Risky Business: Engineers struggle to keep up as facilities grow in size
Written by Robb Knock
Have asset-intensive industries learned anything from recent disasters and world events?
The predictable answer is, “Yes, of course we did!” followed by a litany
of changes in operational management procedures, regulatory proposals
and enhancements to the risk-analysis parts of our engineering
practices.
However, a more candid answer might be, “Not enough.” The risk analysis
game is changing right under our noses, and not for the better. The
industry may be grossly underestimating its potential liabilities. Over
the years, potential liabilities from accidents have jumped from
calculable with a decent level of certainty to incalculable with a high
degree of uncertainty. Risk analysis and risk management are struggling
to keep up.
Numerically speaking, risk can be simplified to a formula: anticipated
cost multiplied by likelihood or, if deemed likely, multiplied by
frequency. Common sense tells us, however, these estimates and
predictions will never be easy. Actual costs from roughly similar
operating failures and accidents can vary from a few million dollars to
more than a billion dollars, an enormous range to fit into any
calculation. Because they require predicting the future,
likelihood/frequency can be even harder to quantify.
Among many other imponderables in risk analysis are the consequences of
on-the-spot operational decisions that have enormously different
consequences. An example comes from two drilling rigs owned by
Transocean Ltd., one of the world’s largest offshore drilling
contractors, and decisions made just a few days apart in April 2010. The
decisions were to replacing drilling fluids (“mud”) with seawater, a
common practice in offshore operations. On both rigs, blowouts occurred.
The blowout on one rig, Sedco 711 in the North Sea, was contained by the
rig’s blowout preventer; there were no serious injuries and damage was
less than US$10 million. The other blowout was the Deepwater Horizon in
the Gulf of Mexico. As it caught fire, exploded and sank, 11 workers
died. For BP, to which Transocean had contracted Deepwater Horizon, that
disaster has led to pretax charges against earnings of US$43.5 billion
as of May 2011.
Virtually all industry players are rethinking how they design, engineer
and build for the Gulf of Mexico. The same is true for Canada’s
sprawling oilsands in Northern Alberta and the pipeline projects that
get this oil to market.
Technological advances need to go hand in hand with changes in corporate
culture. Designers need to speak out about risks they perceive and
explain why they are skeptical. Risk analysts and risk managers need to
be more open to the skeptics and be more skeptical themselves about
safety margins, engineering rules of thumb, and industry standards that
have been in use for many years.
Upper managements need to allocate time and money in globally
competitive marketplaces for deep dives into real-world risks and
liabilities, and ascertaining the ramifications of responsibilities and
decisions.
In oil & gas, engineers are tasked with designing equipment that
grows bigger and more complex every year. As every engineer is taught,
uncertainty can grow geometrically, and perhaps even exponentially, as
size and complexity increase. Layers of uncertainty pile on — starting
with who really, deep down, fully understands how these enormous new oil
& gas structures work. Economy of scale leads to mammoth projects
to extract hydrocarbons profitably from increasingly difficult places.
Industry standards, safety factors and rules of thumb have a built-in
bias toward incremental steps and away from innovation. And in part due
to litigation, a hostile media and unfriendly regulators, risk taking is
being discouraged just when it’s most needed. Unfortunately these
challenges aren’t going away anytime soon. From a business perspective,
however, understanding risks properly can be an opportunity to
differentiate one’s firm from the competition.
Risk-analysis experts are fully aware that many time-honored guidelines
no longer stand up to scrutiny. Common sense tells us these guidelines
bear hidden risks of their own; over-reliance on them makes iffy
situations worse. This adds up to what SimuTech Group regards as Exhibit
A for the transformation in the ways we look at risk.
Engineering-intensive organizations, such as SimuTech Group, are being
contracted more frequently to apply the latest numerical techniques and
solutions — especially for analytics, the science of understanding
inherent behaviors of systems. Our insights, based on decades of
experience, are sought by many oil & gas companies to beef up their
internal risk-analysis processes.
Over the past 20-plus years, we have learned that nothing is ever
foolproof. Nor are there any straightforward, easily grasped answers,
much as we wish there were. We at SimuTech Group believe the oil &
gas industry has entered a new era of risk analysis and risk management.
In this new era, anything may be dangerous if its engineering relies on
outdated company safety margins/factors, obsolete engineering rules of
thumb, or industry standards that no longer apply. We can help build the
requisite body of knowledge, put it through peer review and then
transfer that knowledge to the users’ simulation tools and, finally, add
it to their best practices.
There are four fundamental factors in up-to-date risk analyses:
Accidents and spills, even in remote areas, are televised and often go viral on YouTube and other social media.
There is no real security for corporate and professional
reputations in conforming to guidelines, yesterday’s or today’s. Many
once-reliable margins, rules and standards have been made irrelevant.
They are industry road kill, kicked to the curb by technology, economics
and the steady accumulation of experience and understanding of the
systems and components we build.
Caps on damage liabilities, statutory or otherwise, have been
made meaningless by litigation, especially in the U.S. Litigation can
dwarf all the other costs of an accident combined; for engineers, it is
becoming the risk factor.
Liabilities have become open ended and can quickly can add two or three zeroes to a company’s exposure.
This means conventional, tried-and-true risk metrics cannot reliably
assess the scale, scope and magnitude of foreseeable impacts —
especially if the metrics are simply based on the costs of reimbursing
customers for failed components, assemblies or systems.
Constraining the liability metrics to a bill of materials is completely
inadequate and unrealistic. This blinkered approach can lead to grossly
underestimating potential impacts. This is why traditional risk analysis
is losing ground to the more predictive approach of failure mode and
effects analysis (FMEA).
Other factors are at work in the persistent underestimation of risk. At
the leading edge in any industry, accidents happen more frequently than
across the entire industry; this is obscured by industry averages
commonly used to calculate risks. Historical industry data underestimate
future costs of spills, blowouts, fires and rig explosions; some
indirect costs may have been left out.
Conventional risk analyses usually represent too conservative a view of
conditions in the field, and often embody outdated views of components
and systems. This gets to an engineering and risk-analysis paradox: What
seems like a prudent, and even cautious, approach itself has hidden
risks, in some of them unacceptably high.
Risk lies at the heart of engineering. For us at SimuTech Group dealing
successfully with risk is the heart of engineering, and thus at the
heart of innovation as well.
What to do? Start with words, numbers and expertise. “Failures in
waiting” is a much more descriptive, and more accurate, way to
characterize risks than “potential liabilities.” Viewing risk as the sum
of potential liabilities can never suffice. It’s too easy to ignore or
rationalize away, and won’t grab the attention of hard-pressed upper
managements. “Potential” merely implies a probabilistic eventuality, a
statistical function, a bell-shaped curve. Statistics, dry or otherwise,
rarely change the course of events except maybe after the fact, when
it’s too late.
Then insist on questioning all the numbers in every risk evaluation.
That won’t be easy, of course, but avoiding euphemisms in favor of more
compelling terminology should help garner the necessary support in time,
data and budget. And finally, outside expertise can be of enormous
value. n
It’s a whole new world for maintenance and engineering technicians. The use of mobile computing devices is on the rise, replacing the traditional pen and clipboard. Is it right for your facility?
