Risk Management Cycle and Strategy of West Fertilizer Plant - Example

RISK MANAGEMENT CYCLE AND STRATEGY OF WEST FERTILIZER PLANT Table of Contents 1.0 Introduction 2 2.0 RISK IDENTIFICATION 4 3.0 RISK MEASUREMENT 5 4.0 RISK ANALYSIS 6 5.0 RISK DECISION 8 6.0 RISK IMPLEMENTATION 10 7.0 RISK MONITORING 11 8.0 RISKY POLICY 12 9.0 RISK MANAGEMENT STRATEGY 13 10.0 CONCLUSION 16 11.0 REFERENCES 18 1.0 Introduction Calculated and unexpected risks are outcomes that are anticipated in the management of an organization or firm. These risks tend to distort an organizations activities, performance or profitability. According to Hopkin (2012) organizational risk are categorised into three distinct groups, namely: Hazard risks; which directly interfere with a firm’s ability to achieve its set objectives and goals. Opportunity risks; these risks interfere with the set organizational strategies that will aid a firm in achieving its aims. Control risks; these risks will deprive an organization with the ability to have full control over the outcomes. The risks associated with running a business entity or organization, makes it mandatory for a firm to implement effective strategies that will manage these risks if they take place. Merna & Al-Thani (2008) define risks management as guidelines for an organization that are implemented to ensure that the organization is well equipped to counter the risks associated with its activities. The process of risk management follows a systematic procedure that involves the identification, measurement, evaluation, minimizing and evading of predicted and already established risks (Merna & Al-Thani, 2008). This essay is going to evaluate how the risks associated with running an organization endangers the lives of human beings whose existence are directly or indirectly influenced by an organization’s activities. As a result the essay is going to discuss the disaster "The West Fertilizer Plant Exposure disaster: applying on risk management cycle and strategy." As part of the discussion, this essay will evaluate the circumstances that led to the explosion and ways in which it could be avoided. The essay will employ the seven risk management mechanism as the basis of the discussion. Background of West Fertilizer Plant Explosion The West Fertilizer Plant explosion is one of the greatest catastrophes that hit Texas in 2013. According to a report filed by Luther (2013) the losses incurred as a result of this disaster amounted to approximately $ 100m with homes and commercial centers being destroyed. The disaster killed at least 15 people and hurt over 200 residents within its localities. According to a report filed by the U.S Geological Survey, the disaster created a shock that can be categorized as a 2.1 magnitude earthquake. Most of the individuals that died due to the explosion are firefighters and the first people to respond to the accident. The explosion destroyed everything within its 5 block radius including a nursing home, a middle school and an apartment complex (Adamson and Bracken, 2014). 2.0 RISK IDENTIFICATION This first step in risk management is used to evaluate possible factors that could lead to an accident in an organization or resources that could put the lives of people at risk. According to a report filed by the U. S Chemical Society Board revealed that the explosion at West Fertilizer was due to the emergence of an intense fire at a neighboring store building. Since the structure was built out of wood, it contributed to the intensity of the fire which led to the ignition of up to 30 tons of AN, that was stored in the warehouse’s wooden bins. Thus two factors contributed to the accident. They include; the warehouse structure being highly combustible, and the fact that the fertilizer plant stored a substantial amount of seeds that are considered to be equally combustible. Moreover, there were large amounts of anhydrous ammonia stored in the warehouse (Luther, 2013). Despite the existence of highly flammable resources in the warehouse, the management at West Fertilizer Plant failed to implement an effective risk management strategy to counter the risk. Officials at the U. S CSB argued that the fertilizer plant should have implemented a sprinkler system or relevant systems for detection purposes. This would have been able to detect the fire outbreak and contain it before the fire fighters arrive. 20 minutes after fire fighters received the alarm and arrived at the site the fire had already detonated and was out of control. Something that would have been controlled if there was a sprinkler system (Synder, 2013). 3.0 RISK MEASUREMENT This step entails the process of gathering and analysis of data and information collected concerning the risks identified. The data or information gathered is further grouped according to its nature of occurrence and how a firm can control it. Additionally, the probable cause of accident is measured and an implementation strategy is put under way. The measurements technique is categorized into two: 1 Frequency of loss; this determines the rate at which the occurrence can occur in a given time span. 2 Severity of loss; this provides an estimate of the amount of damage that may occur within a given period of time. According to a study by Harrington & Niehaus (2003) including previous data and information for risk measurement is an effective way to measure risk through the estimated frequency and severity of the losses. The risk measurement at the West Fertilizer plant, failed in managing the risks at the firm despite the detected causes that were evident, the management still failed to recognise the high possibility that such a disaster would occur. It is clear from the explosion that the existence of explosive materials within the fertilizer plant, endangered its workers, the surrounding community and other business entities within its locality (Synder, 2013). The blast during this disaster killed at least 15 people, and injured 300 others on the spot. According to a publication by the Dallas Morning News, (2013) the surrounding community was completely destroyed, whereby a nursing home, schools, apartment complex and private homes caught fire due to the explosion. Source: Delkus, WFAA-TV (2013) Figure 1: above shows the impact that the explosion at West Fertilizer Plant had through measurements provided in terms of probability and severity. 4.0 RISK ANALYSIS This step provides organizations with an opportunity to strategically come up with an effective way to counter the risks anticipated. Crockford (1991) argues that there are four methods to minimizing risk. Table 1: Risk Management Cycle The table above explains a guideline which managers in an organization can follow in minimizing or avoiding risks. In the case of the explosion of West Fertilizer Plant, it was possible for the firm to control the disaster. According to Crockford (1991) an organization can control the risks associated with their activities depending on their nature or frequency of occurrence. Therefore the management at West Fertilizer plant could involve strategies to minimize the risk of explosion occurring by separating the explosive resources and including sprinklers which could assist in containing the fire and prevent it from being intense. Moreover, a fire resistant barrier should have been placed between the Ammonium Nitrate and the highly flammable seeds and other resources within the firm that were considered to be highly flammable. As a result the firm would avoid prevent the confinement of Ammonium Nitrate gases and further facilitate proper air circulation. This would further prevent the fire from detonating. 5.0 RISK DECISION The risk decision step is a considerate step that organizations are required to take after coming up with a risk management plan and analyzing it. For the case of West Fertilizer Plant disaster, the risk decision step could employ three procedures, namely; Pre-disaster risk decision, during the disaster decision making and post-disaster risk decision. The disaster at West Fertilizer affected a whole community, thus it transferred its organizational risk to other groups. As a result implementing a risk management plan that included all these three steps as stated above, would ensure less individuals suffered from to the explosion. From the explosion one is able to realize that the plant management did not anticipate such a disaster and therefore failed to implement an effective risk management strategy. Evidently, the risk management decisions made by the company failed to recognize the existence of the immediate community around it, which comprised of at least 2800 individuals whose lives were at risk. The plant’s location near homes, created a close proximity to residents that increasing the risk of destruction on homes and loss of lives. This could have been prevented considering the fact that these homes were built later after the plant. The decision made by the plant management were inconsistence and inaccurate as they failed to consider the characteristics of the materials used to build the structure and warehouse. For instance the fact that the plant had over 270 tons of ammonium nitrate and lacked any fire barriers contributed to the magnitude of risks associated with it. The existence of unprotected PVC plastic pipe that were located at close proximity with the Ammonium Nitrate bin which detonated further intensifying the fire. Records from previous risk management data of the factory, showed that West fertilizer only anticipated a fire risk from the pure solid ammonium nitrate and not from anhydrous ammonia. Additionally, the plant also failed to share their risk management plan to the local and emergency respondents. Image two below shows the surrounding community at West Fertilizer Plant and the proximity. Source: Delkus, WFAA-TV (2013) The U.S CSB have put emphasis on fertilizer plants to adopt the use of fire resistant concrete to build their structures. The West Fertilizer Plant has further implemented this strategy as part of their risk management plant by building ammonium nitrate storage facilities with fire- resistant concrete material. Nonetheless the introduction of other supplements of ammonium nitrate have been introduced by the firm, which are assumed to reduce the risk of fire explosions. A good example is the idea of combining ammonium nitrate with calcium carbonate through compounding the two minerals. As a result this will reduce the risks of explosion during storage, transportation or while handling. Figure below shows the aftermath of the West Fertilizer Explosion Source: Delkus, WFAA-TV (2013) 6.0 RISK IMPLEMENTATION Risk implementation step requires an organization to put into action the risk management strategies and decisions that it has concluded on. During the implementation process, organizations, are called upon to review the risk management plan and strengthen the decisions and strategies suggested. Additionally, organizations are required to prioritize on the process of implementation as this step is crucial for reducing the outcome of an accident or outcome. For the West Fertilizer Plant disaster, several implementation strategies should be adhered to as follows: The U.S government should revise the safety provisions that industries use in their risk management plans. Most of the provision safety codes that are applicable for ammonium nitrate are quite old. Therefore West Fertilizer Plant needs to review its safety codes and ensure that they are up to date and meet the risk outcomes and needs identified in their organization. Equipping the surrounding community and workers within the plant about safety measures in the event of an accident or such a disaster is mandatory. According to Smith & Riley (2012) it is important for any person that is likely to be impacted by a risk either directly or indirect, they should receive prior knowledge on how to overcome or take safety measures during the event. This can be achieved through a continuous training process and educating program to create awareness. The fertilizer industry should ensure that it adheres to the security and safety measures laid down by the government. For instance workers within the plant should always be in protective gears while working or within the premises, protective material should be installed around highly combustible materials to prevent intense fire outbreaks as well as a fire detector and sprinklers should be included in the premises to help regulate any form of fire outbreaks. 7.0 RISK MONITORING This step in risk management requires an organization to steadily keep track of the implementation activities within the organization. Thus it monitors the effectiveness of the implemented strategies as laid out in the plan. It is evident that in the West Fertilizer Plant, the organization failed to conduct an effective monitoring procedure to counter the outcomes or control the risk in the event of an accident. Therefore the company’s inconsistency in monitoring procedure of its risk management plan directly contributed to the uncontained nature of the disaster. According to the data gathered through observations and preliminary findings, the necessary safety techniques and standards were not strictly adhered to as the company conducted its activities. Monitoring enables an organization to gather relevant information that will assist a company in improving its safety measures and risk management strategies (Adamson and Bracken, 2014). Nonetheless, this will ensure that every stakeholder of the company adheres to the safety regulations and strictly observe them. Comprehensive reports are compiled during the monitoring process to provide the management team with enough information so as to implement accurate and consistence safety measure to combat current and future risks (Koch et al. 2014). 8.0 RISKY POLICY As the final step of the risk management procedure, the risk Policy step requires organizations to effectively utilize the information gathered during the entire procedure as a way to avoid as much risk as it can possibly. According to Koch et al. (2014) i. The policies implemented at West Fertilizer Plant proved to be wrong and ineffective. This is because even though the company had active safety policies, when the fire broke it could not be controlled or contained. For instance it is evident that the company did not conduct regular monitoring procedures on their safety measures since there were several loose ends such as the flammable wooden warehouse. ii. The fact that there were combustible resources within the premises that were not protected shows a lack of consistence in their monitoring procedure. However, after the disaster West Fertilizer and other similar industries were advised to put in place experts to conduct regular security and safety survey within the company and its surroundings. iii. An effective regulatory system should be implemented for the company to avoid future possible disasters. From the analysis of the West Fertilizer accident, it is evident that the plant did not implement effective regulatory services, the company needs to employ an external auditor to act as a safety and regulatory personnel. 9.0 RISK MANAGEMENT STRATEGY These are to comprehensive plans implemented by an organization to identify current and future risks that face a company and further implement ways to counteract these risks. The aftermath of the West Fertilizer disaster, led to the review of risk management strategies that had been put in place by the company, government and other companies operating within the same industries (Holland et al. 2014). In this case the organization gathered information about the event and used this to implement strategies that would minimize risk in the future. Some of the strategies that could be implemented so as to avoid the failure in regulations and oversight of the plant, include: 1. An annual review of the plant’s safety and occupation reports. According to a report by Meyer (2013) the west fertilizer plant had not been inspected by the Occupational Safety and Health Administration since 1985. This kind of negligence contributed to the disaster as the industry did not have to date precautionary data to prevent any form of risks. 2. A regular safety inspection and administration regulations need to be implemented. According to Meyer (2013) the firm failed to report to the Department of Homeland Security of the existence of large quantities of explosive fertilizers which required maximum regulations. 3. Koch et al (2014) argue that the use of modern technology in the safety and occupation standards could be an effective measure to counter future disasters. An example of a 3D over pressure figure model as shown below can be implemented by chemical and fertilizer plants. Source: The BREEZE ExDAM model The first image of the 3D model shows a structure with shielding effects thus can reduce damages and accidents, while the second image shows a model with no shielding effects and could expose the company to further risks. 10.0 CONCLUSION The risk management cycle acts as a guide to organizations when they are implementing a risk management strategy. This cycle assists the management of a company in identifying the kinds of risks facing their organization currently and in the future. Additionally, the risk management cycle is an effective way for organization to come up with effective safety measures that will effectively assist it in responding to accidents and containing disasters. As it is evident from the discussion in this essay, employing effective strategies to combat risks it important to avoid catastrophic events from taking place. The essay has effectively applied the risk management cycle and strategy to the West Fertilizer Plant case study. The seven steps of risk management cycle have been used to discuss how the West Fertilizer Plant management failed and contributed to the intense nature of the disaster that took place. Nonetheless, from previous preliminary findings, the company has further improved its risk management strategies by employing corrective decisions in rebuilding its structure and the surrounding community. Additionally, the U.S government have reviewed the code of safety measures applicable to similar industries and implemented new procedures and policies to stop further disasters from happening in the near future. 11.0 REFERENCES Adamson, A. & Bracken, S. (2014). The Last Alarm: First Responders’ Stories of the West Explosion. CBM Publishing. Crockford, N. (1991). Risk Management, London: Witherby & Co Ltd. Delkus, P (WFAA-TV). (2013). Fertilizer Plant Explosion Levels Part of the Town West, Texas. Retrieved from: kfyo.com/fertilizer-plant-explosion-levels-the-town-of-west-texas/ (Accessed on 10th Nov 2015) Harrington, S.E., Niehaus, G.R. & Harrington, N. (1999). Risk management and insurance, Holland, B., Koch, S., Jing, Q., Gardner, T. & Dai, W. (2014). Explosion Consequence Modeling: Balancing Model Sophistication with Finite Resources. College Station, TX: Mary Kay O'Connor Process Safety Center International Symposium. Hopkin, P. (2012). Fundamentals of risk management: understanding, evaluating and implementing effective risk management, New York: Kogan Page Publishers. Koch, S., Jing, Q., Holland, B. & Dai, W. (2014). Large-Scale Explosion Consequence Modeling: West, Texas Fertilizer Plant Case Study. College Station, TX : Mary Kay O'Connor Process Safety Center International Symposium. Luther, J. (2013). Texas Fertilizer Plant Explosion: Why has America Lost Interest in the West, Texas Fertilizer Explosion? The Guardian. Retrieved From: www.theguardian.com/commentisfree/2013/may/15/texas-fertilizer-explosion-what-happened (Accessed on 18th Nov 2015) Merna, T. & Al-Thani, F. F. (2008). Corporate risk management, New York: John Wiley & Sons. Meyer, T. (2013). What Went Wrong in West, Texas and where were the Regulators? ProPublica. Retrieved From: www.propublica.org/article/what-went-wrong-in-west-texas-and-where-were-the-regulators (Accessed on 15th Nov 2015) Smith, L. & Riley, D. (2010). The Business of School Leadership: A Practical guide for managing the Business Dimensions of Schools. Sydney: Australian council for Educational. Henry, T. (2013). After West Fertilizer Explosion, Concerns over Safety, Regulation and Zoning. Energy and Environment Reporting for Texas. Retrieved from: https://stateimpact.npr.org/texas/2013/04/22/after-west-fertilizer-explosion-concerns- over-safety-regulation-and-zoning/ (Accessed on 20th Nov 2015) Synder, R. (2013). Fertilizer Plant Explosion Levels Part of the Town West, Texas. Retrieved from: kfyo.com/fertilizer-plant-explosion-levels-the-town-of-west-texas/ (Accessed on 13th Nov 2015) U.K. Health and Safety Executive (1996). Storing and Handling Ammonium Nitrate. Caerphilly: HSE. Available at: http://www.hse.gov.uk/pubns/indg230.pdf (Accessed on 18th Nov 2015) Read More