Monday, April 4, 2011

Assess Quality, Reliability, and Safety Risks Wisely

Executive Summary:
There is no business without risks.  Ensuring quality, reliability, and safety can be costly.  Failing to ensure them can be more so.  Risk assessment methods should account for the business expenses of preventing disaster, as well as the expense of accepting its possibility.  When it comes to the safety of our personnel or our customers, don’t gamble.

The Rest of the Story:
In U.S. national news this weekend were a couple of incidents that provoked my thoughts on the subject of quality and reliability and the challenge of balancing them against our other business pressures.  In business we risk, and we try to balance business against risk.  We try to maximize our offering while minimizing our operating costs, and at the same time, we try to provide appropriate quality and reliability for our customers.

In your favorite newspaper or on-line news source this weekend, you might have read that an airplane flight was forced to make an emergency landing when a rupture in its fuselage caused the cabin to depressurize.  The airline subsequently grounded 79 or so aircraft and cancelled 300 or so flights while they investigate and determine if there are any imminent risks of ruptures in other aircraft.

Now, obviously the incident could be an improbable fluke.  But, for all we in the public know, it could be the result of risks taken by the airline with the maintenance of their aircraft.  In fact, since a similar failure happened in 2009 and the same airline was forced to pay $7.5 million to the FAA in fines for failing to perform required inspections for fuselage cracks, one begins to suspect the latter. 

Supporting these suspicions is a note that the same airline requested an extended period to conduct inspections and maintenance of aircraft mandated by the FAA earlier this year on the grounds that taking the aircraft out of their normal rotation for maintenance would cause “a significant burden” on the business.  By the way, the FAA rejected the airline’s request.

When business is highly competitive, and survival is a primary focus, with growth following, we must make difficult choices.  Quality and reliability are business gambles. 

When we improve quality, reliability, and perform maintenance on our machines, we gamble that the expense of doing so will pay off in the long run and that our business will benefit.  It is possible to do too much and price our business out of the market.  When we allow maintenance periods to be extended, or we accept less quality or reliability in our offerings we are gambling that problems caused by doing so will not manifest immediately, or that our customers won’t notice or won’t mind.  Of course, if something does go wrong, or if our customers do mind, then we pay a price.

Many businesses incorporate risk assessment and mitigation methods.  Take a good look at your methods and see if they are up to the task of saving your business. 

Does your method compare the cost of preventing problems against the cost of accepting problems?  Most do.  Do you use it, not just for your product designs, but also for your business decisions and maintenance plans?  Here is the difficult one.  Do you financially plan for risks?

If you include risk prevention actions as part of your business decisions, then you must have a way to finance those actions.  If you accept small risks, then inevitably, some of those risks will turn into problems and you will need to pay for repairs or damages.

How well does your business use risk assessment to drive business decisions?  Do you perform routine maintenance on your machines and equipment?  Do you go so far as to incorporate predictive maintenance technology and methods to optimize your maintenance schedules?  Or do you gamble that your equipment can go a little longer without maintenance before a problem occurs?  Finish just one more order or one more run, right?

It’s hard when cash and credit are tight to take time out of production, to stop making money today, to pay that insurance we call maintenance, that will ensure we can make our money tomorrow; especially when we fear that there won’t be a tomorrow if we don’t produce today.

When you take these gambles, do you risk assess your business decisions and compare the cost of the maintenance against the cost of the problem?  Are you giving your probability of a problem a fair assessment, or are you allowing wishful thinking to color your predictions? 

No one likes collecting data or digging it out when it’s decision time, but data can be a very helpful tool when it comes to assessing the likelihood of a problem.  In the example above, the FAA mandated additional inspections and maintenance for certain aircraft only.  This implies that the FAA had data suggesting that the probability of failure for these aircraft was greater than for others.  I wonder if the airline took that into account when it requested an extension.

I have one more point to make, and then I will wrap up.  Also in the news this weekend, Transocean awarded its executives bonuses (2/3 of the total possible safety bonus) for achieving the “best year in safety performance” in the company’s history.   Transocean is the company that owned the oilrig operated by BP that ruptured and burned in the Gulf of Mexico in 2010.  Arguments are still going on about how much of the blame for the incident, which ultimately killed 11 people, belongs to Transocean, BP, or Halliburton, but there is no argument that at least some responsibility belongs to Transocean.

I can imagine the business dilemma in my mind.  The executives, along with every other manager and professional in the business probably laid out specific business and safety goals and objectives last year, and probably executed and accomplished most or all of them.  Policy probably states that if they meet their objectives, and the business performs, they get their bonuses.  So, if the business doesn’t award the bonuses, they might lose important leaders when they can least afford to do so, or worse yet, end up fighting lawsuits.  After all, the objectives probably didn’t specifically say that no one should die, or spill 200-million gallons of oil in the ocean.  Also, the loss of profits to the business as a result of the disaster probably impacted the amount of bonus received.

However, the award of the bonuses in a year when 11 people perished as a result of a terrible disaster certainly won’t sit well with the public.  Did it affect stock prices, I wonder? 

Here’s the big deal.  The logic presented in the policy and the amount awarded is all about money.   The public doesn’t see a money problem, they see a tragedy and a terrible, man-made disaster.  The public would prefer to see some human values, not monetary logic.  If the public had any way of purchasing it’s petroleum products in such a way as to prevent Transocean from receiving any of its money, Transocean would probably feel it deeply.

Take a look at your own business position and your goals and objectives around risk, maintenance, quality, and reliability.  Don’t fall into the trap I imagined for Transocean.  Make it clear that if someone perishes, either and employee or a customer, no one will receive any bonus.  Say the same if someone loses the ability to work, or if a superfund site is created. 

Draw the line where it makes sense for you and your business, but make it clear that your business has values, not just money.  Your employees and your customers will be happier with you.  You will also be less likely to go all-in at the poker table when you know you are holding a mediocre hand, so to speak.

Safety should be a non-negotiable goal.  Try two phrases in the mirror.  “I risked the safety of my personnel and my customers to improve business performance.”  “I risked my business’s bottom line to ensure the safety of my personnel and customers.”  Which would you rather say to an audience of your peers?  With which character would you rather work?

I know that it’s difficult to be ideal in business.  It’s neither possible, nor realistic to prevent every problem or to provide absolute quality or reliability.  None of us could afford the car we couldn’t possibly be injured in.  However, we can make safety a non-negotiable value.  We can use basic risk assessment methods in conjunction with our business decisions and our maintenance and quality plans.  Lastly, we can take our risk assessment, safety, quality, and reliability plans seriously, like our business depends on it.  After all, it does.

Stay wise, friends.

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