1. Risk Management in the Shipping Industry Intertanko Vetting Seminar Miami, Florida
Ben Poblete
HSE Manager / Senior Risk Management Specialist
Lloyd’s Register Americas

2. Are Shipping Companies Managing Risks?
Probably Not .....

3. 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

4. Current Risk Management Practice
High levels of risk
International regulatory framework
National standards
Enforcement regime
Risk-based approach in its infancy

5. Risk Assessment / Management “Mandatory”
ISM Code – Implicit
EU Regulations
IMO
Flag Requirements
Industry Best Practice – TMSA (Tanker Management and Self Assessment) – Mandatory!

6. 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: Step (a) and (b)
Risk Estimation: Steps (a) to (d)
Risk Evaluation: Step (e)
Risk Management: Step (f)
Risk (Hazard) Analysis: Steps (a) to (d)
Risk Assessment: Steps (a) to (e)
The use of “hazard” and “risk” terms are usually used as synonyms. “Risk” should be used only to describe a study or assessment where an estimate of likelihood is involved.
“Risk Assessment - A Study Group Report”, The Royal Society, January 1983.

7. 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: Step (a) and (b)
Risk Estimation: Steps (a) to (d)
Risk Evaluation: Step (e)
Risk Management: Step (f)
Risk (Hazard) Analysis: Steps (a) to (d)
Risk Assessment: Steps (a) to (e)
The use of “hazard” and “risk” terms are usually used as synonyms. “Risk” should be used only to describe a study or assessment where an estimate of likelihood is involved.
“Risk Assessment - A Study Group Report”, The Royal Society, January 1983.
HAZARD IDENTIFICATION

8. 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: Step (a) and (b)
Risk Estimation: Steps (a) to (d)
Risk Evaluation: Step (e)
Risk Management: Step (f)
Risk (Hazard) Analysis: Steps (a) to (d)
Risk Assessment: Steps (a) to (e)
The use of “hazard” and “risk” terms are usually used as synonyms. “Risk” should be used only to describe a study or assessment where an estimate of likelihood is involved.
“Risk Assessment - A Study Group Report”, The Royal Society, January 1983.
RISK ESTIMATION

9. 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: Step (a) and (b)
Risk Estimation: Steps (a) to (d)
Risk Evaluation: Step (e)
Risk Management: Step (f)
Risk (Hazard) Analysis: Steps (a) to (d)
Risk Assessment: Steps (a) to (e)
The use of “hazard” and “risk” terms are usually used as synonyms. “Risk” should be used only to describe a study or assessment where an estimate of likelihood is involved.
“Risk Assessment - A Study Group Report”, The Royal Society, January 1983.
RISK (HAZARD) ANALYSIS

10. 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: Step (a) and (b)
Risk Estimation: Steps (a) to (d)
Risk Evaluation: Step (e)
Risk Management: Step (f)
Risk (Hazard) Analysis: Steps (a) to (d)
Risk Assessment: Steps (a) to (e)
The use of “hazard” and “risk” terms are usually used as synonyms. “Risk” should be used only to describe a study or assessment where an estimate of likelihood is involved.
“Risk Assessment - A Study Group Report”, The Royal Society, January 1983.
RISK ASSESSMENT

11. 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: Step (a) and (b)
Risk Estimation: Steps (a) to (d)
Risk Evaluation: Step (e)
Risk Management: Step (f)
Risk (Hazard) Analysis: Steps (a) to (d)
Risk Assessment: Steps (a) to (e)
The use of “hazard” and “risk” terms are usually used as synonyms. “Risk” should be used only to describe a study or assessment where an estimate of likelihood is involved.
“Risk Assessment - A Study Group Report”, The Royal Society, January 1983.
RISK EVALUATION

12. 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: Step (a) and (b)
Risk Estimation: Steps (a) to (d)
Risk Evaluation: Step (e)
Risk Management: Step (f)
Risk (Hazard) Analysis: Steps (a) to (d)
Risk Assessment: Steps (a) to (e)
The use of “hazard” and “risk” terms are usually used as synonyms. “Risk” should be used only to describe a study or assessment where an estimate of likelihood is involved.
“Risk Assessment - A Study Group Report”, The Royal Society, January 1983.
RISK MANAGEMENT

13. ELEMENTS OF RISK MANAGEMENT
Identify
Assess
Define means to reduce risk
Establish priorities
Allocate resources
Communicate
Monitor
RISK MANAGEMENT
Identify the types and sources of current and potential risks
Assess the relative magnitude of the various sources of risk based on both likelihood and severity of consequences.
Define new practices or changes in current practice to reduce these risk.
Establish priorities among potential risk-reduction practices (ALARP).
Allocate resources to selected risk-reduction practices.
Communicate risk management decisions to key stakeholders.
Monitor impact of risk-reduction efforts.
Risk management programs provide an organization with a set of analytical and decision-support tools, and a structured process for applying them. These tools can be used in a variety of useful ways to identify and manage risks, including:
Qualitative investigation and identification of system failure modes and mitigate actions. Risk models can be used to uncover potential design and operational weaknesses that were not apparent from standard audits and inspections. These types of applications help operators understand the vulnerabilities of their systems and ways to address them adequately.
Comparisons and trade-offs among design, operational, inspection, maintenance, and other activities intended to reduce the frequency or consequences of incidents. These comparisons can range from direct comparisons of similar options, to highly complex trade-offs of disparate, interrelated options. These applications help operators prioritize and allocate available resources to the most important risk-reduction activities. “Risk Management within the Liquid Pipeline Industry”, The Joint Government / Industry Risk Assessment Quality Team, The Office of Pipeline Safety (OPS) and The American Petroleum Institute (API), Washington, D.C., June 1995

14. CONVENTIONAL HAZARD MANAGEMENT PROCESS
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

15. PERFORMANCE BASED HAZARD MANAGEMENT PROCESS
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

16. 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

17. LEVELS OF RISK MANAGEMENT PROGRAMS
Model-based
LEVELS OF RISK MANAGEMENT PROGRAMS
Data-based
Increasing complexity
Knowledge
based
Compliance
based
Model-based Risk Management
This level involves the systematic identification of potential risk “scenarios” that may or may not have occurred in past operational experiences. This “model-based” level of risk management looks for potential events, or sequences of events, that could lead to an incident. This type of analysis is typically done using a structured analysis (What if?) methodology and can range from relatively simple qualitative assessments to highly complex quantitative studies of incident probabilities and consequences.
Omniscient Risk Management
This ideal level of risk management represents the ability to prevent all potential events whether they have occurred or are predictable or neither. This “unachievable” level of risk management is included in the hierarchy to acknowledge and communicate that a complete understanding of risk or achieving total risk elimination is impossible, regardless of levels of effort or expenditure.
NOTE: As indicated in the graph above as you move to each successive level of risk management there will be a requirement for more accurate data / information concerning the nature of the risk involved and the cost-effective means of reducing them. Therefore, each successive level of risk management entails greater effort and higher costs. Information is costly, and a key aspect of cost-effective risk management is to ensure that the added value of each successive level of complexity is worth the added cost. (Paralysis by Analysis). Thus, inherent in the cost-effective management of risk is the determination of use of a “graded” approach to determine the appropriate level of risk management to be used for a specific situation.
“Risk Management within the Liquid Pipeline Industry”, The Joint Government / Industry Risk Assessment Quality Team, The Office of Pipeline Safety (OPS) and The American Petroleum Institute (API), Washington, D.C., June 1995
Decision includes projections and what-ifs
Decision based on increasing amount of information

18. 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
Often Risk Assessment in a Company is done due to problems found – Thus re-active – Risk Assessment is supposed to find out where a Company MAY HAVE problems so that they can be solved beforehand.
There is a link obviously between investigating incidents and risk assessment but it should be for lessons learnt not the only time to do the assessments
Many Companies do good Risk Assessments of Specific Shipboard Operations quite well. It’s the linking of everything together that is the area that is lacking

19. How Successful are We in Managing Risk Effectively ?
Still thinking about it!

20. 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”

21. 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?

22. 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

23. in shipboard operations
Risk Management Model
Management of risk
in shipboard operations
Risk
assessment
Reactive
monitoring
Active
monitoring
Investigation &
corrective action
Inspection &
corrective action
Control
Procedure, Equipment
Trends
Trends
Review

24. 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

25. 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

26. 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.

27. 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)

28. What Affects Operational Performance
Accidents
Near misses
Unsafe ships
Lack of a safety culture
Lack of shipboard teamwork

29. 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

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

31. Risk Assessment Process
Inventory of shipboard operations
Identify hazards
Identify existing controls
Determine risk
Decide if risk is tolerable
Implement controls
Review

32. Stage 1 - Inventory of Shipboard Operations
Deck
Engine
Hotel
Cargo
Operation type
Vessel integrity
Routines
Mooring
Navigation
Operation group
Men on deck in heavy weather
Watchmen doing rounds in darkness
Lowering/launching of lifeboat/MOB boat
Entering cold weather
Operation

33. Which Operations do You Assess First?
Operations with the potential for loss which could most harm your business
Operations where most accidents occur

34. CONSEQUENCES LACK OF CONTROLS What Causes Accidents? ACCIDENT
Falling, slipping, fire, explosion, oil spill,
collision, grounding, systems failure etc.
ACCIDENT
DIRECT
CAUSES
Unsafe Acts
Unsafe Conditions
INDIRECT CAUSES
Job Factors
Personal Factors
ROOT CAUSE
LACK OF CONTROLS

35. LACK OF CONTROLS To make operations safe, CONTROLS have to be in place
ROOT CAUSE
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
The safety management objectives of the Company in the ISM Code refer to safe practices, safe working environment, safeguards, but how do we make things safe.....(read the OH)
This may appear to be reverse logic, but it is appropriate.
The effective identification of hazards is the key factor in realistic risk assessment

36. Reporting and Investigating Minor Incidents
BIRD (1969)
TYE / PEARSON (1974)
SERIOUS OR
FATAL OR 1 1
DISABLING
SERIOUS
MINOR 10 3
INJURIES
MINOR
PROPERTY 30 50
FIRST AID CASES
DAMAGE 80
PROPERTY
INCIDENTS
600
DAMAGE
(NO INJURY
400
OR DAMAGE)
INCIDENTS
UNKNOWN NUMBER OF HAZARDS

37. Understanding Root Cause
Pump failure
Equipment failure
Operator error
Process failure
Environmental
extreme
conditions
Control valve
failure
Instrument air

38. risk management effective?
How do you make
risk management effective?
How do you know, if you are carrying out these assessments, if its actually working?
Often no direct savings or benefits seen
How do you justify the cost of carrying out the Risk Assessments?

39. Link Risk Management to Performance (KPI’s)
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
Accidents – Procedures, Competence, Training, Awareness
Off-hire – Reliability, New Buildings? – same equipment? Maintenance, Crew Competence, Charterers?, Right ship
Maintenance Costs – Linked to above, Inspection Routines
PSC – If results bad why, is this the ship you want? Inspection Routines
Finance
Insurance Claims
Crew

40. New ILO Regulations What are the Risks? Good test maybe?
Financial Costs to the Company
Country of Ownership
Flag
Crew Nationality
Crew Contracts
New Requirements
Ship Requirements

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

42. What do you think?