Case study: why risk management must focus on people not plants

Adrian Clements has had several CRO roles, including at AT-IPIC, Tereos and ArcelorMittal. At the latter, natural catastrophes posed a significant threat due to the location of vital facilities.

He says: “We had a plant in Mexico, and it was subject to earthquake, tsunami and hurricane exposure. We also had another location in Galati, where we had earthquake and flooding risks from the Danube.”

At the time, the organisation was providing steel to a major automobile manufacture in Mexico, who relied on just-in-time manufacturing.

That meant it was mission critical for the business to continue to deliver, even in the event of a severe tsunami or hurricane.

Clements explains: “You really have to understand your risk. It is not driven by the earthquake or the tsunami or the hurricane, but by what your customers, shareholders and stakeholders want. 

“My driver is to make sure that my client gets the product. My client does not care if I’m sitting in the middle of Mexico with an earthquake, what he or she wants is delivery of that product with the right quality, at the right price, on time.”

Achieving this goal, meant understanding how resilient the facilities were, and what could prevent the organisation from delivering products as usual.

Clements used a combination of bow tie risk assessments and return period curves to better understand the risks.

This allowed the company to decide that it had an earthquake risk appetite of 7.8 strength and a ‘back to work’ of 4 weeks, which meant that it needed to be operational within four weeks following an event of that scale.

Clements explains: “We spent around $5 million on earthquake valves, which basically stop the gas supply when the ground vibrates a certain amount, so that we don’t get a gas explosion and so that the power station can be protected.”

He says that this is just one example of a step that a risk manager can take to safeguard operations, adding that often simple changes can be effective.

“If you go to plants where you have tsunami risk, you’ll find that most of the doors on the switchgear houses and the control rooms open the wrong way.

“When the tsunami wave hits, the doors will open, which means all that mud will go inside the buildings. If you do put the doors in the other direction, they will close when the tsunami hits and mitigate damage.”

However, Clements says that the biggest learning from this analysis, is the importance of protecting people rather than plants. 

He says: “Imagine an earthquake hitting Mexico. The village is destroyed, the hospitals are destroyed, the power supply has been destroyed, the water supply has been destroyed, the gas supply has been destroyed. So no one’s going to come to work.

“The check you get from the insurance industry is not going to help you get your employees back because they’re either in hospital, helping their families, or trying to rebuild their houses.”

This means that organisations need to think beyond just the risk facing their own facilities and instead look more broadly at strategies that will allow employees to get back safely back to their jobs.

This means assigning resources to help rebuild infractructure, and having plans to protect workers.

Clements concludes: “We actually spent money getting the hospitals up and running better, on logistics, on clearing the roads and the bridges. We rebuilt the water supply so that they could cook, and made sure that they knew where their families were.

“We looked at where we were vulnerable, that was the key question - and that was our workers. It was very clear. So then we started to spend money on helping with hospitals, schools, and infrastructure, because then those workers will come back.

“Our appetite was that we should be able to withstand a 7.8 earthquake, so we did all of that.”