Applied Operational Excellence for the Oil, Gas, and Process Industries

Dennis P. Nolan, Eric T Anderson

• Publisher: Gulf Professional Publishing
• Year: 2015
• ISBN:
  9780128028025
• Topic: Technologie et ingénierie
• Subtopic: Combustibles fossiles

Applied Operational Excellence for the Oil, Gas, and Process Industries offers a straightforward practical guide for oil and gas companies to understand the comparisons and contrasts between various types of safety management processes, including the standardized structure and ongoing extended benefits that operational excellence can bring to an oil and gas company.

The goal of achieving operational excellence is to reduce costs, improve productivity, and enhance efficiency—in other words, operational excellence contributes to the bottom line. Following along with pre-built success in the process industries, many companies in the oil and gas industry appear to use a subset form of operational excellence, yet many are unsure or unaware of all the safety system components that will truly benefit the company holistically, and current literature is only applicable to the process and manufacturing industries.

Packed with clear objectives and tools, structure guidelines specific to oil and gas, and guidance for how to imbed your existing safety program under the operational excellence umbrella known as "One-Step Merger, " this book will help you establish an overall safety culture vision and challenge your organization to achieve higher levels of safety management and overall company value.

• Explores how to solidify a foundational operational excellence program applicable for your oil and gas company
• Clarifies the differences and benefits among various programs under operational excellence (OE), such as SHE (safety, health, and environment), PSM (process safety management), and SMS (safety management system)
• Explains how to audit and consistently assess how oil and gas OE systems are planned, implemented, and managed, with explanations on cost and time impacts as well as administrative protocols
• Includes a glossary, acronym appendix, and additional references for further reading

1

What Is Operational Excellence (OE)?

Abstract

Background of process safety management systems, why they evolved, governmental regulation influence and adaption of operational excellence to encapsulate Process Safety Management (PSM) principles to the focus areas of OE—Reliability, Efficiency, Cost & Profitability and Continuous Improvement.

Keywords

Continuous improvement; Cost & profitability; Developing countries; Efficiency; Governance; Government; Investors; Labor relations; Lawsuits; Leadership; Legal; License to operate; Management; Performance; Process; Public trust; Regulation; Reliability; Safety management systems (SMS); Shareholder; Social responsibility; Voluntary protection program (VPP); Workers compensation; World class performance; Zero incidents

“Excellence” is defined as a talent or quality which is unusually good and so surpasses ordinary standards. It is also used as a descriptive for a standard of performance. Operational Excellence (OE) is the systematic management of health, environmental and safety in an integrated manner applied across all facets of the business to achieve superior outcomes across all the operations of the organization. Some organizations have described it as the ability of the organization to achieve and sustain leading performance in reliability and efficiency, while adhering to the highest standards for safety, health, and environmental stewardship in a cost-effective and profitable manner. Regardless of the many different ways it has been described, we can tell you that OE is a journey, the sort of journey that defines an organization and the capability it nurtures in pursuit of world class performance and competitive advantage as opposed to just delivering them to a specific destination. Organizations choose to apply OE through a comprehensive, structured, and well organized approach to building organizational capability as well as to leverage benefits resulting from doing things the right way. Most organizations employ OE systematically using a continuous improvement approach. At the heart of OE is leadership and the on-going efforts of establishing and maintaining standards in a consistent and reliable fashion. This focus invariably leads to greater enhanced operating performance and efficiencies necessary to assure sustainability. And of course, getting this part wrong can have quite the opposite effect as well; failing to manage effectively to the point where losses occur should suggest the possibility for certain losses of efficiency and introduction of additional hurdles that only serve to diminish the potential for maximizing profitability. Taking the journey toward achieving Operational Excellence typically begins with making an initial step-change improvement, followed by a commitment to a continuum of incremental enhancements. Installing and nurturing a culture of Operational Excellence results in significant and sustained competitive advantage though safe, reliable and highly effective operations.

Operational excellence is no longer just something to strive for—it has become a “must have.”

Dr D.P. Nolan

Companies striving for outstanding safety and health records choose to apply OE not only for ensuring strict regulatory compliance, but also for the purpose of developing their own best practices as a means of enhancing and proactively managing their own performance in a methodical and disciplined fashion. Ultimately, achieving operational excellence is about empowering all workers—management, supervisors, employees and even contractors—to make the decisions and take the actions necessary to make safety and health practices truly work. OE involves a strong focus on planning, decision-making, and taking the precautions necessary for preventing incidents that can result in injury or property loss. It simply makes more sense to figure out what can go wrong and take the steps to avoid it before it happens and avoid losses before they occur. This sounds simple enough in concept. But, with the urgent deadlines in today’s daily activities, where there is the continual push to make things cheaper and faster, and to do more with less, it is no surprise that the many competing priorities an organization must contend with must be properly reconciled in order for things to be completed the right way—safely in a manner where there are no incidents and no one gets hurt.

A properly executed operational excellence management system will touch every level of the organization from the boardroom to the shop floor. OE requires management to engage the entire line management chain of command; mid-level management, front line supervisors, foremen and team leaders alike. Collectively, the line management chain of command share responsibility and are individually accountable for being good stewards of shareholder capital and properly managing the workforce, implementing and maintaining the system, and ensuring operational discipline across the spectrum of management system functional controls—comprised of the various processes, programs, procedures, rules, and safe work practices.

This book will examine key attributes that are part of the operational excellence journey and will also provide insights for developing a genuinely effective and sustainable company culture that truly values safety, health, and the environment within organizations in the oil, gas, and related industries.

Why OE and What’s It All About?

Modern industrial businesses exist for many reasons but one of the primary reasons is centered around this formula many will remember from college course Accounting 101:

R−C=P

This is the formula used for determining profit. It is fairly simple and straightforward. The formula tells us that an organization’s profit (P) is derived by taking revenues (R) and subtracting costs (C). The process of organizing revenue and costs and assessing profit typically falls to the organization’s accountants in the preparation of the company’s income statement. Typically, revenue will be the first line on the statement. The accounting department will take out the cost of goods sold to arrive at a gross profit. Taking it step further and backing out fixed costs and they arrive at operating profit. Once irregular revenue and expenses are considered we’ll reach the bottom line net profit. We are interested in highlighting this very basic accounting review so as to reflect for a moment on the treatment of irregular expenses. Loss incidents that result in harm to people, property, and business interruption directly affect an organization’s bottom line. Putting this into context, it is clear that a business case can easily be made for embarking on an operational excellence journey.

Enlightened management teams intuitively understand that operational excellence is centered on being prudent in both their words and actions by actively managing safety, health, and environmental performance in a comprehensive and integrated fashion. Success is critical, not only for ensuring strict regulatory compliance, but ultimately to effectively establish and maintain performance standards while remaining steadfastly focused on activities that lead to reaching commercial goals, providing reasonable returns to shareholders, and recognizing certain competitive advantages in the market place. Companies that run their operations in a controlled and disciplined manner—one that avoids harm to people and property loss—naturally recognize the benefits of greater productivity, less downtime, and fewer business interruptions, leading in turn to a greater ability to run the enterprise profitably. Operational Excellence involves systematically addressing continuous improvements through process and program enhancements for the sake of increasing management effectiveness and efficiency. Interestingly, modern accounting systems do not typically budget for property loss incidents or causing harm and injury to people. Matters involving professional ethics, personal prudence, regulatory compliance, and legal liability would prevent these issues from being treated as just another cost of doing business; life is precious and it is short, societal norms and laws demand responsible behaviors resulting in safe, healthy, and environmentally-friendly operations.

Most successful businesses approach operational challenges directly and commit to operating safely and responsibly and a key aspect of this includes avoiding loss incidents. Failure to do this properly may result in harm to people and financial losses that directly affect the bottom line. Because the idea of working safely is something that personally impacts each individual worker (no one is interested in sacrificing his own personal safety) asking any member of the workforce would confirm that working safely is something unilaterally expected of individual workers, management teams, and indeed entire organizations.

Companies have come under continual pressure—first from regulators and sustainability-minded nongovernmental organizations as well as from like-minded investors, customers, and employees—to disclose ever-increasing amounts of operational information related to management effectiveness. What were once indices and rankings created by special-interest groups are now detailed operational reports that provide important insights into a company’s future financial performance.

Increasingly, many of the largest companies around the world publicly report business sustainability information. They report on matters ranging from how much water their operations consume to issues relating to supply chain stability, greenhouse gas emissions, and the personal and process safety performance and reliability of assets. All of these nonfinancial data can be used as leading indicators and insights by the investment community into mid-to long-term financial performance.

One of the fundamental drivers of OE is to diligently lead and manage the business in a manner that is aligned with established internal and external standards, while focusing efforts accordingly to achieve top tier performance. Doing so requires a conscientious systematic effort involving a continuous improvement approach, as well as a commitment to doing things the right way and the consistent effort of every member of the workforce. This is necessary, for the sake of each individual’s personal safety and well-being, as well as to collectively meet commercial business objectives and ultimately bottom line profitability.

Today’s investor contemplating asset allocation into a capital-intensive business (a business that requires a large amount of capital to operate) will thoroughly research a company’s asset reliability, environmental performance, and risk management and safe operations processes, not simply its price-to-earnings ratio and earnings per share. Business interruptions, incidents involving injury or property loss, and regulatory violations all threaten business productivity and impact revenue, earnings, and shareholder value.

A company’s heavy emissions of greenhouse gases (compared with its peers), for instance, could be the sign of an organization with potential for pollution reduction. It could also signal an organization that has significant cost-reduction potential via a more concerted management focus on projects to reduce energy consumption in the long term. Unplanned downtime, whether because of safety issues, mechanical failures, or poor supply chain planning, may similarly signal that a company will incur costly facility disruptions and expense. A well-orchestrated plan to enhance reliability, reduce unplanned downtime holds the potential for lowering cost and boosting productivity.

Conversely, the absence of such a plan can detract from enterprise value. Consider for a moment, the impact on a company’s market value from industrial incidents. A 2009 research study titled “How Does the Stock Market Respond to Chemical Disasters?” by Gunther Capelle-Blancardy and Marie-Aude Lagunaz, examined 64 explosions in chemical plants and refineries worldwide between 1990 and 2005 and found that, on average, petrochemical firms experience a drop in market value of 1.3% over the two days immediately following a disaster. The study calculated that each casualty corresponded to a loss of $164 million. A toxic release corresponded to a loss of $1 billion.

For companies already struggling to meet the demands to provide sustainability and other operational data, the financial market’s increasing interest in operating information may seem like just another burdensome effort and expense. In reality, it is an enormous opportunity. Financial numbers are strong short-term performance indicators, but they do not always tell the full story. To the trained eye, nonfinancial operational metrics can help complete the narrative, especially when it comes to projecting mid-to long-term performance.

It’s as Much About People, as the Bottom Line

No person in their right mind puts their shoes on in the morning and heads off to work consciously committed to cause harm to themselves or others, yet injuries to people and losses associated with property damage still occurs regularly across the oil/gas/petrochemical industry and indeed across industry in general. Every incident, whether large and small, represents a failure of the management system to adequately control the circumstances involved with the work processes. These sorts of losses often end up being viewed as one of the irregular expenses mentioned earlier and come right off the bottom line representing an immediate obstacle or impediment to achieving profitability. While it is generally recognized that money can be spent by company management after the fact, to repair, replace or refurbish damaged property, it should obviously be clearly understood that no amount of money can bring a person back to life once a life is lost to an on job fatality. People represent a company’s greatest asset, as it takes people to conceive ideas and tie them to the actions necessary to make things happen. Management leads the efforts of the company’s workforce and working together—people either achieve operational excellence or fall short of their...