Trish And Traci Podcast Hero 634038dfef17d

Podcast: How To Make Money And Save Lives Via Process Safety

Feb. 4, 2022
Sometimes you have to talk about the bottom line in order to get buy-in for process-safety initiatives.

Transcript


Traci: Welcome to "Process Safety" with Trish and Traci, the podcast that aims to share insights from past incidents to help avoid future events. I'm Traci Purdum, Executive Digital Editor with Chemical Processing, and as always, I'm joined by Trish Kerin, the director of the IChemE Safety Center. This is our first episode of the new year, and our 29th episode, overall. Happy New Year to you, Trish. Do you have any big process safety plans in store for the year?

Trish: Wow, Happy New Year to you, too, Traci, I didn't realize we're up to 29 already, that's fantastic.

Traci: I know.

Trish: We've been doing this a little while now.

Traci: We talk a lot, don't we?

Trish: We do. Yes. Look, there's always big plans. You know, in the Safety Center, we've continued to develop our #minutetolearn videos, which we put out on social media as anniversary reminders. And that's just that little reminder to say, "Hey, on this day, something happened. And there's something you can learn from it. Let's not forget those lessons," because we always forget the lessons unfortunately in process safety, and we always see the incidents repeat.

So, we want to try and help that any way we can, also, working on some new guidance documents on a range of different topics as well. So, full steam ahead for us for the next year.

Traci: Absolutely. And I do follow those incidents that you post in it. It is good to look back and learn from past mistakes as we do in this podcast. In this episode, we're going to be talking about cold, hard cash, and how process safety can make you money. Trevor Kletz considered the father of process safety was fond of repeating, there's an old saying that, "If you think safety is expensive, try an accident." Trish, do you know how much safety incidents cost the chemical industry?

Trish: It's an enormous number every year, and we see it repeated again and again. There's actually a really useful source of information that's published every two years by Marsh Insurance called the 100 Largest Losses in the Hydrocarbon Industry. And they look at the 100 financially largest losses that have occurred, and they cover chemical plants, refineries, upstream, terminals and distribution, and gas plants. And so, they break it down into those categories.

And it's a historical view of the most expensive incidents that have happened. And it's interesting to note that because it's produced by an insurance company, they only talk about the insurable loss, not the actual loss, not actually how much it cost. So, what I mean by that is to give you an example, if we look at Macondo so, you know, we're talking back in 2010, Gulf of Mexico. The Marsh report estimates, the adjusted dollar figure today from Macondo is $685 million.

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However, we know that that has cost the organization more than $65 billion. So, what we're not covering in this is the fines, the third-party liability claims, the goodwill issues where, you know, people stopped buying petrol from a company, those sorts of things. We're not seeing that information represented in this report, even though, the Macondo well still does make it into the top 100 all-time most expensive incidents. So, they can certainly cost a lot of money.

Another example not that long ago was, you remember the Philadelphia refinery that had an explosion due to a pipe fitting back in 2019, and they eventually filed for bankruptcy [see: Podcast: Corroded Pipe, Decades-Old regulations Cause Catastrophe at Philadelphia Energy Solutions]. Their insurable loss was 750 million. These are big numbers and they're not a total value either, as I said. So, there is an enormous amount of money that is lost in process safety incidents.

Even a tank fire, back in March 2019, there was a tank fire where 12 out of 15 tanks in the tank farm were burned, $125 million insurable loss only. So, there's certainly an enormous amount here that just costs industry a huge amount of money, can put you out of business. Because, you know, that Philadelphia fire was a business-ending event. Bhopal was a business-ending event basically for Union Carbide as well.

These sorts of event they can...they're business-ending, they destroy the entire enterprise. If you're a smaller company, you can't afford those sorts of losses. Now, if you're a smaller company, you might not face as much of a loss, but it's all relative. You know, you may only need to lose 100 million, 50 million, and you're filing for bankruptcy and out of business.

So, there's certainly some enormous money that is lost in incidents that occurred if we think about another interesting one. So, Pasadena Texas 1999, the explosion that led to the death of Mary Kay O'Connor, who obviously now has her name to the Mary Kay O'Connor Process Safety Center. The adjusted insurable loss of that, so adjusted means adjusted to 2019 dollars is 1,615 million. The $1.6 billion is the adjusted insurable loss of that explosion.

So, there are enormous amounts of impact there. And the sad thing is we're seeing similar causes happen all the way through. We're not seeing new causes, we're not seeing new hazards, we're not seeing new phenomena occur. We're seeing things like safe systems at work not being applied adequately.

We're seeing things like maintenance not being undertaken, preventative maintenance to understand pipe thinning, or fire-related ignition sources appearing because we're not maintaining adequately the intrinsically safe electrical equipment on-site, causing the ignition source when we've got a leak of some sort. So, we're seeing all of these sorts of things occur, again and again, none of this is new.

Traci: Now, these...the numbers you're talking about are huge. And, yes, nothing is new. And the savings by not having an incident is an obvious one. But is there actually a case of bringing money to the bottom line with process safety?

Trish: Yeah, there definitely is. So, one of the things, we're caught in a paradigm that safety costs us money, doesn't make us any money. We've been caught in that paradigm for decades. And we just think, "Oh, no, well, I've got to put in this extra safety stuff that just costs me money, I'm not getting any return on that." And that's actually not the right way to think about it.

Fundamentally, when we talk about good process safety systems, and we have good design, and we maintain it adequately, and we operate it within its operating envelope, well, what happens? The plant keeps operating. So, good process safety means good preventative maintenance regimes, means that we have really good reliability in our facility, plants aren't breaking, they are running. Now, just because your plant's running when we're talking commodities does not guarantee that you will make money.

Commodity prices come into it, all those sorts of things. But I'll guarantee you, you've got more chance of making money, if you've got a plant that can operate than you have of if you've got a plant that's broken down because you're not producing anything. Your fixed costs remain the same, whether you're not producing anything. And the only thing that's variable is your variable cost. So, your fixed costs, which is usually your largest cost, anyway, always remain the same.

And then you've got the situation of having to repair or replace. So, you're having to pay out money to get the plant back running. So, good process safety is good reliability. And we all strive for reliability in our plants, because reliability gets us productivity, productivity is what makes us money. But we've disconnected somehow in our thinking that process safety actually delivers reliability. Fundamentally, it does produce reliability.

Now, I'm not saying we should do process safety because it makes us money and not because it's about safety. We should do process safety because it's about safety. But if we're talking to people that don't get that message, then we should talk to them about how process safety can make them money. It can contribute positively to the bottom line. But sometimes that needs to be explained to people that link, that this process safety regime is going to give you reliability. That's what you're after in your business.

We need to make that connection for people. So, that's how it adds money to the table. Obviously, not having an incident saves you a lot of money. But people gamble on the, "But that won't happen to us, so we don't need to worry about it." Well, actually, there's enough evidence around that it will happen to you at some point in time because it happens to everybody at some point in time if they don't manage their process safety properly.

And the incidents cost money, but they not only cost money, they cost reputation, and they cost the ability to operate freely. What I mean by that is...I mentioned Deepwater Horizon...a lot of the losses that are associated with that Macondo Well, were around the public not buying BP fuel because of reputation. There's a reputational issue for them. There's also an environmental issue and a human tragedy with the 15 lives lost...sorry, the 11 lives lost.

But it was a reputational issue as well. The other part of it to remember, though, is when we look at the legal side of it, President Obama, shortly after it, issued a moratorium on deepwater drilling in the Gulf of Mexico for a period of time. So, that not only impacted that company's ability to operate, but it impacted all ability to operate in deepwater in the Gulf of Mexico for drilling activity.

So, it can cause legislative change, it can cause the community around you to not be as accepting of your activity. And that can create a lot of challenge in achieving what you want to do.

When you're doing things well you don't get a lot of attention from the regulator if you're following the laws, and not hurting people, and not having incidents.

They give you a lot of attention when things are going wrong, and that attention can be very distracting. It can cost you a lot of money in legal issues as well, and so you don't want that attention from them. You actually want to be just doing the business you do reliably, not hurting people, not hurting the environment, not having process safety incidents, and you can keep doing what you do. That's the key to it all.

Traci: And you bring up a good point, the ruined reputations, that's a hard one to get away from. Regardless of all the great things you do after the bad incident, you still have that on your record. So, it's hard to get away from that. And in the late 80s, aluminum manufacturer, Alcoa made headlines for committing to a safety culture, you're talking about the paradigm that we're stuck in. But back then, the CEO said he was going to focus on worker safety rather than profits, and shareholders panicked, but it really worked out for them.

And I just looked up some statistics for that, because I was trying to remember, their earnings went from 20 cents per share to $1.41 in just five years. So proof to the point of focusing on safety can bring money to the bottom line, their sales grew 15%. And this was in the late '80s, so by 2000, it was five times safer to work at Alcoa than it had been 10 years earlier. And so, you're safer, plus you also have money at the bottom line. So from a business aspect, it seems like a no-brainer.

Trish: Absolutely. And, you know, that Alcoa case study, it is one of the great business case studies because you're absolutely right, everybody panicked. You know, there were stories about the traders literally running out of the room to find the nearest payphone, because it was back in the days of payphone not cell phone, to phone up to tell their clients to sell because this guy's crazy.

Now, he had a vision to do something. Because the other thing that I didn't mention is that for every injured worker, injured workers are also very expensive to deal with, not only because you actually have to deal with the medical costs associated with it, but you actually have to backfill them. So, you're paying overtime for someone potentially, or bringing in an additional person and you're still paying the injured person, too. So, aside from the human cost of it, and we can't lose sight of that human cost ever, but there's a significant economic cost to hurting someone. You don't hurt someone for free, that's for sure.

And so, if you can hurt less people, and hurt them way less severely, then you're not actually paying out all these extra costs as well. So, you not only get that reliability for your equipment, but you also get the reliability for your people. They're turning up to work because they're healthy and well. And so, I think that's a really important part of it, too.

And, you know, Alcoa was a magnificent example of that. The one thing that disappoints me, though, is that it happened in the business world, and it didn't really take off. You know, we see some companies really striving for it still, but nothing like what was done back then by Alcoa at the time. It was really quite revolutionary, and we haven't seen that revolution, I don't think, in other companies. We've seen consistent efforts, we've seen commitment, and we've seen active working towards improvement. But we haven't, I don't think, seen anything as revolutionary as what he did at that time.

Traci: Why do you think that is? What would be revolutionary today?

Trish: Revolutionary today would be doing a similar thing. I know that sounds a little bit ridiculous, because how can it be revolutionary if it's been done before, but the fact is, it was done once pretty much and no one ever did it again, even though it was successful. So, you know, the idea of when are we going to get a chief executive stand up and say, "I'm not going to talk to you about the dollars today, I'm just going to talk about safety," rather than we spend all the shareholder meeting talking about safety, and go, "In our sustainability report, we've got this, this, and this detail, and our lost time injury frequency rate has dropped and that's fantastic."

Because that's what we get now. We get transparency, we get the safety results being published. But we also get a myopic focus on lost time injury frequency rate, which, one, tells you nothing about process safety, and, two, for anybody that works in a company, they will know, the amount of time spent arguing over whether an injury was actually a lost time or could it be classified as something else is time-wasting.

And that time, you could be spending better actually doing something about safety rather than arguing about history. And that happens a lot. And so, we still see things like remuneration programs for companies being linked to lost time injury frequency rate. Some companies have moved past that and said, "We'll do total recordable injury rates," because they're actually harder to argue out and declassify out.

But still, actually only rewarding people on the basis of historic performance of injury is not good for a number of reasons. One of the primary ones is it discourages reporting, because do you want to be the person that reports the injury that causes everybody else to not get their bonus? You're not going to do that, you're going to hide it, you're going to try and prevent reporting it in any way you can. Because you don't want to be the person responsible for meaning other people don't get their money. It's pretty simple human response in that.

But secondly, those results are actually result of history. They don't tell you what's going to happen in the future. We need to also be focusing our businesses more on lead metrics, and lead indicators to say, "Okay, where are our systems starting to break down so we can fix them before the incidents happen." Imagine if some of those incidents I talked about that were caused by safe systems at work, the permit to work system, if we knew the permit to work system was failing beforehand, and we could fix it beforehand, the incident wouldn't have happened. And that could be tens or hundreds, or millions of dollars saved in a single incident.

If we fixed that particular control, it's a critical control in most organizations. And if we knew it was degrading we could do something about it. If we're not monitoring its health, we can't detect that it needs help. So, we really need to be moving companies a lot more to understanding the lead indicators. We still need to understand what the lag indicators tell us.

They are our history, and we will work against what our history is so that we can see our improvements. But we need to not be driven by our history. You can't spend your whole time driving down the road, looking in the rearview mirror, you're going to run into something if you keep doing that.

Traci: Now, let's say we have some folks listening that want to be the revolutionary people, the revolutionists, what's the easiest way to get them started? You're talking about the lead, the lag, the not looking backward, where do they start? What's the easiest step for them to take?

Trish: The easiest step I think to take initially is to understand the language of business where the decisions are made.

Because the people that are making the financial decisions in companies are generally not the technical engineers, they're generally finance-related, legal-related. They speak a different language to us as engineers, they speak a business language. If we want to get a message across to them and sell them the message in a way that they will take action, we actually need to make the effort to speak their language.

And if we can speak their language and have the conversation, not just about, "Well, incidences that cost a lot of money." "Yes, they do. But actually, here's how I can make you more money if you give me the investment to do this, this, and this, then we'll see this outcome happen. Here's your return here."

So, whilst as a safety professional, we always want to be arguing safety, for safety's sake, sometimes we actually need to say, "If I want to win the argument and get the thing done, I might need to argue it on economic grounds," which means I need to speak the economic business language, the people making the decisions. When they realize that there's something in it as a return, they'll go after it.

And you'll start to get the revolution happen that way again. And I think that's what we need to do. I think there's a communication breakdown, where, from a safety perspective, we are too siloed from the business. And historically, in a lot of instances, safety is seen as the blocker. We're the roadblock in the way, we stop you doing everything.

We need to change that, we need to be the, "Here's how we can do it safely for you. Here's what we can do," not, "No, you can't do that." "Here's how we can do it." Figuring out the safe way, getting people to do that, and then taking the decision-makers on the journey to get the decision that needs to be made.

Traci: Is there anything you'd like to add that maybe we didn't touch on that makes sense in this conversation?

Trish: I think it's just around really focusing on understanding...from an engineering perspective, we need to know what our hazards are and how we're managing them. From the business perspective, we need to understand how, as safety professionals, we positively contribute to the bottom line.

And then we need to marry those two things together and have mature conversations with the decision-makers to get the right decisions made. Because there is enough evidence that these incidents do happen, they will continue to happen until we can get better learning.

And to get better learning we need to acknowledge that, you know, "It's happened before, it can happen again. Here's how it can happen at our facility," not those chilling words of, "That can't happen here." That always terrifies me when I hear someone say, "That can't happen here," because effectively what they're really setting up for the future is it's only a matter of time until it happens here. We need to get people to not make that statement but to be asking the question, "How can that happen here? And what do I need to do about it?"

Traci: Well, Trish, as always, you keep us focused on the windshield looking forward rather than looking in the rearview mirror, and I appreciate that. Unfortunate events happen all over the world, and we will be here to discuss and learn from them. Subscribe to this free podcast so you can stay on top of best practices. On behalf of Trish, I'm Traci and this is, "Process Safety" with Trish and Traci.

Trish: Stay safe.

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Trish Kerin, director, IChemE Safety Centre, Institution of Chemical Engineers, spent several years working in design, project management, operational, safety and executive roles for the oil, gas and chemical industries. She currently sits on the board of the Australian National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) and is a member of the Mary Kay O'Connor Process Safety Center steering committee. You can email her at [email protected].
Traci Purdum, an award-winning business journalist with extensive experience covering manufacturing and management issues, joined Chemical Processing as senior digital editor in 2008. Traci is a graduate of the Kent State University School of Journalism and Mass Communication, Kent, Ohio, and an alumnus of the Wharton Seminar for Business Journalists, Wharton School of Business, University of Pennsylvania, Philadelphia. You can email her at [email protected].

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