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Management and major accident risk: Leading on risk

Managements at every level in the petroleum sector bear a special responsibility for helping to reduce the threat of major accidents. That goes without saying. But the gap between word and deed is sometimes wide.

The PSA has been following up how company leaders seek to reduce major accident risk for some time, and has identified this area as one of its top priorities for the past four years.

“Our goal is to boost the attention paid by the players to the way their managements work purposefully in this area,” says Anne Vatten, one of the PSA’s directors for supervisory activities.

“We’re dealing, in other words, with how leaders keep track of realities and threats in their own operations and make sure that responsibilities for dealing with risk are clearly defined.

“They must also assure themselves that the need for collaboration to handle risk is specified both in-house and between the players involved.”

She emphasises the importance of allocating adequate expertise to the various processes. Management must ensure that
people know what can cause a major accident, and about causal relationships and direct causes.

Using such knowledge in managing the business when planning and executing activities is equally significant.

“It’s vital that managers are conscious of their responsibilities here.”

Learning from their own errors and those of others is important, Ms Vatten emphasises. So is applying this experience to improving risk management.

“We mustn’t forget past events – the Alexander L Kielland accident, the Piper Alpha disaster, or the explosion at the Texas City refinery.

“Incidents of this kind have taught us expensive lessors. But it’s just as important to remember that things went wrong as why they did, and to identify what could have averted disaster. Learning from earlier events is crucial for avoiding a repetition.”

The PSA conducted a number of audits during 2009 directed at learning and incident prevention in the companies, and Ms Vatten says the results indicate a potential for improvement.

“On the one hand, we’ve observed that measures for learning and improvement aren’t effective enough. On the other, action proposed earlier has failed to boost control sufficiently.

“At the same time, lessons haven’t been incorporated in routines and management systems – as was made clear, for instance, by the investigation into the collision on Ekofisk in the summer.”

Management must not only learn itself but also encourage learning in the organisation, she emphasises. Continuous improvement by companies large and small, at all levels of the industry, is essential if Norway is to achieve the target set by the Storting (parliament) of becoming a world leader for HSE.

Reducing the risk of major accidents is a matter of experience, knowledge and expertise, Ms Vatten points out – in other words, understanding how to avoid the undesirable.

“Management plays a key role here. Its priorities are crucial for the way in which each company handles major accident risk.”

Acknowledging that operations on the NCS are risky is not the same as accepting that accidents happen – quite the opposite, in fact. But recognising risk makes managing it easier.

Management itself can be a source of major accident risk, observes Ingrid Årstad, the PSA’s discipline leader for HSE and legal.

“Historically, HSE statistics have often focused excessively on the number of personal injuries or undesirable incidents. But reducing these doesn’t necessarily cut major accident risk.

“An adequate grasp of the threats depends on taking an integrated view of information about various aspects of the business.”

Fifteen people were killed and almost 200 injured in the spring of 2005 when a fire broke out in BP’s refinery at Texas City in the USA. The investigation into this incident found that management at various levels in the company received a lot of information that things were about to happen. Responding to this could have allowed many people to take action to avert the accident.

However, nobody appreciated that these facts were relevant to the major accident risk and/or failed to react adequately to them. A number of managers thought that HSE work was under control as long as the trend for work accidents remained positive.

A commission of inquiry headed by former US secretary of state James Baker III sharply criticised management at several levels in its report on the accident.

These criticisms also applied to the top leadership and the board of directors, who were accused of quite simply lacking a realistic understanding of major accident risk.

“Through its initiatives and decisions, management defines and influences the frame conditions which determine the room for manoeuvre in the rest of the organisation when dealing with such threats,” says Ms Årstad.

She adds that the PSA accordingly sees a need for reflection on the issue of risk management at company level.

Eleven companies submitted a self-assessment to the PSA in 2009 covering the commitment by their management to reducing major accident. Some of these participants have acknowledged of their own accord that this exercise initiated useful discussions and important improvement processes.

A major accident directly threatens a company’s ability to achieve its goals. Apart from possible fatalities, environmental pollution or loss of material assets, it presents a financial risk – in part through loss of reputation.

Many companies see a trend towards such incidents being interpreted more frequently than before as a symptom of failures in risk management and internal control, and thereby a sign of inadequate leadership at corporate level.

Managing major accident risk is an integrated part of corporate governance. Top management must be conscious that a good HSE performance contributes to value creation.

The companies work in a globalised industry and must set different priorities under varying market conditions. In downturns, when oil prices are low, pressure on costs can increase.

When activity is high, problems with capacity and expertise may arise.

One challenge is that company adjustments to such external conditions could be made at the expense of safety and the working environment.

Various investigations show that cost pressures can give rise to serious incidents because maintenance is downgraded, for instance, weakening technical integrity over time.

The causal relationship between market conditions and incidents/accidents is difficult to establish owing to time lags. Cost pressures or an excessive level of activity often show results many years later.

“We see a need for improved understanding of these relationships,” says Ms Årstad.

Management and major accident risk remains one of the PSA’s main priorities in 2010.

“Audits and serious-incident investigations we’ve conducted indicate that our commitment needs to be maintained in this area over the coming year,” says Ms Vatten.

“We’ll be paying more attention in 2010 to management in-house, from the top leadership down to the operational level, at oil companies, contractors and suppliers.

“Identifying commitment in licence partnerships and interaction between the operator and the other licensees is also important, partly because the player picture has changed so much in recent years.”

The operator has day-to-day responsibility for ensuring good overall management, she notes. But licensees, contractors and suppliers are also responsible for ensuring that the whole business functions.

By Øyvind Midttun