BUSINESS MODEL TO RE-ENGINEER SAFETY UTILIZING COORDINATED MANAGEMENT & MARKET DRIVEN FORCES: RESEARCH PROJECT FOR RISK BASED CONTRACTOR MANAGEMENT

Industry IssueProblem to Be SolvedProject OverviewFunctional EvaluationCompleted Evaluation FeedbackPhase I DeliverablesPhase II Steps Towards High ReliabilityProject Benefits

2012 Year of the Pipeline• Oil producers could lose $72 billion over a nine-year-period if

a pipeline to carry Alberta bitumen to the West Coast isn't built,

• Easy access to international markets could add up to $131-billion (U.S.) to Canada’s GDP between 2016 and 2030,”o Expansion of Kinder Morgan’s existing Trans Mountain Pipelineo Enbridge Northern Gateway Pipeline

• At stake is the ever widening differential between Brent crude and West Texas Intermediate,

• Billions of dollars in potential investment that could be deferred,

• Ability to provide additional product to US Market – TransCanada Keystone, and

• Numerous high profile events are eroding public trust and creating increased regulatory pressures.

Erosion of Public TrustThe operating environment of the North American oil and gas

industry experienced a monumental shift on 20 April 2010

with the loss of control of the BP Macondo Well in the Gulfof

Mexico. The blowout killed eleven workers and created the

largest oil pollution disaster in US history. That event was

followed by several notable pipeline incidents including the

Enbridge Line 6B leak in Michigan, the Pacific Gas and

Electric rupture in San Bruno, California, and the Plains

Midstream Rainbow Line spill in Alberta. These events and

others demonstrate the need for the energy sector to put

renewed focus on safety and environmental protection.

Customer

Contractor Subcontractor

Customer

Customer

Customer

Questions 2000 plus

Compliance Review

Quarterly metrics

Audit Verification (3-5 days)

HSE Registries

Currently poor or NOT managed

Hyper-Compliance$$$Training Review

Leading Indicators

Work/Stewardship

Inspections

Investigations

Rule Enforcement

Permits

Status quo – Passive Compliance Model with Evaluation & Mitigation

• Focus is on administrative tasks

• Not sustainable by customer or contractor – expensive and labor intensive,

• Empirical evidence demonstrates a 100% false positive return creating a false sense of assurance, and

• Direct experience supports ineffectiveness of approach.

Impacted multiple customers with various scoring schemes

Safety Leadership Training

Contractor Orientation

Hiring Client

Pre-Qual list

Use of contractors has been identified as a significant contributor to a company’s risk profile. Louis Auger of Shell Canada states “80 percent of his company’s safety incidents involve contractors”. Contractor risk is well known throughout industry and was further verified with the investigation in the Gulf of Mexico disaster with recommendations that include:

• “Implementing much greater oversight of contractors current practices; and

• Requiring contractors to develop and implement audit-able safety processes, including identification of key indicators --- processes which BP can review.”

• Although the investigation team has taken a broad approach to making recommendations within the intent of its terms of reference, the team believes that as the findings in this report are considered and discussed, they may give rise to broader systemic responses or recommendations associated with broader industry issues. These issues might include industry working practices; training and competency assessment; and interfaces among operators, drilling contractors and service providers.”

Need to Think & Operate Differently

Contractor Management Survey• Survey document finalized and trial data gathered• Scores are out of 7 ( 1 – strongly disagree to 7 – strongly agree)• Contractors report little operational value with current contractor management

systems

Accurat

ely Ev

aluate

Impro

ves S

afety

Perform

ance

Predict

Incid

ents

Creates

Culture

Demonstr

ates P

roacti

ve M

anag

emen

t

Money W

ell Sp

ent

Practical

Recommen

ds

Promotes

Collaborati

on

Accurat

e Inform

ation

Recommen

d Syste

m0

0.5

1

1.5

2

2.5

AVGMODE

Problem To Be Solved• Status quo approach is not working,

• There are broad systemic issues impacting the ability to reduce serious injury and fatality

rates,

• Traditional audits focus primarily on management systems not verification of actual

practices. Correlation between audit results and incidents show very little predictive

value.

• Current health and safety evaluations are propagating a false sense of assurance,

• A reliance on a safety approach that only addresses problems after they manifest is wholly

inadequate to ensure safety,

• Conventional illness and injury rates are not adequate indicators of catastrophe,

• Over 50% of fatalities involve Contracting Companies/Contractor relationship

• Need to implement a much greater oversight of health and safety current practices, and

• One of the most important challenges in trying to measure safety performance is how and what we measure.

Project Overview

Project Abstract• Demonstrate a business model that provides a systemic solution via

contractor management strategies,

• Enabling methodology of the project provides a high degree of confidence with respect to accurate safety evaluations and effective risk mitigation,

• Utilizes a coordinated management structure between Associations, Operating Companies, Contractors and Industry Service Provider(s),

• Makes use of vested interests and market driven forces to re-engineer safety towards a risk-based management model, and

• Encourages the development and sustainability of a high reliability organization

Research is based upon work conducted by:

• Andrew Hopkins “The Problem of Defining High Reliability Organizations”,

• Cooke and Rohleder “Learning From Incidents: From Normal Accidents to High Reliability” and

• Nancy Levenson et.al. “Moving Beyond Normal Accidents and High Reliability Organizations: A Systems Approach to Safety in Complex Systems”.

A Critical DisconnectThe Legacy of the High Reliability Organization Project March 2011Mathilde Bourrier - Department of Sociology, University of Geneva.There is a wide gap between the level of knowledge published and debated in the academic circles on these issues and the level of knowledge transfer that has actually occurred from these circles to the industry or regulatory circles.

Hopkins (2001, p. 72) is right when he observes that ‘this is not just a theoretical debate. There are practical consequences for the way we go about accident prevention’

Applied Research Paper

Documentation Approval

Recruitment of Participants

Functional Evaluations & Surveys

Participant Debrief & Mitigation Action Plan

Aggregate Data for CEPA

Submit Paper for Publishing

Litera

ture R

eview

Methodology

Approva

l

Ethics &

Confidentia

lity

Research

Ove

rsight

& Study I

ntegrity

Data Analys

is &

Interpre

tation

Paper Dra

ft for

Review

Paper Finaliz

ed and

Submitted fo

r

Publicatio

n

Milestones & Timeline

Focus on practical value first and always with respect to operationo Emphasis on evaluation process first; transparency and collaboration tool second

o 6 critical audit-able processeso It is about “on-the-ground safety”o Creates an active/directive system to produce continuous improvement.

Demonstrates functional cultural attributeso Mindfulness – always asking “what can go wrong?”o Organizational Learningo Sensitivity to Operations – risk identification and control integrity (exposure)

Simple and efficiento Tell, show and demonstrate;o Strips away extraneous activities (minimum data entry produces maximum value)

Basic terms of referenceo Aligns objectives for all stakeholders to provide common measuring criteriao Provides capability to measures “HOW” the process of doing safety.o Ability to leverage commonly agreed upon measurements

Functional Evaluation

Game Changing DifferentiatorsPassive Compliance Active Compliance

• Emphasis is on “what” elements of SMS are in place. (Necessary but not sufficient)

• Examines “HOW” program functions as to INTENT. (Adds sufficiency to SMS)

• Compliance to administrative requirements.

• Compliance to effective process.

• Uses injury statistics (TRIF, DAFW) to determine success.

• Uses risk based measures to determine success.

• Relies on correlation for appearance of effectiveness.

• Uses cause & effect demonstrated through the process of creating safety.

• Relies on an approach that only addresses problems after they occur. Challenged in obtaining near miss reports.

• Achieves between 600% and 800% increase in reporting hazards before they manifest.

• Provides superficial indications of culture • Provides objective (deep rooted behavioral) measures of culture.

• Creates a false sense of assurance • Provides an accurate assessment and a highly focused and directive risk mitigation strategy

Completed EvaluationIt was refreshing to see where CEPA is trying to take conventional thinking  in the HSE world…We will know what our high risk hazards are, what tasks would be considered critical and be able to design our engineering solutions, training and competency programs and other controls to those concerns.  I fully support this approach.  I would encourage industry to move to a set of key performance indicators that are designed to drive the right solutions.  This should be the reduction of risk, not the manipulation of the total recordable injury rate.

Post Debrief

Phase I Deliverables• Demonstrate a business model that provides a systemic solution to

Health and Safety Evaluations and contractor management strategies.

• The enabling methodology provides a high degree of confidence with respect to accurate health and safety evaluations and effective risk mitigation processes with shared risk activities.

• The solution utilizes a coordinated management structure between, Operating Companies, Contractors and Industry Service Providers.

• It makes use of vested interests and market driven forces to re-engineer safety to a risk based management model.

Phase II Steps Towards High ReliabilityPhase II (pending approval) runs concurrently with a few chosen companies that are forward thinking and want to evolve their organization to one of high reliability status. High reliability organizations are characterized by:

Ability to provide high quality and high reliability

Capability to work in high risk environments with high efficiency,

High sensitivity to operations,

Ability to constantly confront the unexpected and operate with remarkable consistency and effectiveness,

Exhibit “mindfulness” a combination of high alertness, flexibility and adaptability

People at all levels of the organization value quality

Defer to experts on the frontline

Achieving a state of ‘high reliability’ provides significant competitive advantages.

Project Benefits

Opportunity to Control the Conversation

• Demonstrate leadership, while everyone else is talking CEPA is taking action,

• CEPA is seen as taking meaningful, universally understood and scientifically supported action to reduce high consequence exposure both internally and

with contracting companies with shared risk scenarios,

• Ability to control the conversation:o Provide meaningful results – better data with risk based performance

metrics,o Speak directly to culture demonstrated through the process of creating

safety,o Supported by documentation that meets commonly held terms of

reference, ando Capability to impact industry systemically to create an environment that

encourages and sustains the creation of high reliability organizations.

CEPA Member BenefitsThe Operating Company accrues seven key via the business model:

1. Opportunity to outsource HSE contractor management and obtain significant cost savings,

2. Significant and quantifiable results in reducing shared risk to as low as reasonably practicable,

3. Removes operators from the situation of having to dictate solutions,

4. Reduces or reallocates head count for greater returns on safety investment,

5. Provides practical value for both Operators and Contractors improving the relationship,

6. Reduces threat of increased regulatory measures by focusing attention to “on-the-ground” methodologies to identify and mitigate high consequence risks, and

7. Fully utilizes an existing resource and infrastructure to provide cost effective solutions.

We Need Concrete Solutions That Work In The Real World With Meaningful Results

Victor Hugo said you can stop an invasion of armies, but you can never stop an invasion of ideas. There’s nothing more powerful than an idea whose time has come.