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Case Study in Successful Risk Management – The Oil and Gas Industry in Norway
Some critical reflections
Terje AvenUniversity of Stavanger, Norway
Regulatory development – a thorny path or a freeway
Command and control Self regulation
What regulative approach should we choose?
The regulations give general
requirements related to
• Risk assessments
• Risk acceptance criteria
• Risk reduction processes o ALARP: Risk shall be reduced to a level that is As Low As Reasonably
Practicable
Challenge
Industry risk perspective is rather narrow and compliance oriented
The regulator has a broader perspective
”Optimal decision”
Risk analysisCost-benefit analyses Risk acceptance criteriaTolerability limits
Decision
ScienceManagement
Ethics, politics
”The formula ” risk analysis
• ------ P =1 x 10-4
Risk description What is acceptable risk
This approach should be used with care !
Risk acceptance criteria
• ---------------- P < 0.1%
• ---------------- P < 0.01%
Take riskWeight given to E
Reduce the risks and uncertainties
Cautionary-precautionary E[NPV], cost-benefit analyses
Balance
Development and protection
Risk acceptance criteria
E: Expected value
• RISK is more than computed probabilities
Challenge
Industry risk perspective is rather narrow and compliance oriented
The regulator has a broader perspective
Probability-based
Historical data
Knowledge dimension +
+
Surprises
Risk perspective
Industry practice
Kahneman asserts that we have a basic lack of ability to treat small risks: we either ignore them completely or give them too much weight. The main thesis put forward is that we grossly over-estimate small risks.
Kahneman’s book «Thinking fast and slow»
For Kahneman the risk was acceptable
I knew that the riskwas truly negligible, and that any effect at all on my actions would assign an inordinately high “decision weight” to a minuscule probability.
In fact, I was more likely to be injured in a driving accident than by stopping near a bus. But my avoidance of buses was not motivated by a rational concern forsurvival.
+
+
Risk perspective
Petroleum Safety Authority Norway
Main problems with the probability based approach
John offers you a game: throwing a die
• ”1,2,3,4,5”: 6• ”6”: -24
What is your risk?
(C,P):• 6 5/6 • -24 1/6
Is based on an important assumption – the die is fair
Assumption 1: …Assumption 2: …Assumption 3: …Assumption 4: ……Assumption 50: The platform jacket structure will withstand
a ship collision energy of 14 MJAssumption 51: There will be no hot work on the platformAssumption 52: The work permit system is adhered toAssumption 53: The reliability of the blowdown system is pAssumption 54: There will be N crane lifts per year…Assumption 100: ……
“Background knowledge”
Model: A very crude gas dispersion model is applied
+
+
Risk perspective
Black Swan
A surprising, extreme event relative to the present knowledge/beliefs
Aven (2013) On the meaning of a black swan in a risk context. Safety Science, 57, 44-51
Black swans
Extreme consequences
a) Unknown unknowns
b) Unknown knowns
c) Known but not believed to occur because of low
judged probability
Aven (2014) Risk, surprises and black swans Routledge
Challenge
Industry risk perspective is rather narrow and compliance oriented
The regulator has a broader perspective
Implications for the implementation of the ALARP principle
• Risk shall be reduced to a level that is As Low As Reasonably Practicable (ALARP)
Costs Benefits
A risk reducing measure should be implemented provided it cannot be demonstrated that the costs are grossly disproportionate relative to the gains obtained
The burden of proof is reversed.
ALARP
Take riskWeight given to E
Reduce the risks and uncertainties
Cautionary-precautionary E[NPV], cost-benefit analyses
Balance
Development and protection
Risk acceptance criteria
E: Expected value
ALARP
Regulatory development – a thorny path or a freeway
Command and control Self regulation
What regulative approach should we choose?
Challenge
Industry risk perspective is rather narrow and compliance oriented
The regulator has a broader perspective
35
A new perspective on how to understand, assess and manage risk
and the unforeseen
Project Norwegian Oil and Gas Association:
Preventing Major AccidentsTransfer of experience, building knowledge and expertise
• Extra
Hansson and Aven (2014)
Risk description
(A,C,U)
Q: Measure of uncertainty (e.g. P)
K: Background knowledge
C’: Specific consequences
(C,U)
C’
Q
K
Probability
Consequence, impact
Poor background knowledge
Strong background knowledge
Medium strong background knowledge
Cautionary principle
Faced with risks and uncertainties caution shall be a ruling principle
Not execute an activity Robustness
Defence in depth Redundancy
ALARPPrecaution
…
Precautionary principle
If there is scientific uncertainty related to the consequences …
Risk analysis Risk picture
Acceptable risk
Unacceptable risk
All agree
A surprise for some
Not a surprise for
othersUnknown knowns
The Deepwater Horizon
accident
Erroneous assessments of pressure test results
Failure to identify formation fluid penetrating the well despite log data showing that this was happening
The diverter system was unable to divert gas The cutting valve (blind shear ram – BSR) in
the BOP failed to seal the well
http://www.ptil.no/nyheter/deepwater-horizon-ulykken-vurderinger-og-anbefalinger-for-norsk-petroleumsvirksomhet-article7889-24.html
Disasters
• We experience combinations of conditions and events which collectively result in a major accident
• We do not normally identify such combinations of conditions and events in risk assessments – and, if we did, they would typically be disregarded because of negligible probability 45
A B C D
How to confront the black swans
Knowledge
Risk assessments
Modified procedure for using RAC
• If risk is found acceptable according to probability with large margins, the risk is judged as acceptable unless the strength of knowledge is weak (in this case the probability-based approach should not be given much weight).
• If risk is found acceptable according to probability, and the strength of knowledge is strong, the risk is judged as acceptable.
• If risk is found acceptable according to probability with moderate or small margins, and the strength of knowledge is not strong, the risk is judged as unacceptable and measures are required to reduce risk.
• If risk is found unacceptable according to probability, the risk is judged as unacceptable and measures are required to reduce risk.