collection from both SAP and non-sap software systems Together, these solutions enable you to: Monitor performance against targets and benchmarks See the real-time status of management system processes and tasks Gain visibility into exceptions, trends, and risk hot spots for quick action Take action to prevent incidents and drive continuous improvement

5 Leadership from the Top Down Manage Change and Drive Transformation As you know, simply implementing the right system isn t enough to effect the deep, broad, and permanent changes needed to enable transformative operational risk management. These investments must be accompanied by cultural changes from the top down and greater collaboration at the executive level specifically between the CIO and COO. Leading Cultural Transformation Plant managers and workers can be resistant to new technology and processes in their operations partly because they don t understand it, and partly because they assume it is management s way of imposing what it wants on the plant floor. But eventually employees embrace the technology because they see how it makes their jobs safer and their work processes more consistent and automated. This leads to a cultural transformation that makes everyone more safety conscious and engaged in continuously improving plant operations and processes for a zero-incident environment. To help organizations through this transformation, executives and managers must lead the way forward. For example, they can: Walk the talk by performing regular, on-site inspections and audits and publicizing results. This lets everyone know safety and compliance are top of mind from the boardroom down. Make it clear to plant managers that it is no longer enough to look good on paper. They must demonstrate that their plants are making progress on achieving zero incidents while also improving performance in areas such as asset downtime, production yield, and compliance costs. Leverage mobile technologies to give employees and contractors instant access to safety procedures delivered just in time. This helps ensure everyone performs tasks the correct way with no excuses for noncompliance. Reward people at all levels for being leaders for change. Companies can reward reporting of safety observations and sharing of lessons learned to improve safety and operational continuity, and turn employees into ambassadors of change by having them share best practices at other plants. Make proactive risk reduction a top management priority. For example, reviewing the status of corrective and preventive actions regularly with employees can create a shared responsibility for safety and operational continuity. Facilitating Collaboration Between IT and Operations Traditionally, COOs are focused on operational systems, and CIOs are focused on business systems. What is unique about operational risk management (ORM) initiatives is that they bring these two parties together, because ORM transformation merges their priorities. Why? Because COOs now need to leverage business systems (which are run by IT) to gain the visibility, reporting, and control they need, as well as to extend business systems to work with operational systems. For this reason, CIOs and COOs must collaborate and work together to make the changes needed to meet performance and ORM goals and objectives. It all starts with a clear action plan (based on current operational needs) that aligns operations and IT departments to share the responsibility for managing initiatives together. Valero Energy Corporation Oil and gas Leading oil refiner Valero Energy Corporation used a distributed network of the SAP Manufacturing Integration and Intelligence application at its many refineries to gain greater visibility into operations such as safety, energy usage, unit performance, and inventory. This real-time view helped Valero realize benefits that include better optimization of refinery operations and US$120 million in energy savings in the first year alone. Results US$120 million in annual energy savings in 2009 Cross-comparison of all refineries with common dashboards and key operational metrics Optimization of refinery operations such as refinery run rates and tank pressures A 63% reduction in environmental incidents since 2006 Reduction of total recordable incident rates by almost 30% since 2004 Real-time visibility that supports preemptive safety measures and faster corrective actions More accurate and timely visibility into vendormanaged inventory Improved preventative maintenance and avoidance of unplanned shutdowns SAP Executive Insight Paper Operational Risk Management 5

6 A Focus on Change with Impact Start Simple and Replicate Success Champion Technologies Inc. Most catastrophic events occur because of a failure to properly identify and control hazards. Risk is often introduced Chemicals when people make small, undocumented Champion Technologies Inc., a specialty chemical company, offers environmentally sound solutions changes on the job that seem inconsequential at the time but ultimately in- for oil and gas production facilities. To enhance corporate sustainability, the company deployed crease risk. To ensure the changes you the incident and accident management functionality of the SAP Environment, Health, and make are low risk and successful, you must proceed carefully, incrementally, Safety Management application. Integrated with the SAP ERP application, the software is helping and with clear documentation, systematic process compliance enabled by tech- Champion improve its environment, health, and safety compliance. nology, and worker buy-in. Results Enhanced corporate sustainability Simplified environment, health, and safety (EHS) reporting and compliance, including ISO certification Created an integrated tool for global incident management Improved business intelligence, helping prevent incidents and accidents Improved visibility via extensive reporting functionality and security tracking Enabled support for ongoing company growth Improved productivity of EHS staff Pilot Changes First Companies should develop milestones and pilot new initiatives, technologies, or process changes in a single plant. Once they have been proven successful and reliable, replicate them across all plants. To progress faster, you can even have multiple pilots at different plants running concurrently. Focus on Change That Makes a Difference Focus on change that has an impact. Start with something that s easy to costjustify and addresses a high-priority issue affecting operational continuity in measurable ways so you can show immediate improvements. Hard metrics impress upon people at all levels that ORM investments are worth the time, cost, and effort. They also encourage other executives to embrace and cosponsor future initiatives. Standardize and Automate Progress Reporting In most cases, the traditional weekly or monthly reports that operations executives receive about operational risk and safety are spreadsheets filled with data that has not been gathered consistently across the organization. Data errors, outdated figures, and data omissions are common, impairing visibility and making it difficult to assess real progress toward operational continuity and prioritize next steps. It is important to gradually automate and standardize how data is collected from plants so you can compare apples to apples across locations and gain situational awareness of what is happening in the field. For example, many companies are implementing ORM scorecards for plant managers, operations executives, and even the COO. As part of this process, you also must determine what metrics to monitor to ensure you realize expected ROI. And remember when it comes to ORM, everyone is a stakeholder, not just the C-level executives. The changes you make impact the everyday lives and safety of workers and contractors on the front lines. So develop communication vehicles for ORM initiatives that reach employees at all levels. Choose a Complete IT Solution to Enable ORM Transformation Achieving your ORM vision requires a sound action plan and the right information technology to enable it in a costeffective manner now and in the future. In choosing IT solution providers, look for one that can deliver a complete solution that will fully support the scope of your transformation efforts, as well as a flexible solution that can be implemented incrementally. Equally important, your IT partner must have the resources and know-how to help you implement process changes while keeping your operations running smoothly. And to safeguard your investments, be sure your solution provider is a stable, trusted business that will be here for you in the future.

7 The Road Ahead and How SAP Can Help Taking Next Steps The benefits of implementing operational risk management in an integrated, holistic manner can be significant. Companies can: Reduce safety and environmental incident rates by 25% 50% 1 Reduce lost profit opportunities Improve asset availability and overall equipment effectiveness Improve efficiency and effectiveness of risk management processes 40% 60% 1 Effectively manage change that improves processes Reduce capital project costs Reduce cost of EHS programs and activities 20% 30% 1 Leverage SAP Software to Support Your Transformation Most software products advertised today as ORM solutions only provide partial process support and are difficult to implement across a global organization. Only SAP offers a complete, integrated ORM solution that can scale globally and connect the plant floor to the enterprise. Our commitment to operational risk management is demonstrated by continued investment in software extensions for our analytics; performance management; EHS; and asset management solutions, and integrated mobility and inmemory applications. Key ORM solutions include: The SAP ERP application, which integrates and supports key business processes and operations across the enterprise The SAP Environment, Health, and Safety Management application, which automates EHS processes, facilitates compliance, and helps you identify, manage, and mitigate EHS risks Business analytics solutions from SAP, which empower individuals, teams, and business networks to make more-informed decisions and meet their goals SAP BusinessObjects Risk Management and SAP BusinessObjects Process Control applications, which support a preventive, real-time approach to governance, risk, and compliance The SAP Enterprise Asset Management solution, which helps capitalintensive industries manage all phases of the asset lifecycle and gain real-time visibility into asset performance, maintenance, and reliability The work clearance management functionality of SAP ERP, which supports complex, integrated lockout/ tagout safety procedure requirements during maintenance activities Enterprise mobility solutions from SAP that offer mobile applications and underlying infrastructure that provide real-time access to information to improve safety and productivity The SAP Manufacturing Integration and Intelligence application, which provides a direct connection between shop-floor systems and business operations so that all data that affects manufacturing is visible in real time to support condition-based and predictive maintenance The SAP HANA platform, enabling real-time analysis of massive amounts of risk and operational data to power predictive analytics, which can reduce risk and improve safety Visualization solutions from SAP, which enable 3-D training and communication of complex information, such as work procedures in manufacturing and maintenance, to increase the safety and productivity of people and assets Learn More To learn more about how SAP can help you achieve ORM transformation, contact your SAP representative or visit us online at FOOTNOTE 1. Percentages are derived from the SAP value engineering benchmarking/customer database. SAP Executive Insight Paper Operational Risk Management 7

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