How organizations can build an impartial process to mitigate catastrophic risk
A common reaction that I hear all the time from operators—“that could never happen here”—might help explain why we keep witnessing them. The truth is that yes, it could happen to you, and if you think it can’t, you’re at even greater risk.
It’s clear that we must take more responsibility as individuals and as organizations to prevent catastrophic events. This includes everyone from the board of directors to the engineers.
Who's responsible for catastrophic events?
In the past, project managers and site supervisors were the ones ultimately held responsible for catastrophic events because they were the people in charge closest to the event. Today, regulators are starting to hold those in higher positions of leadership accountable when a devastating event occurs. They're looking to C-suite executives and to the board of directors to establish sweeping programs to continually unearth and eliminate catastrophic risks. Those in positions of power who have the authority to make large-scale and sometimes costly changes to quickly prevent materially unwanted events.
Once you understand how psychological biases can skew perception of risk, and where the most common failure points are, it’s time to take action. Setting in motion an impartial auditing process is the first preventative step all organizations should take.
How to set up an impartial catastrophic risk management program
Because there are no standard auditing and reporting requirements for catastrophic risk, organizations need to take ownership of their own approach and establish a solid methodology for assessing and addressing potential weak points.
Step 1: Carve out the structure and leadership
The structure and leadership of your auditing program needs to be carefully carved out of your existing organizational structure.
Making the process impartial means finding a single person to oversee the entire program who is external and independent. They must be completely separate from those responsible for the assets or required to address the findings of the audit.
The goal is to remove all conflicts of interest and maintain objectivity. Just as you can’t have your own accounting department audit your company’s financials, you can’t have the smelter manager looking at their own water leak issue. Nor can you have someone from the copper department auditing the zinc department, as the resulting organizational strife and competitiveness between teams will lead to biases in reporting.
The role of the person in charge is to design the auditing process and customize it to your organization’s unique operating structure and risk profile. Once established, their role is to remain true to the process despite frequent and fervent resistance. Although challenging, the leadership cannot be outsourced and must have board level sponsorship and approval to operate outside of existing structures. Creating this function without the highest level of support will result in failure.
Step 2: Develop the approach using existing guidelines
Once you have your program lead in place, they'll need to develop an approach to the audit that’s most suitable for your organization.
The International Council on Mining and Metals has developed and published a useful template that can be used as a set of guidelines for designing a tailored auditing process for catastrophic risk. These guidelines can serve as a starting point for your program lead to customize and formalize a process to suit your organization’s size, structure, and risk profile.
Others, like Hatch, have developed similar approaches and can often add valuable experience and impartial views on the right approach for your organization. This is an industry challenge and doesn't need to be solved alone.
Step 3: Establish scope and governance
One of the most critical steps is to establish the scope of the auditing process and how reporting will work. This is where the exact process needs to be meticulously defined and adhered to throughout.
Organizations will need to answer the following questions:
- What constitutes a catastrophic risk for your organization?
- How will weak points or events be reported and to whom?
- What action is expected when we find a weak point or an event?
Defining what constitutes catastrophic risk is different for each organization. For a multinational company with a multitude of assets it may require hundreds of millions of dollars in losses. Whereas for a medium-sized gold mine it may be a month of lost production that can devastate the organization, its reputation, and people’s lives.
However you choose to set up your reporting protocols, findings should be communicated directly and quickly to the sponsors. For example, there needs to be a clear way for the engineer on the audit who sees a problem to escalate that information to the level of approval that they need to make a difference to the outcome.
It's the board that is ultimately responsible for ensuring that the appropriate procedures are in place to mitigate catastrophic risk, and that includes having the authority to trigger significant and sometimes expensive decisions to plug up the holes that can lead to potentially disastrous events.
Step 4: Find the right expertise to resource the program
Once the structure and procedures of your catastrophic risk assessment program have been well defined, you need to find the right subject matter experts to resource the program.
Look for external partners with a track record of diverse experience and success in executing catastrophic risk programs for many different types of players in your industry and even outside it. The greater the breadth and depth of knowledge, the more comprehensive the risk mitigation protocols will be.
Step 5: Sustain and iterate
Once your program is up and running, it’s important to ensure procedures don’t become lax with time. The tendency to seek small ways to perform functions faster or with less interference can result in corners being cut and important procedures and safety layers being eroded. These are exactly the kind of circumstances that can lead to a pattern of weak points that can open up potential pathways to catastrophic events.
Maintaining strong performance and open, communicative relationships will enable your catastrophic risk assessment program to continue operating effectively. The program should also be reviewed at regular intervals to ensure it’s serving your organization well. This is critically important when making changes or expansions to operations, and to keep pace with the normal course of evolutions in technology, reporting, and staffing. That means regularly reviewing your approach and injecting new experiences and experts.
Know when to bring in industry partners
Often, organizations may feel they’d prefer to handle such critical operations in-house. But it’s important to recognize when and why it’s better to work with an external partner.
Beyond sourcing a different set of skills and industry experience from that of your current team leads, building an impartial audit process is crucial to the success of a catastrophic risk assessment or other audit program. The only way to ensure absolute impartiality is to work with an independent assessment expert aligned with the overall intent of the program. Doing so can also save time, as an experienced partner will know how to guide you through the process as seamlessly as possible while avoiding the pitfalls of internal bias.
In my experience, eventually all organizations see the value of bringing in an industry expert. While one of our clients, a major player in the metals and mining industry, initially insisted on performing the function in-house, they came to the realization that rather than relinquishing control, they were gaining it by collaborating with an external experienced team who could provide the appropriate know-how to make the process faster, smoother, and more effective while avoiding internally established precedent and red tape. Organizations can avoid this learning curve by bringing a partner on board in the earliest stages of planning.
As soon as we recognize that yes, it could happen to us, and we take the necessary steps to implement an impartial audit program, we can all change the news cycle by ensuring our organizations won’t end up in the spotlight explaining why we didn’t prevent yet another unacceptable and devastating catastrophic event.