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Similar to Six Steps to Implementing a Successful Risk Matrix
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Six Steps to Implementing a Successful Risk Matrix
- 1. Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com Six Steps to Implementing a Successful Risk Matrix By: John Campo, PE Vice President of Engineering – Pinnacle Advanced Reliability Technologies (PinnacleARTTM ) Risk. It’s a common term, but has various definitions. A person’s experience and environment greatly affect the interpretation of risk. The term is even more subjective within dangerous working conditions, such as process facilities. Depending on an individual’s role within each department, that department’s interpretation of risk and how it impacts the company as a whole will vary. For example, an asset integrity engineer and a health, safety and environmental (HSE) manager will respond to situations differently depending on the consequence that risk imposes on his/her individual department. The solution to this common challenge is to implement a corporate risk matrix that analyzes the risks of each department with the probability and consequence of each risk identified on one unified graph. Building on this process, a corporate risk matrix allows all facilities to be plotted on the same matrix in order to assess the risks across all locations. This paper outlines six steps facilities can use to implement a corporate risk matrix that will ultimately help the facility open communication between siloed departments, as well as improve safety, limit unplanned downtime and increase business performance. HISTORICAL CHALLENGES OF RISK MATRICES Years ago, companies tried to incorporate risk matrices in two ways – each department had its own risk matrix, or all departments shared one generic risk matrix. The challenge to this process was that facilities struggled to coordinate department priorities and costs because each department operated independently of one another. As companies wasted time, effort and capital expense trying to force fit a standard risk matrix across all departments, they realized that there was, and is, no one- size-fits-all solution. Companies now recognize that it’s critical to understand each department’s particular risks in order to successfully scale and prioritize the levels of risk and response efforts across the organization. 1
- 2. For example, rotating equipment, such as a pump seal, has a high failure rate and a low consequence rate, meaning these assets within the facility can breakdownmoreoften than other assets, but the consequence or effects on the facility are minimal. As shown on the top risk matrix graph, most rotating equipment falls within the bottom right quadrant. Meanwhile, fixed- equipment has a medium failure rate and a medium level of consequence, meaning these assets have an average operating lifespan, but certain parts require more attention because the consequence or result of that piece failing could greatly hinder the safety or operations of the facility. This is depicted in the graph to the right. 2 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com ConsequenceofFailure Probability of Failure (Failure Rate = events/year/equipment) Generic Risk Matrix A B C D E F G H I Rare/ unheard of Occured once in industry Has occured several times in industry Has occured once in company May occur in facility’s life Will occur in facility’s life Likely once/year Multiple times/year Likely several times in facility’s life ConsequenceofFailure Probability of Failure (Failure Rate = events/year/equipment) Generic Risk Matrix A B C D E F G H I Rare/ unheard of Occured once in industry Has occured several times in industry Has occured once in company May occur in facility’s life Will occur in facility’s life Likely once/year Multiple times/year Likely several times in facility’s life
- 3. Though each department has its own interpretation of risk and consequence levels, it is clearly not an efficient solution for the facility as a whole. To begin the process of consolidating each department’s risk matrix onto one corporate risk matrix, companies should start with the basics: their data. STEP ONE: DATA COLLECTION Step one is critical because the information companies collect now will be the foundation for their corporate risk matrix. Companies should start researching whether each department has a risk matrix or requires one to be developed for them. Questions to ask the managers who are responsible for their department’s risk matrix include: • Does your department currently have a risk matrix? If the answer is no, coordinate with the department manager to set up a risk matrix specific to his / her department and the assets within that department. On a graph, the manager should rate overall equipment failure rates based on an agreed-upon timeframe (such as years, months, decades, etc.) and the level of consequence or impact that failure would have on the facility in a specified number of stages. The following example outlines five stages with stage one being a minimal consequence and stage five being a critical consquence to the facility. The department should choose the appropriate number of stages for their risk levels. 3 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com ConsequenceofFailure Risk Matrix Probability of Failure (Failure Rate = events/year/equipment) A Med High Med High Med High Med High Med High Med MedMed Med Med Med LowLow LowLow LowLow Med 5 3 2 1 4 Med High Med High High High HighHigh High B C D E
- 4. • Is the department’s risk matrix up-to-date? If not, the manager should update it prior to sending a final copy — otherwise, the department could be making decisions based upon bad data. • How is the department using the risk matrix? A risk matrix can function in a number of ways. For example, it can be used qualitatively or quantitatively; with a dynamic or static risk model; periodically or continuously; as a guideline or a requirement. Management should consider how each department is using their risk matrix and define the standard guideline moving forward. After answering these questions and collecting each department’s approved risk matrices, the next step is to combine them into a single corporate risk matrix graph that is eight cells across and eight cells down, which will define the starting point and the baseline standard. Please refer to Illustration B for an example of combining three different department’s risk matrices into one graph. 4 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com ConsequenceofFailure Negligible Low Med Low Med Med High High Extreme QRA/PHA/HAZOP ASSET INTEGRITY ASSET RELIABILITY Likelihood of Failure (Failure Rate = events/year/equipment) Illustration B:
- 5. STEP TWO: DEFINE CONSEQUENCE OF FAILURES Step two is critical because the facility must compare each department’s Consequence of Failure (COF) scale within the risk matrix and define a new measurement standard for the COF company-wide. COF is the impact a situation or failure could have on the company defined by the health, safety and environmental (HSE) impact, business impact or costs, and/or its reputation in the community. The best way to set up this master table is to start by labeling four columns with the following titles: Health and Safety, Environment, Business Impact, Community. Then create approximately eight rows down the left side of the table, which display the impact of the consequences on the facility that could occur from a specific event. The generic levels of the eight rows are: 1) Negligible consequence 2) Notable consequence 3) Reportable consequence 4) Impactful consequence 5) Major consequence 6) Critical consequence 7) Catastrophic consequence 8) Globally catastrophic consequence Once the eight generic levels of consequence are on the table, specific descriptions should be added that clearly define events or impacts within each of the eight cells under the four areas of impact (Business, Health and Safety, Environment, Community). In this step, it is critical that each cell located on the same row has the same response efforts. For example, Consequence Category 3 in Illustration C reveals that the response efforts for an agency reportable release will be the same as a recordable injury of an individual or the local media fielding questions regarding a leak. It is important to note that each box within the table must be measurable and communicated consistently throughout the organization, or the implementation of a risk matrix in later steps will not be successful. Each box should be clearly explicit so as not to be left up to an individual’s interpretation. 5 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com
- 6. 6 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com STEP THREE: DEFINE THE PROBABILITY OF FAILURES After defining the COF, you must determine the Probability of Failure (POF), also known as failure frequency or failure rate. This is usually more challenging than the COF. Again, the order of magnitude is the key to the success of a risk matrix. The most common approach is using 1 out of 1, 10, 100, 1000, etc. For example, 1 out of 10 could represent 1 failure every 10 years; or 1 out of 10 pieces of equipment will fail each year. The definition of POF should be determined by the facility. The following diagram shows how POF can be used within the risk matrix graph. The descriptions can be highly customized based on a company’s specific “pain” points. Illustration D: An example of a Probability of Failure (POF) table Probability of Failure (Failure Rate = events/year/equipment) A B C D E F G H I 10-6 10-6 - 10-5 10-5 - 10-4 10-4 - 10-3 10-3 - 10-2 10-2 - 1/10 1/10 - 1/1 1/1 - 10/1 10/1 Rare/ unheard of Occured once in industry Has occured several times in industry Has occured once in company May occur in facility’s life Will occur in facility’s life Likely once/year Multiple times/year Likely several times in facility’s life ConsequenceofFailure(s) $1B8 7 6 5 4 3 2 1 Catastrophic impact 50 onsite or 10 offsite fatalities Catastrophic global impact Catastrophic (permanent adverse impact to global reputation) Permanent adverse impact to national reputation International media (long-term adverse impact to reputation) National media (notable adverse impact on reputation) Regional media (low adverse impact to reputation) Irreversible offsite spill/release that destroys habitat or life Uncontained offsite spill/release that harms habitat or life Uncontained offsite spill/release of highly hazardous material Release that exceeds operating permit 5-50 onsite or 1-10 offsite fatalities 2-4 onsite fatalities 1 onsite fatality or offsite health impact Permanent injury Local mediaAgency reportable Recordable injury Internal impact Onsite contained spill/release First Aid Minimal effectMinimal effectMinimal effect $100M to $1B $10M to $100M $1M to $10M $100K to $1M $10K to $100K $1K to $10K $1K CommunityEnvironmentHealth and Safety Business Impact (Production Loss, Repair Cost) Illustration C: An example of how to set up a Consequence of Failure (COF) table.
- 7. 7 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com STEP FOUR: DETERMINE THE THRESHOLD LEVEL OF EACH RISK MATRIX Now that the definitions and scale for COF and POF are complete and placed on the risk matrix, the threshold for each level of risk must be determined – meaning, at what point, and how will the team respond to the threat. The following color codes define the different response levels based on five risk levels. However, a facility might choose to have more or less than five levels. Black: Negligible; it will not affect the facility Green: Low risk; minimal response efforts Yellow: Moderate risk; teams should take action to manage risks from increasing Orange: High risk; teams should take action as soon as reasonably possible Red: Extreme risk; teams need to take immediate action Next, place the colors on the risk matrix to determine how each level of risk should be classified. After coloring in the various boxes in black, green, yellow, orange or red, determine the risk threshold with a dark line. For example, many companies will draw a dark line to separate green and yellow, meaning the green cells are areas with low risk, but if the event is in the yellow, orange or red areas then managers will want to take action to prevent a potential incident. At this time, managers should determine where the top left and bottom right corners will lie on the threshold boundary. Issues for consideration include: • Will we accept or reject those specific situations that fall in the extreme corners? For example, is it okay to “run-to-failure” on low consequence equipment? • With what level of risk do we manage a fatality? Where management places the risk threshold on the risk matrix will determine the answer to these questions and, most importantly, will establish the company’s risk management culture. Refer to Illustration G to review where the risk threshold line should appear on the risk matrix. This line is subject to change based on each company’s pain points.
- 8. 8 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com Illustration E: Incorporate the COF, POF and risk matrix tables into one diagram. Illustration F: This diagram shows how to determine the various levels of risk and threshold based on COF and POF. Negligable Negligable High Med High Med High Med Med Med Med Med Med Med Low Med Low Med Low Med Low Med Low Med Low Med Low Med Low Low Low Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Low Low Low LowLow LowLow Low EA 10-6 10-6 - 10-5 10-5 - 10-4 10-4 - 10-3 10-3 - 10-2 10-2 - 1/10 1/10 - 1/1 1/1 - 10/1 10/1 rare/unheard of Occured once in industry Has occured several times in industry Has occured once in company May occure in facility’s life Will occur in facility’s life Likely several times in facility’s life Likely once/year Multipe times/year B C Probability of Failure (Failure Rate = events/year/equipment) D IF G H LowLow Low Med Extreme Extreme Extreme Extreme Extreme Extreme Extreme Extreme Extreme High High High HighMed Med Med Med Med High Med Med Med Med High Med HighMed Med High Extreme General Risk Matrix ConsequenceofFailure(s) $1B8 7 6 5 4 3 2 1 Catastrophic impact 50 onsite or 10 offsite fatalities Catastrophic global impact Catastrophic (permanent adverse impact to global reputation) Permanent adverse impact to national reputation International media (long-term adverse impact to reputation) National media (notable adverse impact on reputation) Regional media (low adverse impact to reputation) Irreversible offsite spill/release that destroys habitat or life Uncontained offsite spill/release that harms habitat or life Uncontained offsite spill/release of highly hazardous material Release that exceeds operating permit 5-50 onsite or 1-10 offsite fatalities 2-4 onsite fatalities 1 onsite fatality or offsite health impact Permanent injury Local mediaAgency reportable Recordable injury Internal impact Onsite contained spill/release First Aid Minimal effectMinimal effectMinimal effect $100M to $1B $10M to $100M $1M to $10M $100K to $1M $10K to $100K $1K to $10K $1K CommunityEnvironmentHealth and Safety Business Impact (Production Loss, Repair Cost) High Med High Med High Med Med Med Med Med Med Med Low Med Low Med Low Med Low Med Low Med Low Med Low Med Low Low Low Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Low Low Low LowLow LowLow Low EA 10-6 10-6 - 10-5 10-5 - 10-4 10-4 - 10-3 10-3 - 10-2 10-2 - 1/10 1/10 - 1/1 1/1 - 10/1 10/1 rare/unheard of Occured once in industry Has occured several times in industry Has occured once in company May occure in facility’s life Will occur in facility’s life Likely several times in facility’s life Likely once/year Multipe times/year B C Probability of Failure (Failure Rate = events/year/equipment) D IF G H LowLow Low Med Extreme Extreme Extreme Extreme Extreme Extreme Extreme Extreme Extreme High High High HighMed Med Med Med Med High Med Med Med Med High Med HighMed Med High Extreme General Risk Matrix ConsequenceofFailure(s) $1B8 7 6 5 4 3 2 1 Catastrophic impact 50 onsite or 10 offsite fatalities Catastrophic global impact Catastrophic (permanent adverse impact to global reputation) Permanent adverse impact to national reputation International media (long-term adverse impact to reputation) National media (notable adverse impact on reputation) Regional media (low adverse impact to reputation) Irreversible offsite spill/release that destroys habitat or life Uncontained offsite spill/release that harms habitat or life Uncontained offsite spill/release of highly hazardous material Release that exceeds operating permit 5-50 onsite or 1-10 offsite fatalities 2-4 onsite fatalities 1 onsite fatality or offsite health impact Permanent injury Local mediaAgency reportable Recordable injury Internal impact Onsite contained spill/release First Aid Minimal effectMinimal effectMinimal effect $100M to $1B $10M to $100M $1M to $10M $100K to $1M $10K to $100K $1K to $10K $1K CommunityEnvironmentHealth and Safety Business Impact (Production Loss, Repair Cost)
- 9. 9 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com Illustration G: Place the risk threshold line on the risk matrix. STEP FIVE: IMPLEMENTATION After setting up the company’s risk matrix, the department heads should meet to review the risk matrix and determine if any items are missing, or need to be edited. When reviewing the matrix, discuss several examples of potential failures and their corresponding consequences to validate the matrix. Use failure examples that have occurred in the past or ones that are a result of modifications being made to the facility today. STEP SIX: REVIEW THE MATRIX AND AVOID COMMON PITFALLS Mistakes can happen during the risk matrix process. However, these common pitfalls can be easily avoided prior to implementation if appropriately recognized. The following items are areas to pay close attention to when setting up and implementing a risk matrix: • Is the company’s risk matrix qualitative or quantitative? The challenge with a qualitative risk matrix is it cannot be consistently measured. The risk analysis results are determined by personnel in the room at the time of the evaluation, which is difficult to repeat unless you have the same people participating at every evaluation moving forward. • Be careful if a dynamic risk model and static risk model use the same risk matrix. A user of the risk matrix will interpret the results differently depending upon the risk model. Negligable Negligable High Med High Med High Med Med Med Med Med Med Med Low Med Low Med Low Med Low Med Low Med Low Med Low Med Low Low Low Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Negligable Low Low Low LowLow LowLow Low EA 10-6 10-6 - 10-5 10-5 - 10-4 10-4 - 10-3 10-3 - 10-2 10-2 - 1/10 1/10 - 1/1 1/1 - 10/1 10/1 rare/unheard of Occured once in industry Has occured several times in industry Has occured once in company May occure in facility’s life Will occur in facility’s life Likely several times in facility’s life Likely once/year Multipe times/year B C Probability of Failure (Failure Rate = events/year/equipment) D IF G H LowLow Low Med Extreme Extreme Extreme Extreme Extreme Extreme Extreme Extreme Extreme High High High HighMed Med Med Med Med High Med Med Med Med High Med HighMed Med High Extreme General Risk Matrix ConsequenceofFailure(s) $1B8 7 6 5 4 3 2 1 Catastrophic impact 50 onsite or 10 offsite fatalities Catastrophic global impact Catastrophic (permanent adverse impact to global reputation) Permanent adverse impact to national reputation International media (long-term adverse impact to reputation) National media (notable adverse impact on reputation) Regional media (low adverse impact to reputation) Irreversible offsite spill/release that destroys habitat or life Uncontained offsite spill/release that harms habitat or life Uncontained offsite spill/release of highly hazardous material Release that exceeds operating permit 5-50 onsite or 1-10 offsite fatalities 2-4 onsite fatalities 1 onsite fatality or offsite health impact Permanent injury Local mediaAgency reportable Recordable injury Internal impact Onsite contained spill/release First Aid Minimal effectMinimal effectMinimal effect $100M to $1B $10M to $100M $1M to $10M $100K to $1M $10K to $100K $1K to $10K $1K CommunityEnvironmentHealth and Safety Business Impact (Production Loss, Repair Cost)
- 10. 10 Advanced Reliability Technologies One Pinnacle Way Pasadena, TX 77504 281.598.1330 info@pinnacleart.com www.pinnacleart.com • Clearly define and document what a “failure” means to the company. For example, some might set up their definition of an equipment failure as a rupture instead of a small leak. Recognize that the significant failure most likely to occur usually drives the highest risks. Once defined, the definition of failure should be outlined in all documentation associated with the risk matrix to ensure team members are appropriately interpreting different levels of failure. • Make sure each level on the COF table has a comparable response effort. For example, will a catastrophic chemical leak require the same response as a simple recordable injury of one employee? Probably not, but management can mistakenly correlate the two within the same COF level. • Make sure the corners of the risk matrix are clearly defined either above or below the risk threshold. This will determine the level and timing of the facility’s response to correct the problem. Reducing risk is critical for process facilities, and with the help of a risk matrix, companies can proactively take steps to mitigate any challenges or disruptions that could negatively impact the facility. Knowing when and where a risk, leak or failure could occur, allows site management to schedule turnarounds, replace equipment on time and within budget, avoid major catastrophes from chemical leaks or explosions, and ultimately ensure the safety of personnel and the community. For more information about developing a risk matrix, visit www.PinnacleART.com. ABOUT THE AUTHOR Through his role as Vice President of Engineering, John Campo drives innovation and technical excellence at PinnacleART™. As part of his daily responsibilities, John ensures that technical expertise is readily available for the company’s implementation teams, and explores new avenues to help PinnacleART™ grow in its role as a global reliability solutions provider. With more than 20 years of technical and leadership experience, John is an expert in the processes of Root Cause Analysis (RCA), shutdown optimization, reliability principles and mechanical integrity. John received his Bachelor of Science degree in mechanical engineering from Texas AM University, and is a registered Professional Engineer in Texas. ABOUT PINNACLE ADVANCE RELIABILITY TECHNOLOGIES (PINNACLEART) Pinnacle Advanced Reliability Technologies (PinnacleART™) is a leader in building, implementing and maintaining comprehensive reliability programs for process industries, such as oil and gas, chemical, mining, wastewater and electric power, to name a few. Our team consists of talented experts and engineers, who offer the highest degree of service and uncompromised reliability for every one of our projects. PinnacleARTTM ’s reliability specialists are dedicated to delivering optimal outcomes for our clients, which results in reducing risk, ensuring compliance, optimizing costs and improving safety.