What is the role of risk management in your organization? Sometimes risk management is only seen as a necessity, or for compliance reasons. Few organizations use it as an integral part of their core business and the operational processes. And very rarely is it part of strategy planning. However, as risk and award mostly go hand in hand, really understanding what you are good at and knowing how to manage this enables your organization to achieve operational excellence.

So why is risk management not seen as an instrument for strategy execution and achieving operational excellence? The current risk management frameworks do not tell the real story. There is a saying; “all models are false, but some are useful”. We believe certain risk management methods can be used in addition to existing control frameworks, such as the “BowTie”-method. This method is a visual and “barrier based” risk management method and has been the standard in the oil & gas industry for more than 20 years. It shows a clear picture of what is really happening and what to focus on to be ‘in control’ and to achieve your objectives.

Operational excellence

It seems quite obvious that having control over your core processes leads to fewer process deviations, errors, incidents, accidents, and loss of production. It could even lead to more focused business decisions – such as which activities to focus on – as well as more efficiency, higher quality, and better service.

This is what we define as ‘operational excellence’. Looking at it this way, operational excellence is the same as risk management and quality management. The ‘only’ question that remains is: how can you achieve this?

What is comes down to, is to really understand your core activities and what control measures (‘barriers’) make a difference. To a certain extent it is a bit like grammar in a language or algebra in math; what are the building blocks?

We advocate using methods that have a proven track record in those industries where hazards are very visible and risks are very high. This is clearly the case in the oil & gas, the aviation industry and in mining. These industries know what it takes to control high risks and complex processes like drilling for oil, flying people around the world or extracting minerals from the ground. Since the nineties, the regulators in the oil & gas industry only accept risk management methods that really describe what the risks are.

‘And’ instead of ‘or’

These methods are aimed to understand risks, instead of calculating risks. Regular control frameworks and management systems have proven to be well suited to manage activities and to consolidate data. It is a typical case of ‘and’, instead of ‘or’; organizations need control frameworks as well as risk assessments that give a good insight into the risks. The hazardous industries have learned some hard lessons that the basis should be a risk assessment that tells the true story.

Bowtie method

The method used is called the ‘bowtie’ method. The Bowtie method describes for each major activity what the related threats, consequences, controls (barriers) and escalation factors are. All these elements are described in a way that all possible scenarios (of what can happen) are taken into account – and can be linked to the existing control framework. The common denominator in ‘both of these worlds’ is the ‘barrier’: how can you control the major activities?

Creating value

Organizations can create much value if the core processes are operated well. And organizations can create even more value if they understand well what their core capabilities are. This can involve risky activities, which either is very profitable (risk and profit usually go hand in hand) or with which organizations have a competitive advantage. If you know what you are good at, you can base your strategy on this and achieve operational excellence at the same time.

Understanding what is really happening

The next step can be to also use the ‘barrier based risk management model’ for risk based auditing, or for incident analysis and quality management. In our opinion, all these applications are different versions of the same approach. This approach is to understand what is really happening in your organization, enabling you to manage on the barriers that can make a positive or negative difference.

Learn more from your peers

On 22 September 2014, engaging speakers (a.o. from Anglo American and E.On) share their stories and experience on achieving Operational Excellence by using risk management. The set-up of the program is very interactive and in the afternoon you can participate in three sessions on related topics. These topics all deal with the challenge of the question of how to realize results and make a difference in large organizations. This bi-annual “Barrier Based Risk Management Network Event” will be organized for the second time by CGE Risk Management Solutions, and will address different perspectives to broaden your view on risk management.