risk

Risk management delivers significant competitive advantages only when it is integrated with the overall strategic goals of the business, so that decisions can be made that avoid potential loss and exploit new opportunities for growth. Through its extensive cross-sector experience, Arthur D. Little has identified 6 main risk management trends.

Exercising effective safety governance across large, diverse corporations

As companies become increasingly consolidated under the ownership of a few very large corporations, these corporations face a growing challenge in exercising appropriate safety governance over their constituent businesses. This challenge is compounded by the wide range of available governance arrangements from which to choose. 

There is no single “right” answer – rather, a range of styles is open to them, some of which may suit their circumstances better than others. However, a conscious balancing of the level of requirements imposed on business units with an appropriate amount of corporate intervention appears to be a consistent feature of successful approaches, whether keeping both low and with a minimal corporate safety function, or high and with extensive supporting infrastructure.

Another challenge is the increasing diversity of operations and the significant risk of reputational damage arising from poor safety performance by a business unit in which the parent corporation does not necessarily hold a controlling stake. 

Choosing an approach for corporate safety governance is a critical decision for the board and executive leadership team.  The element of individual leadership is vital in making corporate governance measures effective, with real commitment to safety as the main driver of good or improving performance.

    • Large corporations are facing a growing challenge in exercising appropriate safety governance over their constituent businesses. The wide range of governance styles and arrangements from which to choose, with no single “right” answer, compounds this challenge. 
    • In the face of relentless and growing pressure for efficiency, companies are increasingly outsourcing to suppliers and contractors, making managing safety across the supply chain more challenging than ever. One of these challenges is to adopt a culture-based approach in supply chain safety management over the traditional, contractual approach.
    • Companies are finding it harder to maintain the initial levels of motivation and engagement among those charged with delivering improvement in their safety development program performance. They have to follow a different approach to escape this safety performance plateau.
    • Most companies confine their risk management attention to on-site activities, and do not record or report off-site-related incidents. This is even more often the case where distribution activities are contracted out. Leading corporations must take further steps to manage risks more broadly throughout their distribution networks.
    • As companies implement increasingly complex technology, in shorter timescales, to meet changing business needs, the need for effective assurance of such technology continues to grow. Independent safety assessment therefore has an increasingly important role in project success. Done well, it can positively enhance safe delivery. Done badly, it can incur unnecessary cost and delay. 
    • Significant weaknesses in process-safety management (PSM) performance are not always immediately visible to senior management. Failure to detect and understand the severity of key PSM weaknesses can result in inappropriate safety investment, which may not reduce the facility’s risk profile, ultimately leading to a negative impact on the bottom line.

    Strengthening control of safety through the supply chain requires use of a culture-based approach

    In the face of relentless and growing pressure for efficiency, companies are increasingly outsourcing to suppliers and contractors, making managing safety across the supply chain more challenging than ever. Control is typically attempted through traditional contracting provisions, yet rising stakeholder expectations for companies to guarantee safety and growing potential for legal liability often test these weak links. 

    An ability to guarantee safety through the supply chain is becoming more influential in decisions of who wins bids for major contracts. Beyond any human, economic and legal losses, just one major contractor accident can ruin a brand.

    Moving beyond a contractual approach is often the first major challenge. Companies seeking to progress from “contract-driven” to “culture-driven” supply chain safety management would do well to nurture long-term relationships with suppliers and contractors that are known to deliver well.

    A second challenge is in developing formal structures for managing supply chain safety. A key factor to success in doing so is effective evaluation, based on suitable metrics, of performance on an ongoing basis.

    Finally, mutual trust between the client and the contractor is essential to the development of a strong working relationship with a sense of shared culture, as trust reduces the client’s need to give the contractor more hurdles to clear in order to secure ongoing work.

    Escaping the safety performance plateau

    Executive-led safety development programs can fuel significant initial improvements in performance, with high levels of engagement, tumbling accident rates and clear, demonstrable benefits evident throughout the organization. As easy wins grow scarce, it becomes harder to maintain the initial levels of motivation and engagement in those charged with delivering improvement. A different approach may be required to escape the safety performance plateau.

    Activities that helped to close some early gaps, such as audit, incident investigation and safety briefings, can become routine and be delegated down the organization as enthusiasm wanes.

    Effective engagement is required at the middle-manager and supervisor layers to deliver sustained performance improvement. Often, this “frozen middle” presents the biggest barrier.

    Large quantities of data are often gathered to measure performance and demonstrate improvement. Often, however, little emphasis is given to deriving information that this data reveals and the actions that can be taken to improve performance further. 

    Our experience points to five key priorities to help surmount obstacles in the path of further progress:

    • Look beyond high-level KPIs to underlying causes and detailed trend analysis
    • Refresh any branded safety program and re-engage with employees
    • Refocus leadership commitment on more specific challenges
    • Engage and develop middle managers
    • Conduct an independent review into barriers and opportunities

    Leading corporations are extending their risk profiles to include distribution footprints

    With increased focus on management of risk over recent decades, public transport companies have progressively reduced harm to their customers, staff and the public.

    However, most companies still confine their attention to on-site activities – restricting their management of distribution risks to matters of legal compliance. Indeed, most such companies do not record or report off-site-related incidents – such are invisible to their boards. 

    These matters have an even lower profile when contracted out. At the same time sustainability (carbon, water, community) issues have embraced the wider impact of a corporation’s activities.

    The game is changing – leading corporations are taking further steps to manage risks throughout their distribution:

    • Such corporations step up to broader corporate responsibility. With revenues similar to the GDPs of smaller countries, such companies are under scrutiny from investors/others and already have established campaigns for sustainability. Reputation is critically important – it is better to be seen leading than following with such an emerging practice
    • There is increasing recognition that companies “can’t subcontract safety”
    • Technologies to support fleet management are now mainstream. Telematics and in-cab camera systems are part of “taking all reasonable steps” – and also present very attractive ROI

    We are supporting corporations with large footprints to develop safe-driving programs to reduce off-site harm through our extensive experience with public transport corporations. Such programs extend from board-level governance through to routine management of drivers.

      The value of pragmatic independent safety assessment (ISA) to the rail sector

      As railway authorities implement more complex technology in shorter timescales to meet their business needs, the need for effective assurance of such technology continues to grow. Independent safety assessment therefore has an increasingly important role in project success. Done well, it can positively enhance safe delivery. Done badly, it can incur unnecessary cost and delay. 

      Assurance over the development of technology needs an assessor able to provide unbiased judgement in three main areas:

      • Pragmatic assessment without compromise – assessments must be pragmatic and follow an evidence-based approach, looking for substantive safety issues and promoting management confidence in safe project completion.
      • Collaborative assessment – All too often the relationship between assessor and developer can be an antagonistic one and lead to delays in the wider project. A close working relationship between the independent assessor and the client is essential.
      • Proactive assessment – The longer a project continues without a good level of engagement between the assessor and the developer, the greater the risk of critical issues being found at late stages. Many assessors do not provide substantial input until development is in later stages, when defects are harder and more costly to rectify. 

      With more than 20 years’ experience, we are equipped with an invaluable and unique breadth and depth of ISA expertise. Our clients can be confident that the systems they deliver or deploy safely implement the desired functionality, conform to the appropriate safety standards and meet regulatory requirements.

        Is your plant as safe as you think?

        From our strategic safety reviews and independent process safety management (PSM) system audits, we continue to identify significant weaknesses in PSM performance, which are not always immediately visible to senior management. Failure to detect and understand the severity of these key PSM weaknesses can result in inappropriate safety investment. These investments can therefore fail to reduce the facility’s risk profile, ultimately leading to a negative impact on the bottom line.

        There is ever-greater pressure from shareholders to maximize short-term bottom-line performance – placing pressure on existing asset operating margins and requiring companies to minimize operating, maintenance and capital replacement costs. This can, in some cases, even result in facility managers postponing what are too often seen as “nice-to-have” process safety investments as they continually seek to reduce costs without understanding the process safety risks.

        Some operators have invested heavily in engineering measures. Yet only a selected few have made significant progress in understanding their key process safety risks, implementing effective control processes and proactively monitoring their process safety performance.

        In our view, five key challenges should be addressed to ensure that PSM systems meet operator needs.

        • Develop an up-to-date, comprehensive process hazard picture for all operating assets 
        • Ensure that key risk-mitigation measures are implemented on site and subject to regular performance testing 
        • Develop HSE competence of management teams and reinstate line management responsibility for safe operation 
        • Review occupational and process safety performance data at board level and promote upward reporting of bad news or safety concerns
        • Understand how corporate business decisions impact asset process safety