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2013 Print

ENGINEERING DUE DILIGENCE

DUE DILIG

ENCE EN

GIN

EERS

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2013 Print

Are you responsible for technical risk issues?

Do you need to communicate complex issues to non technical decision makers?

Like to manage project, safety, financial and environmental outcomes better?

If so, then the R2A 2 day short course is for you.

As a responsible officer in an organisation, your role is to ensure that technical risks are adequately managed.

The R2A Engineering Due Diligence Course will help you to better manage multiple stakeholders and overall project outcomes.

The course is suited for CEOs, GMs and COOs and their risk and compliance staff.




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ENGINEERING DUE DILIGENCE COURSE

COURSE AIMThe aim of the course is to ensure that, in complex technological and essential service organisations, the laws of nature are managed to the satisfaction of the laws of man. This includes financial, project, safety and environmental outcomes.

COURSE outlineThe course will provide participants with the understanding, skills and tools to enable all significant technological risk issues and proposed controls to be appropriately escalated to senior decision makers in ways that those decision makers can understand. It will enable shareholders and taxpayers to transparently see why expenditure is required. And, in the worst case scenarios, satisfy the courts if it all comes to grief.

WHO SHOULD ATTEND?CEOs, GMs and COOs and their risk and compliance staff.

DATESBrisbane 26 –27 February

COURSE OBJECTIVESAt the end of the course, participants will be able to -

» Understand what constitutes due diligence under Australian High Court case (common) law

» Understand the requirements of the Work Health and Safety (WHS) legislation to positively demonstrate due diligence

» Understand the mismatch between business risk, project risk and safety risk paradigms

» Choose when to avoid HazOps and FMECAs and other detailed bottom up risk assessment processes

» Understand that the use of target (tolerable) levels of safety risk is logically in error and indefensible under Australian law

» Decide which risk management sign off paradigms are appropriate to their organisation.




ENGINEERING DUE DILIGENCE COURSE | EVALUATION

NAME (OPTIONAL) ORGANISATION (OPTIONAL)

What were the strengths of the short course?

What were the weaknesses of the short course?

Do you have any further Professional Development needs or ideas for new short courses?

Do you have any projects that R2A could assist with?

thankyou

LEVEL OF DIFFICULTY TOO EASY APPROPRIATE TOO DIFFICULT

AMOUNT OF CONTENT TOO EASY APPROPRIATE TOO DIFFICULT

PACING TOO EASY APPROPRIATE TOO DIFFICULT

PRACTICAL CONTENT TOO EASY APPROPRIATE TOO DIFFICULT

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2013 overview and R2A Book Launch

» Presentation followed by drinks and canapés » Catch up with Industry Colleagues » Book offer - 10% off the 9th Edition Text. (RRP $285)

RSVP 31ST JanuaryGaye Francis - 1300 772 333

PRESENTATIONRICHARD ROBINSON2013 Overview for Risk Management and Due Diligence

February 7th 20133pm - 5pmPop Restaurant (Upstairs Bar) 68 Hardware Lane

INTRODUCTION




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SAFETY DUE DILIGENCE Recognised Good Practice Whitepaper 1DUE DILIGENCE ENGINEERS

SAFETY DUE DILIGENCE.RECOGNISED GOOD PRACTICE.How To Engineer Safety Due Diligence Under The Provisions of The Model WHS Act.


SUMMARY

In reality, to be safe means to be free from harm. In court, safe means that,

despite something apparently unsafe having happened, due diligence

has been demonstrated. In engineering terms this means that to be safe

requires managing the laws of nature in a way that is consistent with the laws of

man and in that order.

At R2A we have developed a routinely successful process to positively

demonstrate safety due diligence consistent with the requirements of the

model Work Health and Safety (WHS) legislation that has commenced in

all Australian jurisdictions except, at the time of writing, Western Australia

and Victoria.

The R2A approach adopts a precautionary common law formulation for the

demonstration of due diligence as a defence against negligence namely:

• Acompletenessargumentastowhyallcrediblecriticalsafetyissuestoall

affectedpartieshavebeenidentified;

• Anargumentastowhyallpracticableprecautionsforeachcredible

criticalissuehasbeenidentified;

• Anargumentastowhichpracticableprecautionsarereasonable

consistentwithdecisionsoftheHighCourtofAustralia;and

• Theestablishmentofasafetyqualityassuranceregimetoconfirmthatall

reasonable practicable precautions are maintained on an ongoing basis.

This approach does not mean that bad things can’t happen. It means

(assuming the activity is not prohibitively dangerous such that it should

not occur at all) that all reasonable practicable precautions for all

foreseeable, critical hazards to all affected parties are in place, based on the

balanceofthesignificanceoftheriskvstheeffortrequiredtoreduceit.

This also means that risks should be eliminated or minimised so far as

reasonably practicable.

Such a position, based around the test of reasonably practicability arguable

at a common law balance (the 50:50 tipping point), should provide superior

safety outcomes for all whilst offering the best protection against criminal

chargesforresponsibleofficersundertheprovisionsofthemodelWHSAct.

R2A have provided this paper as a summary of the key requirements of

the model WHS Act. We outline why your traditional risk management

processes, are likely to fail the challenge of the Act. We conclude by

practically demonstrating how R2A can help you in this process.

Over the years, R2A has legally tested this Safety Case approach regularly.

We recommend that readers do so with their own legal counsel prior to

adopting this approach.


Precaution Vs Hazard Based Approaches To Risk Management

DUE DILIGENCE BASED SFAIRP HAZARD BASED ALARP

Precaution focused by testing all practicable precautions for reasonableness,thatis,onthebalanceofthesignificanceofthe risk vs. the effort required to reduce it.

Hazard focused by comparison to acceptable or tolerable target levels of risk5

Establish the ContextRisk assessment (precaution based):Identify credible, critical issuesIdentify precautionary optionsRisk-effort balance evaluationRisk action (treatment)

Establish the ContextRisk assessment (hazard based):(Hazard)riskidentification(Hazard) risk analysis(Hazard) risk evaluationRisk treatment

Criticality DrivenUsual interpretation of WHS Act & common law.

Risk (Likelihood And Consequence) DrivenUsual interpretation of AS/NZS ISO 31000

The overall situation is perhaps best summarised by Chief Justice Gibbs4 of

the High Court of Australia:

Where it is possible to guard against a foreseeable risk, which, though

perhaps not great, nevertheless cannot be called remote or fanciful, by

adopting a means, which involves little difficulty or expense, the failure to

adopt such means will in general be negligent.

That is, it does not matter how low the risk estimate is, if more can be done

for very little effort, then the failure to do so will be negligent, in the event

of an incident.

Thisleadstothefourthconcern;thatthetemptationistoimplement

a precaution that reaches the target risk threshold without formally

considering the hierarchy of controls.

This shift from a hazard based risk assessment approach (which appears

to be encouraged by the risk management standard ISO 31000) to the

precautionary due diligence approach (encouraged by the common law and

now the model WHS act), is summarised in the table below.

4 Turner v. The State of South Australia (1982) High Court of Australia before Gibbs CJ, Murphy, Brennan, Deane and Dawson JJ). 5 FromthedefinitioninAS/NZSISO31000:2.24riskevaluationprocessofcomparingtheresultsofriskanalysis(2.21)withriskcriteria(2.22)todeterminewhethertherisk(2.1) and/or its magnitude is acceptable or tolerable.”


Risk Management of downside (negative or pure) risk

Hazard identification(Foreseeability)

Implementationof reasonably practicable

precautions

PreventabilityIdentify all practicable

precautions for each critical hazard following the hierarchy

of controls

Reasonableness Determine which practicable precautions are reasonable

based on the High Court established balance (disproportionality)

Hazard analysis and risk calculationprocess to determine the nature of risk

and the level of risk(inherently unrepeatable)

Compare against criteriaprocess of comparing the results of risk

analysis with risk criteria to determine whether the risk and/or its magnitude is acceptable

(may eliminate further consideration of acceptable or tolerable risks)

Selected risk criteriaterms of reference against which the

significance of a risk is evaluated (inherently subjective)

Risk mitigation and management optionsprocess to modify risk.

(may not follow the hierarchy of controls)

Monitoring and Review(Quality assurance)

Due Diligence

Common law approach(precaution based and criticality driven)

Target risk approach(hazard based and risk driven)

SFAIRP ALARP

CriticalityEstablish critical

hazards

SFAIRP and ALARP – Are Not the Same.

The diagram2 below describes the two approaches in a different way.

The left hand side of the loop describes the legal approach which results

in risk being eliminated or minimised so far as is reasonably practicable

(SFAIRP) as described in the model WHS legislation.

2 Robinson Richard M, Gaye E Francis, Peter Hurley et al (2013). Risk and Reliability: Engineering Due Diligence (9th Edition). R2A Pty Ltd. Page 167.

WHY YOUR CURRENT OH&S SYSTEM PROBABLY WON’T COMPLY

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OPERATIONS DUE DILIGENCE Best Practice Whitepaper 1DUE DILIGENCE ENGINEERS

PROJECT DUE DILIGENCEBEST PRACTICE.How to Deliver a Project on Time and to Budget.


successful projects: what they look like

The success of projects in terms of both performance and project

delivery requires project due diligence. The due diligence aspect

arises from confirming the ultimate objectives (the critical success

factors) of the fully functioning outcomes for all stakeholders rather

than just delivery to a project specification.

The project development risk profile outlined above can also be

represented by the diagram below.

+++ - +

- -

- -

- - -

Likelihood

Unviable Ugly Bad Good

-

- -

- -

- - -

Vulnerabilities

Likelihood

Disaster Ugly Bad Good

- + + +

- - + + +++

- -

- - -

Value Addeds

ConsequencesUnviable Ugly Bad Good Outstanding Brilliant

- - - +++

- - -

Consequences Consequences

VulnerabilitiesVulnerabilities

Value Addeds

Likelihood

Concept risk profile Tender risk profile Commissioned risk profile


BOTTOM UP SILOS FAILURES

Another common cause of ineffective project risk management

is that each discipline / project group undertakes risk assessment

activities in their own silos without regard for the high level

project objectives. Each specialist group comes to an internalised

understanding of what is important. Senior management therefore

receive pieces of the puzzle but not within a unified framework.

So what are the key risk issues that the project needs to worry about?

Common mode and common cause issues can also be overlooked

using a bottom up silo approach.


executive SUMMARY

The success of delivering large infrastructure projects requires project due diligence.

The delivery of large infrastructure projects and the procurement of appropriate,

fit for purpose rolling stock in a timely and cost effective manner is critical to

Australia’s continuing growth.

One of the common problems associated with project risk is that specialist groups

within an organisation operate in silos and senior management are left to

put together the pieces of the puzzle.

For projects to be successful in terms of both performance and project delivery

requires project due diligence.

This paper highlights the R2A model which can deliver large infrastructure

projects on time and to budget.






OPERATIONS DUE DILIGENCEBEST PRACTICE MODEL.How to Make Your Operations the Best They Can Be.


CONTENTS

EXECUTIVE SUMMARY 3

INTRODUCTION 4

SECTION ONE THe liMiTaTiOns Of COnvenTiOnal reliaBiliTY analYsis 6

SECTION TWO

BOTTOM-up silOs Miss COMMOn MOde failures 7

SECTION ThREE

BOTTOM-up analYsis Cause & effeCT diffiCulT TO see 8

SECTION fOUR

HOw r2a Can Help 9

SECTION fIVE

THe prOCess 10

CONCLUSION 14

WhERE TO NEXT 15


Transparency in decision-making in complex technological enterprises is often

difficult. Requests for greater system, plant or network reliability is often seen as

‘gold plating’ by financial markets and shareholders, and yet the failure to have

sufficient redundancy can result in the catastrophic loss of shareholder funds and

community devastation.

The sorts of questions often asked of R2A include:

1. we know that there are off-site issues that can seriously affect our product

delivery processes.

2. we do not have direct control over these off-site resources. How can we

communicate our concerns to those responsible in a way that motivates action?

3. Our engineers have recommended new plant upgrades. we recognise that

their arguments are based on good engineering practice but we can’t see a

robust connection to future profitability. How can these recommendations be

transparently assessed?

4. How do we include off-site threats in a meaningful way in our overall plant

availability model?

5. we have had reliability studies completed on our plant. But there are some

credible, critical issues that are considered to be so unlikely they don’t seem to

rate any attention. we know that if one happens, the business will be critically

exposed. How do we demonstrate the importance of these to the board in a

constructive way?

6. we have spent a great deal of time and effort on reliability studies. But we

don’t feel they are contextually sound and have no process to test this. is there

a way this can be addressed?

The R2A top-down Operations Due Diligence process specifically addresses these

questions and enables a persuasive argument to be presented for proposed

upgrades. it also ensures that the outcomes are aligned with the values and goals

of the organisation.

INTRODUCTION

TIPstarting with the right questions will enable the preparation of a comprehensive proposal.


the process

3. functional Availability Modelling

The key concept here is to divide the system or process under

consideration into sub-systems that are independent of each other

and that all the interested parties can picture and agree represents the

system as a whole. Block diagrams are a simple way of representing

complex systems diagrammatically and can be used for both risk and

availability studies.

Care must be taken when constructing models, as physical layout may not

represent the functional arrangement. for instance, if two power feeds are

physically in parallel but, alone, neither can supply enough power for the

process, they are functionally in series. Critical process components show

up as bottlenecks in the block diagram, as do any common mode failures

identified in the previous step.

The figure below describes the integration of the first three steps of the process.





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