Risk Management in the Shipping Industry Intertanko Vetting Seminar Miami, Florida

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Risk Management in the Shipping
IndustryIntertanko Vetting SeminarMiami,
Florida

• Ben Poblete
• HSE Manager / Senior Risk Management Specialist
• Lloyds Register Americas

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Are Shipping Companies Managing Risks?
Probably Not .....
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Introduction / History

• The shipping industry is different from other
  modes of transportation due to the international
  nature of the industry (including the
  nationalities of the crew), the volume of
  hazardous material transported per shipment and
  the operation in a marine environment.
• Since the demand for ships are dictated by the
  international economic cycle it is apparent that
  a majority of the ships would be custom built,
  manned by crews with different nationalities,
  which can lead to difficulties in communications,
  and a management reluctance on incurring
  expenditures on safety.
• The international agreements or regulations have
  represented the lowest common denominator with
  regards to effective controls dealing with the
  health, safety and environment of the industry.
• Marine safety enforcement is performed by the
  state in which the vessel is registered the flag
  state. The classification rules are intended to
  provide a proven basic design with some freedom
  for innovation using the principle of
  equivalence. - F.P. Lees Loss Prevention in
  the Process Industries 2nd Edition

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Current Risk Management Practice

• High levels of risk
• International regulatory framework
• National standards
• Enforcement regime
• Risk-based approach in its infancy

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Risk Assessment / Management Mandatory

• ISM Code Implicit
• EU Regulations
• IMO
• Flag Requirements
• Industry Best Practice TMSA (Tanker Management
  and Self Assessment) Mandatory!

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ELEMENTS OF RISK MANAGEMENT

• (a) Identification of undesired events
• (b) Analysis of the mechanisms of the undesired
  events
• (c) Consideration of the extent of any harmful
  events
• (d) Consideration of the likelihood of the
  undesired events and specific consequences
  (probability/frequency).
• (e) Judgement about the significance of the
  identified hazards and estimated risks.
• (f) Developing and implementing decisions on the
  courses of action.

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ELEMENTS OF RISK MANAGEMENT
(a) Identification of undesired events (b)
Analysis of the mechanisms of the undesired
events (c) Consideration of the extent of any
harmful events (d) Consideration of the
likelihood of the undesired events and specific
consequences (probability/frequency). (e)
Judgement about the significance of the
identified hazards and estimated risks. (f)
Developing and implementing decisions on the
courses of action.
HAZARD IDENTIFICATION
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ELEMENTS OF RISK MANAGEMENT
(a) Identification of undesired events (b)
Analysis of the mechanisms of the undesired
events (c) Consideration of the extent of any
harmful events (d) Consideration of the
likelihood of the undesired events and specific
consequences (probability/frequency). (e)
Judgement about the significance of the
identified hazards and estimated risks. (f)
Developing and implementing decisions on the
courses of action.
RISK ESTIMATION
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ELEMENTS OF RISK MANAGEMENT
(a) Identification of undesired events (b)
Analysis of the mechanisms of the undesired
events (c) Consideration of the extent of any
harmful events (d) Consideration of the
likelihood of the undesired events and specific
consequences (probability/frequency). (e)
Judgement about the significance of the
identified hazards and estimated risks. (f)
Developing and implementing decisions on the
courses of action.
RISK (HAZARD) ANALYSIS
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ELEMENTS OF RISK MANAGEMENT
(a) Identification of undesired events (b)
Analysis of the mechanisms of the undesired
events (c) Consideration of the extent of any
harmful events (d) Consideration of the
likelihood of the undesired events and specific
consequences (probability/frequency). (e)
Judgement about the significance of the
identified hazards and estimated risks. (f)
Developing and implementing decisions on the
courses of action.
RISK ASSESSMENT
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ELEMENTS OF RISK MANAGEMENT
(a) Identification of undesired events (b)
Analysis of the mechanisms of the undesired
events (c) Consideration of the extent of any
harmful events (d) Consideration of the
likelihood of the undesired events and specific
consequences (probability/frequency). (e)
Judgement about the significance of the
identified hazards and estimated risks. (f)
Developing and implementing decisions on the
courses of action.
RISK EVALUATION
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ELEMENTS OF RISK MANAGEMENT
(a) Identification of undesired events (b)
Analysis of the mechanisms of the undesired
events (c) Consideration of the extent of any
harmful events (d) Consideration of the
likelihood of the undesired events and specific
consequences (probability/frequency). (e)
Judgement about the significance of the
identified hazards and estimated risks. (f)
Developing and implementing decisions on the
courses of action.
RISK MANAGEMENT
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ELEMENTS OF RISK MANAGEMENT

• Identify
• Assess
• Define means to reduce risk
• Establish priorities
• Allocate resources
• Communicate
• Monitor

RISK MANAGEMENT
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Authorities Domain
Engineering Domain
Hazard Identification?
Declaration of Goals and Objectives?
Hazard Assessment?
Hazard Evaluation?
Formulation of Acceptance Criteria?
Hazard Treatment Prescriptive Requirements?
Hazard Treatment Prescriptive Solution
Approval
Monitoring
CONVENTIONAL HAZARD MANAGEMENT PROCESS
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Authorities Domain
Engineering Domain
Declaration of Goals and Objectives?
Hazard Identification?
Hazard Assessment?
Risk Evaluation?
Formulation of Acceptance Criteria (Life Safety
Third Party)
Risk Treatment Performance Based Options
Approval
Risk Treatment Performance Based Solution
Monitoring
PERFORMANCE BASED HAZARD MANAGEMENT PROCESS
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Reasons for development of Risk Assessment option

• Industry trends to Risk-based design
• Industry trends to Risk-based management of
  integrity in service
• Enables approval of novel arrangements
• Effort focused proportionately on critical areas
• Better fit with requirements of Safety Case /
  Formal Safety Assessment
• Perceived Industry preference

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Model-based
LEVELS OF RISK MANAGEMENT PROGRAMS
Data-based
Increasing complexity
Knowledge based
Compliance based
Decision includes projections and what-ifs
Decision based on increasing amount of information
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How Are Shipping Managing Risks?

• Re-active not Pro-active(After an
  inspection/audit or incident)
• Often not structured(based on experience of
  officers and crew)
• Specific assessments carried out independently
  not considering impacts on other areas of the
  Company

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How Successful are We in Managing Risk
Effectively ?

• Still thinking about it!

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Definition of Risk Management (BS4778)

• the process whereby decisions are made to
  accept a known or assessed risk and/or the
  implementation of actions to reduce the
  consequences or probability of occurrence

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Principles of Risk Management

• What are the risks in shipboard operations?
• How often are you at risk?
• What are the consequences of an accident?
• What can you do about it?

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Business Management and Risk Management

• Business management is about maximising the
  chance of success
• Risk management is about minimizing the chance of
  failure
• Effective risk management requires structured
  risk assessment as an input

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Risk Management Model
Management of risk in shipboard operations
Reactive monitoring
Active monitoring
Investigation corrective action
Inspection corrective action
Control Procedure, Equipment
Trends
Trends
Review
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Risk Assessment in Simple Terms

• What are the criteria?
• What can go wrong?
• How likely is it to go wrong?
• What happens if it does go wrong?
• Does it matter?
• What do we do if it does go wrong?
• Prevent it happening
• Reduce its frequency
• Mitigate its consequences

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Purpose of Risk Assessment

• To ensure that a careful examination of shipboard
  operations is carried out to determine
• what can cause an undesirable event
• whether existing controls are adequate
• if risk levels are tolerable

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Objective of Risk Assessment

• Where risk levels are unacceptable, to identify
  and implement appropriate controls to reduce risk
  levels to as low as reasonably practicable.

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Expected Outputs of a Risk Assessment

• Minimisation of risk to people and the
  environment
• Improvement in operational performance
• Assist in establishing a responsible image within
  the marketplace

• Risk Assessment should be managed as a key
  business activity (KPI)

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What Affects Operational Performance

• Accidents
• Near misses
• Unsafe ships
• Lack of a safety culture
• Lack of shipboard teamwork

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Where to Spend the Money

• Effective risk management requires effective risk
  assessment
• Minimising risk improves operational performance
• Budgets are limited so need to know where to
  spend money to improve safety

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Hazards Identified using Different Approaches
Actual Total Hazards ID from Prescriptive ID
from Structured Risk ID from Unstructured Risk
100

0
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Risk Assessment Process

• Inventory of shipboard operations
• Identify hazards
• Identify existing controls
• Determine risk
• Decide if risk is tolerable
• Implement controls
• Review

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Stage 1 - Inventory of Shipboard Operations
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Which Operations do You Assess First?

• Operations with the potential for loss which
  could most harm your business
• Operations where most accidents occur

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What Causes Accidents?
CONSEQUENCES
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ROOTCAUSE
LACK OF CONTROLS

• To make operations safe, CONTROLS have to be in
  place
• Controls are put in place to minimise or negate
  against the effects of HAZARDS
• Therefore the first step in creating a safe
  working environment is HAZARDS identification

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Reporting and Investigating Minor Incidents
BIRD (1969)
TYE / PEARSON (1974)

SERIOUS OR
FATAL OR
1
1
DISABLING
SERIOUS
MINOR
10
3
MINOR
INJURIES
PROPERTY
50
30
FIRST AID CASES
DAMAGE
PROPERTY
80
INCIDENTS
DAMAGE
600
(NO INJURY
400
INCIDENTS
OR DAMAGE)
UNKNOWN NUMBER OF HAZARDS
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Understanding Root Cause

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How do you make risk management effective?
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Link Risk Management to Performance (KPIs)

• To time (man-days) lost due to accidents
• To days off-hire/breakdowns
• To non budgeted maintenance costs (mean time to
  repair)
• To PSC (Port State Control) results
• To financial results
• To insurance claims
• To crews! Retention / Satisfaction

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New ILO RegulationsWhat are the Risks? Good
test maybe?

• Financial Costs to the Company
• Country of Ownership
• Flag
• Crew Nationality
• Crew Contracts
• New Requirements
• Ship Requirements

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Summary

• Proactive
• Take an Overall / Global View (across project /
  operations groups and including life-cycle)
• Training / Guidance
• Commitment

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What do you think?