Operations Due Diligence

As risk and due diligence engineers, R2A has the opportunity to work on a diverse range of projects.  Interestingly we are currently undertaking two operations due diligence reviews for two very different applications.  The first is a review for the power supply at the Monash Medical Centre and the second is the supply of Class A recycled water from the Eastern Treatment Plant.

Both studies are utilising our Operations Due Diligence methodology.  This process tests for the catastrophic, low likelihood outliers before it optimises for operational availability. It does this by testing the system as a whole in relation to management concerns, applying a top-down systems analysis approach that focuses analysis effort where it is needed.  This approach means many lower-level sub-systems don’t need to be analysed in detail, as further analysis is not performed if information to answer the question is produced. It also aligns results with management’s concerns, often with far less effort and more clarity than a full bottom-up analysis.

Traditionally, risk analysis techniques are not normally considered as part of an availability analysis, which is usually focussed on system functional design and reliability and maintainability of system elements. From an organisational viewpoint, however, all causes of system failure are important, including further factors such as external effects (for example, materials supply interruptions, picketing, power failures, bushfires, floods, staff epidemic) and accidents (for example, building fires, materials handling, vehicle collisions, operator errors). These factors are external to the traditional scope of availability analyses but can have a disproportionate effect, as the damaged caused can be severe, leading to much longer downtimes than simple failures.

Operations Due Diligence includes these factors, assessing the criticality and risk of such threats from the start of the analysis and consists of four steps:

  1. Context (or boundary) vulnerability assessment
  2. Common mode (zonal) vulnerability assessment
  3. Functional availability modelling
  4. Options review, investment payback analysis and recommendations.

Further information on our Operations Due Diligence methodology can be found in our Operations Due Diligence whitepaper.

Read More

Tough Times Ahead for Constructers?

Richard attended and presented at the recent Construction Risk Management Summit in Melbourne on 1stand 2nd April. It had a diverse range of speakers and messages.

Possibly the most common message from academic speakers was that the majority of projects do not come in on time or budget. In fact very many had major cost blowouts approaching 100%. There were a number of perceived reasons why this occurs.

Richard attended and presented at the recent Construction Risk Management Summit in Melbourne on 1st and 2nd April. It had a diverse range of speakers and messages.

Possibly the most common message from academic speakers was that the majority of projects do not come in on time or budget. In fact very many had major cost blowouts approaching 100%. There were a number of perceived reasons why this occurs.

The first, identified by the majority of speakers, focused on upfront design failures. Typically 80% of the project cost is established at this phase.  So if this is wrong, such expense becomes a necessary, often quality ensued outcome. The solution to this issue was to get designers to focus on the long term operational performance, say at least 10 years operation, rather than just on practical completion.

The second related to competitive pressures which were increasing. Lowest tender bidding meant that corporate survival required taking a chance on contingencies for risks that might never eventuate. If the construction market continues to shrink, more and more tenderers will be bidding for fewer and fewer jobs and greater collective risk taking will result. One speaker even warned of an increasing likelihood of unethical behaviour in such circumstances.

Richard's presentation can be viewed on our conference page.

Read More

Sustainability Risk Management: (Legal) Due Diligence Obligations

Richard Robinson has been invited by Professor Tom Romberg to give a keynote address to the Engineers Australia Southern Highlands & Tablelands Regional Group for the Sydney Division Regional Convention 17-19 October 2014 in Bowral on the theme "Sustainability Risk Management".

Sustainability Risk Management focuses on environmental and social responsibility risks.  US Professor Dan R Anderson observes that traditionally the costs associated with sustainability risk were externalised to the environment and general society.  But increasingly they are being internalised to business.

Richard Robinson has been invited by Professor Tom Romberg to give a keynote address to the Engineers Australia Southern Highlands & Tablelands Regional Group for the Sydney Division Regional Convention 17-19 October 2014 in Bowral on the theme "Sustainability Risk Management".

Sustainability Risk Management focuses on environmental and social responsibility risks.  US Professor Dan R Anderson observes that traditionally the costs associated with sustainability risk were externalised to the environment and general society.  But increasingly they are being internalised to business.

So presumably, if the Aral Sea and Lake Chad are taken as examples, the benefits associated with the diversion of the rivers for irrigation should have been balanced out against (or at least taken into consideration) with the environmental and social costs of the lakes drying up. As much could be said of Australia over allocating water from the Murray-Darling basins. The tendency is to do that which provides returns within a commercial investment period (3 to 10 years?) especially at a state level, and ignores the larger collective issues and what might happen when a big rare event occurs, for example, a 10 year drought.

The question of what decision making process should be applied in such circumstances is often raised.  R2A, as due diligence engineers have always used the Australian High Court’s case law for safety matters.  The question of whether or not this could be applied to Sustainability Risk Management is an interesting possibility and the subject of the address.  Whilst lawyers always insert caveats regarding the interpretation of legislation, there seems to be a general agreement that negligence cases can be instructive on what might constitute "reasonably practicable" steps to prevent harm.

The indications to date are encouraging.  It has most certainly been applied in the question of the management of electrical assets for bushfires. The Powerline Bushfire Safety Taskforce’s report into the Black Saturday fires used this approach per advice from R2A.  An example of an expert opinion by Richard Robinson in New Zealand using common law due diligence as a defence against negligence in an environmental legislative context is available at New Zealand EPA.   This appears to have been well received by relevant legal counsel at the time although the opinion notes that it was not endeavouring to create a new test under the Resource Management Act 1991.

The essential aspect of due diligence as a defence against negligence is that foreseeable harm to neighbours should be appropriately managed.  If the concept of neighbours is extended to include all future neighbours then the possibility a sustainability due diligence argument arises. That is, provided a proposed project or plan is not prohibitively harmful to both present and all future neighbours, and all reasonable practicable precautions have been provided to protect all these neighbours for all reasonably foreseeable issues, then the project ought to proceed. This would be a positive demonstration of sustainability due diligence.

Read More

Apto PPE Launch

Apto PPE is a new entrant into the Personal Protective Equipment (PPE) wear marketplace.  We produce fit for purpose women’s work wear that is safe, comfortable and stylish.  Our workwear range can be worn from the boardroom to site with confidence.

We produce fit for purpose PPE clothing for women only, including a maternity range. Clothing that is purpose designed for safety, comfort and practicality, to wear on the job in industries including construction, engineering, factory work and mining.

Apto PPE is a new entrant into the Personal Protective Equipment (PPE) wear marketplace.  We produce fit for purpose women’s work wear that is safe, comfortable and stylish.  Our workwear range can be worn from the boardroom to site with confidence.

We produce fit for purpose PPE clothing for women only, including a maternity range. Clothing that is purpose designed for safety, comfort and practicality, to wear on the job in industries including construction, engineering, factory work and mining.

Co-founded by Michelle Shi-Verdaasdonk, Laurice Temple and myself representing R2A’s interest, the journey for Apto has been an exciting and interesting experience so far.

Fit for purpose women’s workwear was an initiative developed by Engineers Australia’s Women in Engineering National Committee after identifying a gap in the industry. Michelle and I were part of the core team in establishing and executing the initial stages.  In 2010, a working group was set up to develop prototype garments which were showcased at the gala dinner during the 15th International Conference of Women Engineers and Scientists (ICWES15) in Adelaide in July 2010.  Following an overwhelming response the committee joined with John Holland to complete a pilot.

With permission and the good wishes of Women in Engineering, Apto PPE was founded and officially launched on International Women’s Day 2012 to take this initiative to its full potential and fill the gap in industry.

During 2012 we worked in partnership with our Australian designer Linh Thai from the Designer’s Assistant to develop three shirts and two pant styles as part of our Signature and Maternity ranges. These were then tested on site and refined to ensure optimum safety, comfort and style.

Two babies (two mother’s) and a successful battle with breast cancer later, we are excited and proud to launch our Signature and Maternity women’s work wear range on Wednesday 5th March as part of International Women’s Day celebrations.

If you are interested in attending our launch or would like further information about Apto, please email me.

Read More

2014 R2A 9th Edition Text Update and Outlook

In February 2014, we hosted an event to launch the 2014 Update of the R2A text, which was well received. 

With many changes to various legislation in Australia, R2A has concluded that the text will be updated annually at least.

Matters of interest in the 9th edition text update include:

In February 2014, we hosted an event to launch the 2014 Update of the R2A text, which was well received.

With many changes to various legislation in Australia, R2A has concluded that the text will be updated annually at least.

Matters of interest in the 9th edition text update include:

  • The introduction of the Rail Safety National Law which is complimentary but subordinate to the model WHS legislation.
  • The expected approval in the new year of the Engineers Australia Safety Case Guideline (3 Edition). This specifically rejects the Risk Management Standard (AS 31000) as being able to positively demonstrate due diligence for high consequence – low frequency events.
  • Why SFAIRP (so far as is reasonably practicable) can never equal ALARP (as low as reasonably practicable) legally.
  • The logical limitations of Monte Carlo simulation for demonstrating project due diligence.

Read More

The Language of ‘Risk’

One of the interesting points to come out of the recent R2A event and discussions with colleagues afterwards, is the confusion regarding the meaning of the word ‘risk’.  There was a general perception that much of the SFAIRP – ALARP debate was confusion of terms rather than concepts, a proposition with which we at R2A concur.  This also flowed onto a general observation about the way in which courts interpret various terms, especially the meaning of ‘likely’.

One of the interesting points to come out of the recent R2A event and discussions with colleagues afterwards, is the confusion regarding the meaning of the word ‘risk’.  There was a general perception that much of the SFAIRP – ALARP debate was confusion of terms rather than concepts, a proposition with which we at R2A concur.  This also flowed onto a general observation about the way in which courts interpret various terms, especially the meaning of ‘likely’.The meanings ‘risk’ with which R2A is familiar are:

i.       A noun, especially as used in the insurance world, as in the insured ‘risk’.

ii.      Risk as a property of an activity or a process involving both likelihood and consequence – an adjective.  That is, it was a ‘risky’ investment.  This can extend to a quantified ‘scientific’ approach to risk.

iii.     Risk as a likelihood only, as in, the ‘risk’ of the hazard occurring.

iv.      Risk as a concept involving future uncertainty, good and/or bad, as part of the human condition.

v.       Risk as the antonym of reward, often used in financial terms to describe an element of net outcome as in ‘risk vs the reward’.

With regard to what’s ‘likely’, one of our colleagues, Tony Enright has noted that in NZ case law, the word “likely’ in the context of the Building Act 1991 (now Building Act 2004) is as follows:

“Likely” does not mean “probable”, as that puts the test too high. On the other hand, a mere possibility is not enough. What is required is “a reasonable consequence or [something which] could well happen”. Auckland CC v Weldon Properties Ltd 7/8/96, Judge Boshier, DC Auckland NP2627/95, [1996] DCR 635

‘Likely’, as used in [s 64(1)(a) BA91, now s 121(a)], means that there is a reasonable probability (see Dowling v South Canterbury Electric Power Board [1966] NZLR 676, 678); or that having regard to the circumstances of the case it could well happen (see Browne v Partridge [1992] 1 NZLR 220, 226).  Rotorua DC v Rua Developments Ltd 17/12/99, Judge McGuire, DC Rotorua NP1327/97

The point of all this is that it’s courageous to assume that the courts will agree with your definitions post event.  The prudent course is to use the courts meanings pre-event to ensure everyone is talking about the same thing in the same way, if it ever becomes necessary.

Read More
Due Diligence Due Diligence

Demonstrating Societal Due Diligence Using the Precautionary Approach

Arising from correspondence and discussion regarding earthquakes in New Zealand and bushfires in Victoria, R2A has been considering the possible application of the precautionary approach from a government regulatory perspective. The Venn diagram below is one result.

Arising from correspondence and discussion regarding earthquakes in New Zealand and bushfires in Victoria, R2A has been considering the possible application of the precautionary approach from a government regulatory perspective. The Venn diagram below is one result.

This implies three primary control options: eliminate the threat, remove exposed persons, or reduce the vulnerability. All are viable options with different perspectives but typically fall into different ‘control’ domains. For example, the ‘exposed persons’ issue is usually a land use planning matter generally being the responsibility of local government. The issue of vulnerability is usually an engineering concern the responsibility for which mostly falls to owners of exposed facilities. The nature of the threat is more a scientific matter and typically the concern of research organisations.

This makes the grey intersection a complex disciplinary patch, with overlapping responsibilities for government agencies, research and engineering organisations and with all the confusions as to whether the ‘hazard’ is a personal problem and the responsibility of individual owners, or a societal problem to be addressed with community resources.

Perhaps the most useful observation from this model to date is that the elimination of persons from an exposed area, a quite natural government response, is only one of three possibilities. The model above suggests that the optimal societal course of action is likely to be a mixture of the three control domains.

Read More
Due Diligence Due Diligence

Operations Due Diligence vs Operations Risk Management

The meaning of the word risk has changed substantially over the last 20 years or so which has caused confusion in the operations risk management space. It used to refer to potentially catastrophic events for which insurance was normally purchased, a meaning which is still used by Factory Mutual and Lloyds underwriters.

In more recent times it has become associated with the term management, which has morphed it from the consideration of potentially catastrophic events to a process, which determines the optimum risk (upside and downside) outcomes, epitomised by the concept of ‘risk appetite’.

The meaning of the word risk has changed substantially over the last 20 years or so which has caused confusion in the operations risk management space. It used to refer to potentially catastrophic events for which insurance was normally purchased, a meaning which is still used by Factory Mutual and Lloyds underwriters.

In more recent times it has become associated with the term management, which has morphed it from the consideration of potentially catastrophic events to a process, which determines the optimum risk (upside and downside) outcomes, epitomised by the concept of ‘risk appetite’.

The courts have never experienced this confusion. After all, they do not care how often something has gone well, they only examine the instances where it all went terribly wrong. And to deal with these, the courts use the legal concept of due diligence.

The risk management standard has probably been responsible for this confusion. This may not be a bad thing in itself, provided the new meaning of risk management is understood. From an engineering perspective it means that risk management has come to mean reliability management, (what is the most likely desirable outcome and what needs to be tweaked to ensure that this becomes the case) whilst the former, catastrophic meaning requires due diligence which is aimed at detecting the outlier events and their various, unlikely combinations.

For example, the extensive use of Monte Carlo simulations is another result of the new meaning. These are typically used to determine likely risk outcomes from independent probability event distributions. It will almost certainly reveal the most likely events to derail or enhance a business plan or project, but the simulations are unlikely to reveal the convergence of low probability, statistical outlier events, the combination of which creates perfect storms like the GFC (global financial crisis).

This may be why the various risk management societies have had difficulty in determining what their core business is in recent times. It also explains why it was so necessary for R2A to change its name (but not its business) from risk engineers to due diligence engineers. And why R2A’s operations due diligence model described in our white paper is so important. It tests for the catastrophic, low likelihood outliers (the old risk management) before it optimises for operational availability (the new risk management).

Read More
Due Diligence Due Diligence

2013 The Year in Review

December again and 2013 is rapidly coming to an end. As part of our end of year wrap up, here are some of the highlights that we would like to share with you.

The year started with drinks and canapés to launch the 9th edition of the R2A text, Risk & Reliability: Engineering Due Diligence. The event was well attended by industry colleagues and provided an overview of the general state of affairs in industry.

Following on from this success, R2A will be hosting another event on Thursday, 6th February 2014 from 3pm to 5pm. Richard will launch the 2104 update of the R2A Text. R2A has concluded that the risk and liability world is changing so fast at the moment that, until further notice, the text will be updated annually at least.

December again and 2013 is rapidly coming to an end. As part of our end of year wrap up, here are some of the highlights that we would like to share with you.

The year started with drinks and canapés to launch the 9th edition of the R2A text, Risk & Reliability: Engineering Due Diligence. The event was well attended by industry colleagues and provided an overview of the general state of affairs in industry.

Following on from this success, R2A will be hosting another event on Thursday, 6th February 2014 from 3pm to 5pm. Richard will launch the 2104 update of the R2A Text. R2A has concluded that the risk and liability world is changing so fast at the moment that, until further notice, the text will be updated annually at least.

Matters of interest include:

  • The introduction of the Rail Safety National Law, which is complimentary but subordinate to the model WHS legislation.
  • The expected approval in the new year of the Engineers Australia Safety Case Guideline (3 Edition). This specifically rejects the Risk Management Standard (AS 31000) hazard based approach as being able to positively demonstrate due diligence for high consequence – low frequency events. This has startling consequences.
  • Why SFAIRP (so far as is reasonably practicable) can never legally equal ALARP (as low as reasonably practicable).
  • The logical limitations of Monte Carlo simulation for demonstrating project due diligence

Richard will also outline the outlook for 2014. We expect a lively discussion so please pencil in the date and join us on the 6th February.

Richard and I continue to work with the Risk Engineering Society (he’s been made an Honorary Member) to develop the third edition of the Safety Case Guideline. Now at the penultimate draft stage, it is expected that these will be reviewed by legal counsel and approved by the National Committee in the next couple of months.

In October we welcomed Stacey Daniel to our team. I would like to thank her for her contributions over the last couple of months and look forward to continuing to work with her in 2014.

We were also privileged to work with many clients throughout the year. Here are a few of the interesting projects completed in 2013.

INTERESTING PROJECTS

Hazardous Trees Review, Department of Environment and Primary Industry – A precautionary gap analysis of the current controls in place for hazardous trees in relation to crews and vehicles, especially during fire fighting operations.

Safety Due Diligence Review, Rockhampton Girls Grammar School – A review consistent with the provisions of the Queensland Work Health and Safety Act (2011).

LNG ship arrival / departure review, Gladstone Port Corporation – A review to ensure all reasonable practicable precautions are in place for all credible, critical safety issues associated with the movement of LNG ships through the Port of Gladstone to Curtis Island.

E Class Tram Safety & Operations Review, Yarra Trams – A safety and operations review for the new E Class trams to form part of Yarra Trams’ submission to Transport Safety Victoria (TSV) for their Accrediation Variation Application (AVA) to type test the new tram on the network.

Port Jackson and Port Botany Pilotage SMS Review. Being on the bridge of a cruise ship on a fine day coming out of Sydney Harbour is a joy to envied.

CONFERENCES

Richard presented at the following conferences in 2013 and has availability for similar opportunities in 2014. Drop Richard a line if you have an event coming up. (richard.robinson@r2a.com.au)

  • Asset Management in Melbourne
  • Earthing, Lightning & Surge Protection in Brisbane
  • Electrical Regulatory Compliance Forum
  • Australian Marine Pilots Institute Spring Workshop

R2A’s paper on SFAIRP vs. ALARP has also been accepted for the 2014 CORE Conference.

MEDIA

Richard had two articles published in 2013:

  • Implications of the WHS Act relating to protection and earthing (Australasian Power Technologies Publication)
  • Legal implications for designers under the Engineers Australia Safety Case Guidelines (Industrial Electrix magazine)

MARKETING ACTIVITIES

Our marketing program continued in 2013 with the following highlights –

Project Insights White PaperSafety Due Diligence White PaperOperation Due Diligence White PaperThis blog!

EDUCATION

From an Education perspective Richard delivered numerous public and in house courses on Engineering Due Diligence as well as continuing to deliver the Swinburne post-graduate unit Introduction to Risk & Due Diligence.

In partnership with Engineering Education Australia, we a piloted a 2-day How to Engineer Due Diligence Workshop in Melbourne. This workshop is aimed at aspiring directors and senior managers of essential service organisations. This partnership will continue in 2014. Workshop dates and locations are: Melbourne on 5th and 6th March 2014, Brisbane on the 20th and 21st May 2014, Perth on the 12th and 13th August 2014 and Sydney on 14th and 15th October 2014. Further details can be found at https://www.r2a.com.au/education/r2a-short-courses.html.

Read More
Due Diligence Due Diligence

R2A Event 2014

Following on from the success of our client and colleagues function in 2013, we will be hosting another event on Thursday, 6th February 2014 from 3pm to 5pm.

Richard will launch the 2014 update of the R2A Text.  R2A has concluded that the risk and liability world is changing so fast at the moment that, until further notice, the text will be updated annually at least.

Matters of interest include:

  • The introduction of the Rail Safety National Law which is complimentary but subordinate to the model WHS legislation.
  • The expected approval in the new year of the Engineers Australia Safety Case Guideline (3 Edition). This specifically rejects the Risk Management Standard (AS 31000) as being able to positively demonstrate due diligence for high consequence – low frequency events.
  • Why SFAIRP (so far as is reasonably practicable) can never equal ALARP (as low as reasonably practicable) legally.
  • The logical limitations of Monte Carlo simulation for demonstrating project due diligence.

Following on from the success of our client and colleagues function in 2013, we will be hosting another event on Thursday, 6th February 2014 from 3pm to 5pm.

Richard will launch the 2014 update of the R2A Text.  R2A has concluded that the risk and liability world is changing so fast at the moment that, until further notice, the text will be updated annually at least.

Matters of interest include:

  • The introduction of the Rail Safety National Law which is complimentary but subordinate to the model WHS legislation.
  • The expected approval in the new year of the Engineers Australia Safety Case Guideline (3 Edition). This specifically rejects the Risk Management Standard (AS 31000) as being able to positively demonstrate due diligence for high consequence – low frequency events.
  • Why SFAIRP (so far as is reasonably practicable) can never equal ALARP (as low as reasonably practicable) legally.
  • The logical limitations of Monte Carlo simulation for demonstrating project due diligence.

Richard will also outline the outlook for 2014.

We expect a lively discussion so please pencil in the date, RSVP and join us on the 6th February.

Read More
Due Diligence Due Diligence

Managing Project Show Stoppers

Once or twice a year, R2A, as due diligence engineers, are called upon to investigate projects which have not gone well. Clients do not generally permit us to discuss such investigations, unless it’s a public inquiry of some sort, but there are common threads that emerge. For the most part R2A includes such learnings in our text, Risk and Reliability: Engineering Due Diligence.Whilst some issues are peculiar to an organisation, the most common difficulty across projects seems to rest around an exclusive reliance on the Risk Management Standard (ISO 31000) as the basis to manage risk. For high consequence, low likelihood events (the potential ‘project showstoppers’) the Standard fails the test. The reason is simple; it is risk based not criticality based.Risk based means the management of identified risks is by the simultaneous appreciation of likelihood and consequence. Criticality based means that the likelihood side of the risk equation is initially ignored if the event is credible and could prove fatal (completely stop the project). The diagram below describes the conundrum for senior decision makers responsible for multiple large projects, the failure of any of which might bring down those decision makers.The perspective of both the individual project managers and the senior decision makers are correct, but contradictory. An individual project manager can confidently state, using risk based approach, that yes, a critical possibility does exist but it is so rare that delaying the project on that account cannot be justified.  The project should proceed.The senior decision makers on the other hand see the critical risks from 100 project managers. Even though such risks are rarely manifested, the 100 credible show stoppers are all focussed on this single group. From this top-down perspective projects ought not to proceed until the show stoppers are eliminated.  The alternative is to proceed optimistically until one show stopper to one project eventually happens and the inquiry commences.R2A is focused on the prevention side which means that projects ought not to proceed until the show stoppers are dealt with. It’s the only place to be.

Read More
Risk Management Risk Management

EEA R2A Due Diligence Workshop Wrap Up

As a new addition to the R2A Consulting team, the timing of the recent EEA (Engineering Education Australia) and R2A ‘Engineering Due Diligence’ workshop was such that I was able to attend in my first few weeks of my new role.

Richard Robinson presented the workshop with eight participants from various industries and locations in Australia, which provided for interesting and varied discussion.

As a new addition to the R2A Consulting team, the timing of the recent EEA (Engineering Education Australia) and R2A ‘Engineering Due Diligence’ workshop was such that I was able to attend in my first few weeks of my new role.

Richard Robinson presented the workshop with eight participants from various industries and locations in Australia, which provided for interesting and varied discussion.

The workshop was the first of its kind following the recent partnership between R2A and EEA. Previous workshops had been more structured and closely followed the framework of the R2A text (2013) Risk and Reliability: Engineering Due Diligence, whereas the focus of this workshop explored in greater depth the queries and views of the participants in attendance.

The topics that stimulated most discussion amongst the group were -

  1. Risk paradigms as they relate to business, projects and safety
  2. Implications of the model Work Health and Safety Act
  3. Limitations of the risk management standard as a tool to manage critical vulnerabilities
  4. Determining critical success factors and undertaking a vulnerability assessment
  5. Establishing time sequence diagrams
  6. Establishing threat-barrier diagrams and locating the legal loss of control point

Of interest also was the diverse range of legal and technical examples that Richard drew upon to support the points of discussion that demonstrate due diligence or not, the case may have been.

The workshop format worked well and the feedback from the group was overwhelmingly positive. And no R2A workshop would be complete without the entertainment of a good set of well delivered jokes!

R2A is set to conduct more due diligence workshops like this in 2014 which I think will be of great value to personnel of varied responsibility including but certainly not limited to company directors, senior executives and project managers.

Read More
Due Diligence Due Diligence

Origins of the Legal Concept of Due Diligence in the model WHS act

The case that launched the negligence tide is generally recognised as Donoghue vs Stevenson (1932). Essentially this tested the responsibility of a drink’s manufacturer for a stomach ache resulting from a late discovered decomposed snail in an opaque soft drink bottle, purchased by one of two friends to share.  Until that time, the liability for a bad product rested with the contractual arrangement between the seller and buyer, not a third party friend with whom the drink was shared and who subsequently fell ill.

Interestingly, it was a split decision by the 5 judges in the UK House of Lords as to whether or not the case should proceed at all since the potential liability to the manufacturer lay outside the existing buyer-seller contract. The minority was concerned that a finding for the plaintiff would launch an uncontrolled avalanche of negligence claims in common law jurisdictions, a concern that has pretty much eventuated.

The case that launched the negligence tide is generally recognised as Donoghue vs Stevenson (1932). Essentially this tested the responsibility of a drink’s manufacturer for a stomach ache resulting from a late discovered decomposed snail in an opaque soft drink bottle, purchased by one of two friends to share.  Until that time, the liability for a bad product rested with the contractual arrangement between the seller and buyer, not a third party friend with whom the drink was shared and who subsequently fell ill.Interestingly, it was a split decision by the 5 judges in the UK House of Lords as to whether or not the case should proceed at all since the potential liability to the manufacturer lay outside the existing buyer-seller contract. The minority was concerned that a finding for the plaintiff would launch an uncontrolled avalanche of negligence claims in common law jurisdictions, a concern that has pretty much eventuated.The majority decision favoured to adopt the golden rule of most major philosophies and religions.  This is usually expressed in the Christian tradition, as: love your neighbour as yourself meaning do unto others as you would have done unto you.  That is, it was felt that the soft drink manufacturer owed a duty of care to any reasonably foreseeable consumer (or neighbour), not just the one who purchased the soft drink.In statutory terms due diligence has mostly been about compliance.  In common law terms due diligence (or care) has been a defence against negligence.  And whilst there has always been some legislation like the Victorian Wrongs Act 1958 which incorporated these negligence concepts, it has really been the model WHS act and the Rail Safety National law that have enshrined due diligence (as a defence against negligence) into statute law in Australia. It is interesting that it took 8 centuries for the golden rule to be incorporated into the common law (nominally institutionalised by King Henry II in the 13th century), but it only took 8 decades to have it elevated into statute law in Australia.R2A has always been focussed on due diligence as a common law obligation.  Indeed we changed our name from risk to due diligence engineers before any inkling of the model WHS act and Rail Safety National law became apparent as we believed that it was always prudent (and morally sound) to satisfy both statutory compliance requirements and common law obligations.  The fact that these have now aligned has actually made life simpler in some ways.In legal terms (at least with regard to demonstrating due diligence under the provisions of the model WHS act), an arguable case on a common law basis (which is proved on the balance of probabilities) means the likelihood of being successfully prosecuted under a statutory law (which needs to be proved on a beyond reasonable doubt basis) is, well, virtually nil.  At least, this is the unanimous opinion of the many lawyers R2A has briefed over the years.So, if you are wondering if all reasonable practicable precautions are in place for all credible, critical, foreseeable issues and hazards for a project or operation especially in an essential services industry, need to satisfy directors, tax payers, shareholders, workers or regulators, then call R2A.  Engineering due diligence is what we do.

Read More
Due Diligence Due Diligence

Implications for designers using EG(0), The Power System Earthing Guide

The change from hazard based risk assessment supported by the risk management standard to the precautionary due diligence approach now mandated by most Australian parliaments has significant implications for designers, especially in the use of standards that use target levels of risk and safety such as EG(0) Power System Earthing Guide and IEC 61508 the Functional Safety Assessment standard as a design tool.

In previous blogs we have explored the implications of the hazard based approach using target risk criteria for land use safety planning purposes for hazardous chemical facilities. This blog looks at the implications in relation to the application of EG(0), the Power System Earthing Guide1. The guide appears to define risk limit targets consistent with the NSW Department of Planning guidelines as shown in the table and figure below.

EG-0 individual risk limits

EG-0 societal risk limits

  • Intolerable Region—The risk profile must be reduced.
  • ALARA Region—Reduce the risk profile whenever possible, and only accept the residual risk on the basis of a risk cost benefit analysis (RCBA) (see Appendix F). The use of the ALARA principle (or ALARP) is clearly intended to form a key part of the Due Diligence process embodied in this Guide. The ALARM principle that requires a designer and asset owner to reduce the risk profile whenever possible provides a consistent yet practical means for managing earthing system related risk.
  • Low or tolerable Region—Risk generally acceptable, however, risk treatment may be applied if the cost is low and/or a normally expected practice.

Whilst the table has further caveats that consider some of the weaknesses of the hazard based approach to risk, the overall use of such target risk levels remains contrary to the SFAIRP approach of the model legislation.

Such an approach is especially problematic in states like Queensland that are modifying the provisions of the Electrical Safety Act to be entirely consistent with the provisions of the WHS act including penalties.

As a consequence, the attempt by Energy Networks Australia (ENA) to introduce target risk based processes to assess the safety of earthing systems via EG(0), is flawed. It means that organisations and their officers that use such target risk based processes as the primary tool for risk decision making would be subject to post event scrutiny under the new model WHS legislation. In the event of a fatality such officers would presumably be prosecuted for acting recklessly under the criminal provisions of the act. It may also leave the ENA and its officers open to prosecution for endorsing and promoting an arguably suspect process.

This blog is based on a paper presented at the Earthing, Lightning & Surge Protection Conference in July 2013 and subsequently the Electrical Regulatory Compliance Forum in September 2013. The full papers can be viewed at Conferences.

1 Energy Networks Association Limited (2010). EG-0 Power System Earthing Guide. Part 1: Management Principles. Version 1 – May 2010. Canberra.

Read More

Risk Appetite

Boards are responsible for the good governance of the organisation and risk management is an essential aspect of this.Diligently balancing competing priorities with limited resources requires an organisational expression of risks and rewards in the value system of the board. In the business community this has often been expressed as risk appetite meaning that an outstanding outcome can justify taking greater chances to achieve success.  In policy terms it means encouraging the organisation to select projects and programs with greater rewards for similar effort, and is to be applauded.  This is a positive demonstration of business due diligence.However, safety has a different perspective.  Here often, the consequences of failure are so high that there is simply no appetite for it.  Instead, provided the situation is not prohibitively dangerous, the requirement is for (safety) risk to be eliminated or reduced so far as is reasonably practicable, a matter which can be forensically tested in court1.This is a positive demonstration of safety due diligence. Recognised good practice in the form of guidelines and standards is a starting point.In statistical terms, due diligence is primarily about dealing with outliers and black swans (especially to third parties) that create potential showstoppers, rather than optimising the middle ground, which appears to be the position most risk management programs try to achieve.  In our experience, most risk management programs involving risk appetite concepts are about optimising the most likely commercial corporate position rather than preventing catastrophes.For technological business which mainly deal with downside risk, the term risk appetite seems inappropriate at least for safety aspects. A better term may be a risk tolerance statement or, keeping it generic across business and safety, a risk position statement.A risk position statement is an articulation of the Board’s understanding of the key risk issues for the business and their understanding of the management and optimisation of these risks.  It is almost a quality assurance document to ensure the Board can transparently demonstrate risk management governance to stakeholders including the community and government.From a Board viewpoint, the safety risk position will not be driven by risk (consequence and likelihood) but rather criticality (consequences) and what can actually be done to eliminate or minimise the risk.  For example, risk tolerances will vary depending on the precautionary options available for a particular issue and the resources available at the time to address the issue.1 For example from Worksafe Australia interpreting the model WHS act (as viewed at): http://www.safeworkaustralia.gov.au/sites/SWA/about/Publications/Documents/607/Interpretive%20guideline%20-%20reasonably%20practicable.pdf 15 July 2013: What is ‘reasonably practicable’ is an objective testWhat is ‘reasonably practicable’ is determined objectively. This means that a duty-holder must meet the standard of behaviour expected of a reasonable person in the duty-holder’s position and who is required to comply with the same duty.There are two elements to what is ‘reasonably practicable’. A duty-holder must first consider what can be done - that is, what is possible in the circumstances for ensuring health and safety. They must then consider whether it is reasonable, in the circumstances to do all that is possible.This means that what can be done should be done unless it is reasonable in the circumstances for the duty-holder to do something less.This approach is consistent with the objects of the WHS Act which include the aim of ensuring that workers and others are provided with the highest level of protection that is reasonably practicable.

Read More

Critical Limitations of Monte Carlo Simulations

Monte Carlo simulations have become de rigueur for project risk assessments. There is no doubt the use of monte carlo simulations will provide sound insight into the most likely project outcomes.  

However from a due diligence perspective there are major limitations when it comes to the long tail (low probability) distribution (high consequence) outcomes. Consider the situation where three long tail (say 1 in 1000) issues need to converge to cause total project failure.  Collectively, that’s a 1 in a billion chance.  To test for that, at least 1,000,000,000 trials would need to be completed.  To make that statistically significant there would need to be at 10 to 100 billion trials. 

Monte Carlo simulations have become de rigueur for project risk assessments. There is no doubt the use of monte carlo simulations will provide sound insight into the most likely project outcomes.

However from a due diligence perspective there are major limitations when it comes to the long tail (low probability) distribution (high consequence) outcomes. Consider the situation where three long tail (say 1 in 1000) issues need to converge to cause total project failure.  Collectively, that’s a 1 in a billion chance.  To test for that, at least 1,000,000,000 trials would need to be completed.  To make that statistically significant there would need to be at 10 to 100 billion trials.

No one does that. Further, that assumes that the long tail issues have been accurately described. Usually what happens is that the long tails are just ignored as being hard to know and statistically insignificant anyway.  This means credible (although rare) critical possibilities are just ignored.

The R2A Project Due Diligence process addresses this shortfall.

Read More

Due Diligence – Land Use Planning

Land Use Planning

Possibly the most unfortunate outcome of the use hazard based analysis using target risk criteria is in land use safety planning for hazardous chemical facilities.[1]

Firstly, if the criteria are not satisfied it tends to sterilise planning areas from development.  From an engineering perspective at least, this is just silly.  Any site has issues, including windstorm hazards, geotechnical and earthquake potentials, storm surge, flooding and inundation, lightning strike potentials etc.  For the design to be successful, all these must be addressed.  The fact that there is a chemical exposure is just another hazard to be managed. If in order to be safe, people wind up in an unaffordable, unattractive, air-conditioned bunker, then it may be that the project will not proceed. But this will be for commercial reasons, not safety ones.

Precautionary vs. target risk level approach to land use planning

Secondly, it ignores rare, catastrophic hazards.  For example, if a plot of the over-pressures at Buncefield (an unconfined vapour cloud that detonated in the UK in 2005) were to be mapped to any major hazard fuel farm in Australia, the area that can cause fatalities is huge. But although monstrous, this is historically a very rare event. If the event is discounted by the unlikelihood of its occurrence (at say 1 x 10-9 pa) in accordance with the risk target approach (typically 1 x 10-6 pa or 3 orders of magnitude larger) it is a much smaller area.  Under most current planning regimes, structures developed beyond such 10-6 pa individual risk contours need only be building code compliant.  No building is permitted closer to the major hazard facility. The diagram above describes the concept.

Adopting the precautionary approach to land use planning in these circumstances means that, the closer to the hazard a structure is, the greater the precautions need to be. In principle, provided the level of protection is high enough, there are no limits to where a structure could be built in relation to the major hazard facility presented above.   For example, immediately adjacent to the explosion, the protection required may be a concrete bunker as death may result directly from the overpressure.  The direct overpressure danger may be reduced at some distance but a house with laminated windows may be required to prevent glass shards shrapnelling occupants. Beyond the credible worst-case contour no protection from this hazard is required.

The QRA (quantified risk assessment) calculation of the risk contour is beneficial only in terms of determining the level of protection that is required at a given location, enabling the common law test of the balance of the significance of the risk vs. the effort required to reduce it to be applied.  For example, between the 10-6 pa risk contour and the credible worst case consequence contour the cost of the provision of sheet metal roofs and laminated glass windows rather than tiles and ordinary glass, especially for new structures is very, very small indeed.

If buildings are permitted between the designated 10-6 pa individual risk contour and accelerative glass over-pressure limits without such precautions, and an (admittedly rare) explosion resulting in deaths or injuries occurs, then the responsible officers of PCBUs responsible for approving and building such structures (town planners, developers, architects, engineers, builders etc.) may be found negligent under common law and criminally reckless under the provisions of the new WHS legislation (knew or made or let it happen).


[1] Robinson Richard M, Gaye E Francis, Peter Hurley et al (2013).  Risk and Reliability: Engineering Due Diligence (9th Edition). R2A Pty Ltd. Page 169

Read More

R2A Safety Due Diligence Process

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 law of nature in a way that is consistent with the laws of man and in that order.

At R2A we have developed a set of 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.

 

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 law of nature in a way that is consistent with the laws of man and in that order.At R2A we have developed a set of 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:

  • A completeness argument as to why all credible critical safety issues to all affected parties have been identified
  • A argument as to why all practicable precautions for each credible critical issue has been identified.
  • An argument as to which practicable precautions are reasonable consistent with decisions of the High Court of Australia, and
  • The establishment of a safety quality assurance regime to confirm that all reasonable practicable precautions are maintained on an ongoing basis

This approach does not mean that bad things cant 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 balance of the significance of the risk vs the effort required to reduce it. This also means that risks should be eliminated or minimized so far as reasonable 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 charges for responsible officers under the provisions of the model WHS Act.Over the years, R2A has tested this Safety Case approach with various legal counsels when consulting for clients. We recommend that readers do so with their own legal counsel before adopting this approach.

Read More

Risk and Due Diligence Unit – Swinburne Update

The Introduction to Risk and Due Diligence Unit at Swinburne is going well this year with 17 students with a diverse global representation.  An aspect of the course is a tutorial presentation on some aspect of the law in different jurisdictions.  Some very interesting presentations have been made.  

The student from Switzerland described the direct democracy process.  Direct democracy involves a citizen-sponsored amendment to the Constitution.  100,000 voter signatures are required, which if achieved requires a referendum.  To pass into law, a double majority in both the national popular vote and a majority of the (26) cantonal popular vote must be in favour of the amendment.  The successful amendment must then be implemented by the federal parliament.

The Introduction to Risk and Due Diligence Unit at Swinburne is going well this year with 17 students with a diverse global representation.  An aspect of the course is a tutorial presentation on some aspect of the law in different jurisdictions.  Some very interesting presentations have been made.

The student from Switzerland described the direct democracy process.  Direct democracy involves a citizen-sponsored amendment to the Constitution.  100,000 voter signatures are required, which if achieved requires a referendum.  To pass into law, a double majority in both the national popular vote and a majority of the (26) cantonal popular vote must be in favour of the amendment.  The successful amendment must then be implemented by the federal parliament.

A recent amendment was to ban golden handshakes for executives, especially for executives departing poorly performing companies.  Apparently most politicians and business leaders advised against this amendment as acting against the national interest, but it was nevertheless adopted with the highest voter turnout in recent memory.

Being about half way through the semester now, it seems like everyone, including the Lecturer is learning something new each week!

The course at Swinburne is presented each week at the Hawthorn campus (VIC). We also welcome guests, so if you have an interesting case study or project example that you would like to share with the students, please get in touch.

Read More

ALF Literacy Camp – Ballarat

R2A Board Advisor, John Francis recently attended the Aboriginal Literacy and Heritage camp at Ballarat facilitated by the Aboriginal Literacy Foundation (ALF). R2A have a partnership with the ALF and here is John’s account of the dayOn Saturday 2nd March I attended the Aboriginal Literacy and Heritage camp.  Students are partnered with an adult for the morning session, which involves helping the students with their literacy skills.I was partnered with a young aboriginal girl approx. 8 years and in grade 2. We were given several tasks to complete and to read. She tackled these with enthusiasm, and at the end of the session was able to recognise words that had been difficult at the start.After lunch, the student’s do some craftwork and then an elder of a local tribe comes to talk to the students about their culture and traditions. This is followed by an activity like horse riding or roller skating etc.I felt chuffed with the amount of progress that had been achieved by the young girl in this brief session. I have undertaken to take part in the next camp in late April or early May to hopefully provide continuity in the partnership.

Read More