Scott Randall is Managing Director of PlusAlpha Risk Management Solutions. An energy risk manager with over 25 years of experience in risk management, Scott authored Energy, Risk and Competitive Advantage: The Information Imperative published by PennWell books.

Scott will be taking part in Knovel’s upcoming webinar Optimizing Risk Management Systems and Safety Culture on Thursday, March 24th at 12pm ET.

K Exchange: According to your bio, you graduated with a BS in Civil Engineering, how did you wind up working in Risk Management?
Scott Randall: It was really an evolutionary process over the years. My engineering training and capital projects experience gave me enough of a technical and scientific foundation to understand probabilities and statistics- the quantitative part of what makes risk different from uncertainty. Later when I studied business then worked in marketing, I gained an deep appreciation for the qualitative and financial sides of risk management and developed passion for scenario planning.   About 10 years ago, when a job opportunity came along to move from engineering and financial modeling into full time risk management, I knew I had to jump or I’d never forgive myself. It involved a bit of re-tooling, but I was able to stay in the energy business and do what I love- so it was a great move.

KX: In your article on Oil and Gas Financial Journal from December, you begin by talking about “The current preoccupation with deepwater development risks.” Presumably, this preoccupation stems from the Gulf incident last year. Do you think that this was an underconsidered issue prior to that? Should it have taken a disaster on that scale to make people aware of the risks involved?
SR: The disasters are a kind of a wake-up call for the general public as well as the industry and the regulators. History has shown that it often it does take a disaster to effect significant change. Going forward there will be a heightened level of stakeholder awareness and scrutiny of the oil and gas, refining and chemicals industry- but this has been building for some time. The recent disasters were just the tipping point.

We can say two things about attitudes about risk in the past. First, some deepwater development risks have always been key issues for oil and gas executives-so worrying about risk is not new-it is just the types of worrysome risks have changed.  For example, subsurface and commodity price risks have always been top of mind issues in the the oil and gas industry. Other kinds of risks (safety, project cost and schedule) were treated as either not material(in a financial sense) or as uncertainties that couldn’t really be managed. At same time, the general public was happy to have cheap gasoline and wasn’t very interested in how it got into their tanks.  No,  there is definitely a change.

The margin for error is much thinner on these deeper, higher temperature, higher pressure wells. We’d like to think that the technology-the advances in material science, electronics, information systems and analytics, are adequate to deal with this thinner margin for error. But down inside we know there are still a lot of people in the system who make tough decisions under uncertain conditions.  On top of this, we not just talking about the physical consequences on the asset, people and the environment at the site, but something more far reaching. Because of good electronic communication, globalized media and social networks, there is a financial multiplier on the consequences-when they occur, they reverberate around the world.

The disaster investigations have allowed the general public to understand that to support their gasoline habit, the consequences and sometimes the likelihood of catastrophic events have increased over the years, yet the systems and behaviors of the operators have not kept pace. Therefore a purely engineering or financial solution won’t be an adequate response; we’ve already done quite a bit of work on those areas. The general public knows that it will take more than just changing the regulations and grafting technical solutions onto old systems and behaviors to respond to the disasters. They are looking for more convincing solutions.

KX: In that same article, you cited a Financial Times study in which “62% of senior executives rated their companies as moderately effective or ineffective at integrating risk information into ongoing business decisions” Does this suggest a troubling trend of companies willfully forgoing proper risk management? Do you see that trend reversing? What would that take?
SR: I think this indicates a certain level of frustration rather than conscious neglect. Here we have all this information that is ostensibly valuable, and senior executives admit (anonomously) that it’s not being used for managerial decision making. I think if they saw it as strategically valuable and knew how to use it, they’d do so. This is something that will probably change over time, but today there are not a lot of people with risk management training in the executive suites. This is because risk management based on a coherent “body of knowledge” is a fairly new idea.  In fact, there is no standardized body of knowledge around risk management as there is in accounting, engineering, law, medicine and other established professions. There are tools and techniques and trained people, but they are doing their own thing in financial risk, insurance, HSE, project cost and schedule and other risk sub-disciplines. So part of the change involves training and consolidation of the discipline itself.

Even with training however, the change will need to be more fundamental for risk management to really take hold. Risk management needs to be something that not only mitigates the threats, but captures the opportunities. This is something risk practitioners today should focus on to truly demonstrate value for what they do. To illustrate the point, one commonly used risk and quality management technique is called a Failure Modes and Effects Analysis(FMEA). This technique’s purpose it to find threats.  Until risk managers begin to develop and use opportunity tools, (for example a Success Modes and Benefits Analysis(SMBA), we’ll never truly get risk management into the executive suite.

KX:  Finally, you will be taking part in our webinar on Optimizing Risk Management Systems and Process Safety Culture on March 24th. Briefly, what do you hope to get across during that time? What can our attendees expect to learn from you?
SR: The overarching theme is that we are at the threshold of some big changes in the way society deals with catastrophic risks. Regulators, industry and the general public are looking for a roadmap. The engineering and scientific community has an opportunity to step up to the plate and provide guidance that goes beyond trying to patch up the existing system with technology, but rather incorporates technology into a holistic, systematic solution. We hope to give attendees some specific ideas about the design of such a solution.

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