Posts filed under ‘Risk Management’
Leveraging EHS/S Expertise for Non-financial Risk Management
Charles Redinger
Organizational risk management has evolved from a singular focus on financial risk, to a broader perspective that includes enterprise-wide and non-financial risks. Approaches such as enterprise risk management, strategic risk management, value risk management, etc. are morphing into an area called non-financial risk management (NFRM). A paradox in this arena is that even though risk management is important, it is fragmented, siloed and poorly integrated in companies. NFRM frameworks are weak or non-existent.
A solution to this paradox can be found right down hall in the EHS/S (environmental, health, safety and sustainability) department. But the decades of risk management experience that the EHS/S function has, often goes unnoticed because of the historic focus on regulatory compliance.
In many organizations, the EHS/S function is more mature than the broader NFRM function. The challenges that EHS/S has had to address closely parallel the NFRM challenges, such as: comprehensive risk assessment; increasing employee engagement; breaking down silos; developing reliable frameworks; and developing meaningful metrics.
The EHS/S function and its professionals have well-developed structures and skills that can be used to address the accelerate development of the risk management function. This could be bad news for some readers who are worried about more work. On the other hand, it can be viewed as an opportunity to make a significant contribution in your organization.
Consider these EHS/S structures, practices and skills:
- EHS/S departments engage with every operational function in the organization;
- They have expertise in understanding regulatory compliance and “beyond compliance” approaches;
- They have unique sets of data that quantifies and measures a wide range of operations
- They have experience breaking down organizational silos and strength in generating engagement from the C-Suite downto the plant floor;
- They have the ability to analyze data used to predict outcomes;
- They have the skills to design and employ new systems within the various operations of the organization;
- With a robust EHS/S management system, they have a platform to build a strong ISO 31000-based risk management framework;
- EHS/S auditing functions are mature and can support evolving risk management performance measurement activities.
Possibly the most valuable of the above is the ability to quickly develop a strong risk management framework (or you could say, a Risk Management System) using the existing integrated EHS/S management system. The blending of ISO 31000 into a mature ISO 14001/OHSAS 18001 EHS/S MS, provides the strong risk management framework that can unify a fragmented risk management function.
Strictly speaking, ISO 31000 is not a management system. The intent of this standard is to augment existing management structures to achieve risk management goals. Not only can an ISO 14001/OHSAS 18001 management system provide a strong risk management foundation, when augmented with ISO 31000, the converse is also true. A 14001/18001 integrated system can be turbo-charged by folding in key elements of 31000, such as 31000 pieces on “establishing the context” (Sec. 5.3) and with EHS/S integration in an organization (Sec. 4.3.4). Finally, 31000 provides the lens through which a wide range of “risks” can be identified and controlled (Sec. 5.4 and 5.5), such as those associated with social responsibility, sustainability, and supply-chain issues.
When it comes to developing a framework for addressing non-financial risks, what has been your company’s approach? What other lessons do you think we could learn from the evolution of the EHS/S function?
Dr. Charles Redinger is a principal with Redinger EHS in Harvard, Mass. He has been at the forefront of environmental health & safety (EHS) management system and performance measurement research and methods development since the early 1990s. He has been a member of the US TAG to ISO 31000 on Risk Management. He has also served as the Chair of the AIHA Risk Assessment and Management Committees, and is currently serving as a national Director for AIHA. He is a Director at the Center for Safety and Health Sustainability and is a Certified Industrial Hygienist.
Increasing EHS Value in Tough Economic Times
Mark Posson
Can we do more with less? Absolutely! This tough economy is affecting all aspects of an organization and environmental management is not immune. Today’s reality in most organizations is stagnant or declining resources and a continuing mandate to increase environmental performance. We need to resist the tendency to pull back in tough economic times and instead be introspective and improve the way we execute. We can free up the resources to meet the demands of expanding requirements by continually improving our business processes. The increased efficiency will free up resources and the increased effectiveness will boost performance and stakeholder value.
Strategically, what processes provide the greatest value to our stakeholders? Where can we get our biggest return for the time invested? These basic questions will help prioritize your improvement targets and possibly identify processes that can be eliminated. A ranked list of processes for improvement will guide your pace of change and tactical execution.
Tactically, the simplest path to improve a process is to follow the elements of lean:
- Identify the value to the stakeholder (your customers)
- Determine the sequence of activities (current process flow)
- Identify the activities that create value
- Eliminate activities that do not add value
- Identify process inefficiencies and their cause(s)
- Eliminate the cause(s) of inefficiencies
- Create the new process (future process flow)
- Implement the new process
- Measure results
The steps are simple but often challenging to implement in light of day-to-day execution pressures. We can’t expect different outcomes by following the same processes. The investment in process improvement will provide the payback in better results with fewer resources.
What strategies do you use to do more with less?
Mark Posson is the former Director of Environment, Safety and Health at Lockheed Martin Space Systems Co. and the current Chair of the city of Pleasanton’s Energy and Environment Committee. He recently began offering consulting services to help organizations improve their environment, safety and health performance.
Ergonomic Success Requires Leadership
Walt Rostykus
Over the years, I’ve met environment, health and safety (EHS) managers who are convinced that by driving safety and ergonomics through a grassroots approach, some day the initiative will catch on with supervisors, managers and company leaders as an infectious commitment.
“If you build it, he will come” may have worked for Ray Kinsella in the movie “Field of Dreams”, but let’s get real folks: This approach is a shot in the dark for quickly and effectively improving and sustaining safety and performance in the workplace.
Indeed, the key elements of leadership in maintaining an effective and sustainable ergonomic improvement process are no different than those of an EHS system, company culture, or any other aspect of a business. The bottom line is that leadership must occur from the top.
A wise person once noted, “What interests my manager motivates me.” This is the key to leading a safety and ergonomics process over time. Think about it: At work your priorities and activities are guided by how your manager tracks and measures your performance. It is our experience that when managers, engineers, supervisors and employees have a clear understanding of their involvement in the effort to improve workplace ergonomics (and they are held accountable to those expectations), effective workplace changes are made.
Yet leading an ergonomics process is not usually intuitive to many in top management roles. As an EHS manager, however, you are in a position to coach top management on the few things they need to do; simply put, they need to hold their direct reports accountable for ergonomics performance (see my prior blog on effective goals and metrics for ergonomics). The four most important things they can do to make sure this happens are:
- Set clear expectations (responsibilities, goals, roles, targets)
- Provide people with the resources, tools and training they need to meet their responsibilities
- Visibly and actively monitor and track progress
- Take action when expectations are not met
Fortunately this four-step approach is not foreign to managers and supervisors. They follow some form of these steps to complete work, build widgets and manage production. Leaders in safety should apply the same approach (accountability) to influence, guide and lead their organization to success. It’s all about planning, managing and following through.
Kurt, my climbing instructor from several decades ago, was a great illustration of how not to lead by example. His immortal words “Do as I say, not as I do” sent a mixed message. While he told us to wear the correct helmet and always climb while belayed, he climbed bare-headed and without a lifeline. He was technically knowledgeable, but clearly not a leader.
On the contrary, Dave Packard, Bill Hewlett and Bob Hall were true leaders, who set expectations for performance (including safety) and held people, including general managers, accountable for the quality and safety of their workplace.
Whether you base your company ergonomics program on Occupational Safety and Health Administration (OSHA) models, the Safety Management System, lean manufacturing or continuous improvement, strong and visible leadership by people in top management is critical for ensuring that engineers design tools to fit the first time; employee teams reduce exposure to work-related musculoskeletal disorders (WMSD) risk factors before injuries occur; and that employees adjust their own work stations to best fit them.
If improving ergonomics is a priority for your organization, does your top management team lead by example? Have they set performance expectations, goals, and clear roles? Do they track performance?
If not, what have you done to best prepare them to lead?
Dow Chemical Co.’s Strategy for Addressing Product Stewardship Issues
With the growth in product stewardship regulations in Europe and beyond, chemical makers are facing unprecedented demand for transparency. In this video at our recent EHS Compliance Excellence Conference, Connie Deford, Director of U.S. Chemical Management Policy for Dow Chemical Co., discusses the impact these regulations are having and how the company is addressing them.
Going Beyond: Shell Oil’s systemic take on sustainability
Nancy Roberts
It is heartening to come across companies and leaders that are actively engaged in applying systems thinking; it is even more heartening to hear both positive results and frank observations. A recent interview with Marvin Odum, the president of Shell Oil Co. (the US subsidiary of Royal Dutch Shell) in MIT’s Sloan Management Review demonstrated an applied systemic view of the company and the industry and the landscape in which it must operate.
Royal Dutch Shell has long been famous for its use of scenario planning, a process that helps the company consider how different variables will affect possible futures, and how it can reduce risk and increase resilience. Here are some of the actions Odum says the company is taking to incorporate sustainability into its decision-making processes:
- Going beyond technical challenges: Focusing on solutions for the technical and operational aspects of a project is no longer enough. Odum describes the effect of the “non-technical” aspects of an energy project – essentially the needs of the affected communities and stakeholders:
“The timelines of these projects now is largely driven by those social performance and sustainable development issues, as opposed to the technical and other commercial issues.”
Stakeholder engagement is essential to a successful new energy project, but it has the consequence of extending the
timelines – inclusion, collaboration and compromise take time and effort.
- Going beyond the company walls: Preparing for the future might mean advocating for sustainability across your entire sector because an event that happens to one company affects the public’s perception of the entire industry.
“As Shell starts to take a very large position in natural gas in North America, the question I ask myself leading this business is not what is Shell going to do in terms of our own performance, but how do we set baseline performance and regulatory standards in this business so it becomes attractive to everybody involved and we secure that critical license to operate?”
- Going beyond the experts in the room: In the past, businesses have quantified their benefit to the community in terms of economic impact, such as job and infrastructure creation. More businesses now realize that the involvement of all stakeholders in a potential project is not just a nice thing to do, it is the best way to generate the most effective options for action. Odum mentions the advantages of working with Alaskan natives, particularly indigenous peoples, who have long-term memory of their environment:
“We’ve studied Arctic ice for years. But what we hadn’t done as much as we do now is work with indigenous people who have lived in that ice for millennia. They have what they would call traditional knowledge about how this ice changes over decades and centuries, and they have deep knowledge about what you have to really be prepared for.”
Engaging all internal stakeholders is also key. According to Odum, sustainability was a major driver in Shell’s 2009 reorganization, to get sustainability out into the project teams across the company. Employees are “beginning to understand that this [sustainability] is not an add-on that strips away profitability because it lengthens timeline and adds cost, but that it’s simply not possible to have a successful project if you don’t do this right.”
- Moving sustainability to the core: Shell’s management seems to understand that sustainability is not an afterthought or a public relations campaign. As Odum says, it’s not even enough for sustainability to be a priority; it must become a core value:
“Priorities change with conditions, they change with financial performance and maybe the economy. Core values don’t.”
How does your company’s performance affect your customers, stakeholders and industry peers? What methods are most effective for promoting sustainability internally and externally?
Nancy Roberts is a partner and co-founder of The Idea Hive, a group of GreenMBAs offering research, consulting and facilitation services that combine triple-bottom-line values with cutting edge thinking tools. You can follow her on Twitter at @leapingotter.
NRG Energy’s strategies for enterprise compliance
Tony Shea
At NRG Energy, environmental compliance is a management commitment. Through the pillars of its environmental management program, the Princeton, N.J.-based company delivers on this commitment in the approximately 42 power plants it owns and operates throughout the United States. This week, we caught up with Senior Manager of Environmental Business Tony Shea to discuss the company’s successful compliance strategies.
GT: When it comes to building a successful environmental management program, where do you begin?
TS: It starts with commitment from the very top of the company that environmental compliance is an absolute must. For NRG, that commitment is reflected in our environmental statement and our core values, and we do not make compliance decisions based on economics or other circumstances. It is understood that our plants simply must comply. And that commitment is constantly reaffirmed by our top management down through the plant management.
GT: Once the management commitment is in place, how do you embed compliance into the day-to-day operations?
TS: When we’re talking about power-generating facilities, compliance is a factor in many decisions operators make while on the job. At NRG we try to keep potential environmental impacts at the forefront of everyone’s thinking as we perform our daily decisions and actions.
In 2007, we implemented a system to track environmental compliance performance called the Environmental Key Performance Indicator (EKPI), which tracks incidents such as permit violations, notices of violation, reportable spills and even administrative compliance. The EKPI also accounts for each location’s participation in our econrg initiative, which includes projects focusing on environmental stewardship, greenhouse gas reduction, or water conservation projects in our local communities.
At the beginning of each year, every facility gets a target score. To reach the maximum EKPI score, the facilities need to have a perfect compliance record, and that score is ultimately tied into the bonus of every employee at the plant. Over the past four years I think it has really changed the mindset to reinforce the message that environmental compliance is everyone’s job.
Training is also a critical component of compliance. We’ve improved operator training, enabling them to better understand environmental requirements and potential impacts as they make decisions in their day-to-day operations.
GT: What are the other elements of your program?
TS: In addition to our EKPI, our environmental management information system (EMIS) and our audit program also help us ensure compliance.
We initially implemented our EMIS across all of our generating facilities in early January 2007. That initial roll-out included using it for our EKPI and for tracking environmental events. Shortly thereafter, we began using the EMIS to track any environmental responsibilities that come from permits or environmental regulation. If it’s something that can be scheduled, we’ve scheduled it into that system. The system then sends an email to the employee responsible for making sure it gets done. We’ve seen significant improvement over the years in administrative compliance thanks to our task tracking system.
Every significant facility also gets audited annually by an independent, third-party consulting firm. One unique aspect of our EKPI is that audit findings do not count negatively. We want to find all potential issues and correct them. Audit findings only impact a facility’s EKPI score if the corrective actions are not completed in a timely manner, or if there are repeat findings from year to year. We believe this sends the right message to the employees and encourages a collaborative relationship between the auditors and plants. We want perfect compliance, so it is important to identify potential risks or weaknesses and address them immediately. Our senior management and our plant management are on board with that and welcome the audits.
Tony Shea will share more details about NRG’s compliance program at NAEM’s EHS Compliance Excellence Conference on July 27-28 in Minneapolis.
Collaborating on compliance
James Bilgo
For James Bilgo, Supervisor of EHS Program Management for Kohler Co., ensuring regulatory compliance is a unique challenge. A diverse manufacturing and services company, Kohler has more than 80 ‘facilities’ worldwide, including small tractor factories, high-end furniture showrooms, sales offices, spas, hotels and even golf courses. They all share the Kohler name, though, and Bilgo’s auditing team works hard to protect it. We caught up with him this week to talk about the company’s auditing programs and how he helped build a strong compliance culture.
GT: Today, the Kohler Co. is known for its strong culture of compliance. How did your team achieve that?
JB: Going back 25 years ago, we were probably like most companies in that we would go to our operations and spend a week there walking through their facilities and doing what everybody would call your environmental, health and safety (EHS) audit. We would then write up a report and then walk away.
What we noticed was that we started seeing the same thing, time after time at all our facilities. And we just said, ‘We need to take a different approach to this. We need to be part of their team. We have to build up that comfort level so if they have that problem, we’re the people they think about calling.’
So what we’ve done over the past 20 years is to develop systems that cooperatively and proactively show our operations the path to improvement. We then train them, help them, encourage them, and basically do whatever we can to help them get there.
GT: Can you describe what your inspections are like now?
JB: Today our visits don’t feel like inspections. Our facilities actually ask us, ‘When are you going to come next? We really need you here. We want to show you some of the good things we’re doing; we want to get this next tier level of performance.’
When we walk through a facility now, we don’t walk around and point out problems; we walk around and look at things. And many times, the things that stop us in our tracks are good things.
GT: When there is a problem, what kinds of things do you do to help them solve those problems?
JB: When there is an issue, we try not to just be critical; we want to be very positive. A lot of times we have a discussion, the facility managers make suggestions and we add our expertise about what other plants are doing.
We also have a Web page, where we put all of our best practices and all of the programs we think the facilities should be pursuing. When someone has done a good job, we put their best practice out there for everybody to look at and share.
Every year, we hold an EHS conference, where we bring in all our EHS people from all of our operations all over the world to share best practices, and figure out how to solve the problems. And when someone does have a problem, we end up sharing the solution with everyone so it’s more of a cooperative effort.
GT: How do you train your team to ensure they provide the right direction to the facilities?
JB: The guys who work for me, very seldom get technical training. I train my people more on how to have a crucial conversation, how to be a leader, how to have emotional intelligence so they can communicate in a very positive way to the operations. That’s a lot of what my guys take to the facility.
Our department has three main purposes. The first is protecting the Kohler brand. It’s very important that when people think of Kohler they think ‘They’re the guys with the really nice golf courses,’ or ‘They’re the guys who make those fantastic bathtubs.’ We want people to think about Kohler and think about great company, great quality. Two, we want to send all of our associates home in better condition than they were in when they arrived in the morning. And the third is, minimizing the impacts of our operations on the environment and on future generations. So all of our programs are geared to one of those three main objectives and that’s what we tell our operations.
GT: Can you describe how you’ve structured your system?
JB: Ours is a tiered system, in which the facilities are recognized for their achievements.
On the safety side, we developed the Kohler safety management system, a very detailed roadmap for operations to achieve world-class safety performance. We looked at other programs out there, developed our own and distributed it to the facilities. At first, everybody went through it and tried to find the easy things — and not necessarily the right things to do first.
So we found out that we kind of made a mistake there. You’ve got to build. You have to have a good foundation first before you can put on the roof. So we went back and we looked at the whole system, identified our expectations and prioritized the issues. Is this an issue that falls into Tier 1 (compliance); Tier 2 (management commitment); Tier 3 (Has it been adopted by all associates?); or Tier 4 (There’s no reason for us to even come and look at their operation)?
We’ve had this going for eight to ten years and we’re still heading down the path.
GT: What are some of the hallmarks of Tier 4?
JB: To reach Tier 4, the assessment involves going out and interviewing the associates on the floor, asking them questions and seeing how they answer.
What we’re looking for is whether they expound upon their answers and show us more than what we asked. If so, they’re portraying a positive EHS attitude and demonstrating that by showing us what they’re doing. To reach the highest tier on the environmental side, for example, they should be able to look in the garbage can and say, ‘See? We don’t even need garbage cans here because we don’t throw anything out anymore.’ We’re not there yet, but that’s what you want them to ultimately say.
GT: Do you still have checklists?
JB: We do have an assessment tool that asks specific questions that we confirm through documentation, interview or observation. It then explains what we should specifically be looking for. On Tier 1 it’s mostly show me the documentation; at Tier 4, it’s right to the interview and the observation. Is it very obvious to me that they understand it and they are living it?
GT: How do you ensure they maintain their status?
JB: We have a safety group (outside of our team) that does a complete assessment of the Tier 3 and Tier 4 facilities. Every few years, they will go back and reassess the operation to ensure it is maintaining its status. It’s my team’s responsibility to continue to work with the plant to keep up the good work.
James Bilgo is the Supervisor of EHS Program Management for Kohler Co. He will discuss the company’s collaborative auditing programs at NAEM’s upcoming “EHS Compliance Excellence” event on July 27-28 in Minneapolis.
Water stewardship: Paralyzing complexity or competitive advantage?
Nick Martin
The message from stakeholders and investors is clear: Companies are expected to govern and begin disclosing water-related business risks. Historically, most companies have been able to simply acknowledge water as one of many important business issues. Much has changed in the past few years, with water positioned as a competitive issue and expectations trending towards quantification of water-related financial liability.
However, growing disclosure pressure isn’t the same as providing pragmatic “how to” for characterizing and quantifying water-related business risks. Moreover, characterizing the risk is only the beginning. The real challenge for companies is how to strategically prioritize risks and opportunities, build necessary competencies, and drive local water management plans. Why is water such a challenging, and potentially paralyzing, business issue you ask? Consider these factors:
- Nearly every activity, product, or business transaction uses water in some form – yet, there is no substitute;
- Water is both a local and temporal issue with potentially widely varying conditions (e.g., floods and droughts can occur in nearly the same location);
- Water, in general, is difficult to bound, measure, transport, and define access rights;
- It’s challenging to justify water-related strategic or capital investments based upon traditional ROI calculations;
- Cross-functional participation and solutions are required, including engagement up/down a company’s supply (value) chain; and,
- It is widely considered a human right, placing it in the sweet spot for media, political, and stakeholder attention.
What does this mean for companies that have yet to fully embrace water as a core business issue? There are two basic options:
- Start or accelerate a water strategy soon and possibly stay “ahead of the curve” thus determining your own pace of implementation; or
- Do the Basics – hedge your bets that water will not directly impact your company and expectations will stagnate. Given that water appears to be a resilient issue, companies that hedge could face monumental leaps to catch up to peers and meet stakeholder expectations in the near future, especially given the complexity and location-specific aspects. The cost of inaction could be significantly higher than self-paced implementation.
So, the first question many companies ask is how fast do they need to move? Well, the direct impact of water issues on any given company depends upon a range of variables including sector, size, brand recognition, and public image. First, let’s look at what we are seeing:
- Publications – recently published materials appear to be trending towards standardized buckets of water risk: Physical; Regulatory; Reputation; Investment. This has translated the business risks into simplified, real world concepts for a wide-range of stakeholders and investors to more easily comprehend and formulate inquires.
- Surveys – increasing number of non-governmental and supply chain surveys, including the second annual CDP Water Disclosure Project questionnaire, have significantly increased transparency of existing corporate strategies and knowledge gaps.
- Corporate Reporting – more companies are reporting water metrics, as well as water footprints, product life cycle assessments, and intensity indicators.
- Initiatives – water-focused NGOs and collective action partnerships have increased exponentially in recent years ranging from advocacy to standard development.
Collectively, these actions have provided investors and stakeholders with confirmation that 1) water is in fact a real business and investment risk; 2) a majority of companies are not proactively addressing the issue; and 3) water can be effectively managed, quantified, and reported on as demonstrated by the small number of corporate leaders in this space.
Nick Martin is an Associate with Antea Group. He will present ideas for developing a water strategy during NAEM’s webinar on “Water Risk Management” on June 21.
