Concern rises over the impact of terrorist activity

25 September 2001 17:22  [Source: ICIS news]

Chemical Insight continues to publish commentary from analysts, consultants and other industry commentators. This contribution is from George Pilko, president of Pilko & Associates, a management consulting firm based in Houston specialising in environmental, health and safety issues (EHS) for multinational companies. Here he comments on the much changed attitude towards EHS he is encountering among senior management in the US chemical industry following the terrorist attacks earlier this month.

The terrorist attacks on the US of 11 September are re-defining the way in which chemical companies view EHS related risks. The challenge is management of the much more widely appreciated and perceived safety and environmental risks of terrorist activity in addition to broadly defined EHS risks traditionally faced by the industry. Company employees, communities living around chemical plants and those close to chemical transport routes are all at risk.

As an example, the television news channel CNN reported last week that a suspected terrorist now in custody recently received a State of Michigan licence to drive trucks containing hazardous materials. Equally disturbing, the ‘disaster scenarios’ required for major US chemical operations under the Environmental Protection Agency (EPA) risk management plan (RMP) programme are available to anyone with an internet connection regardless of their location and political motivation. Clearly, the rules have changed.

Chemical companies have historically wrestled with how to effectively manage EHS risks associated with the manufacture, distribution and sale of their products. Yet all too often, considerable resources are aimed at issues with relatively low risks leaving those which represent higher risks inadequately addressed.

Risks clearly have been magnified by the terrorist attacks on New York and Washington. The attacks were designed to have a high profile; they were aimed at innocent civilians and sought to maximise the impact on the US economy. Unfortunately, attacks on the US chemical and energy industry would also fit this new terrorist mindset.

These expanded risks lend themselves to a classic four step risk management process. First, identify the EHS related risks with the probability and potential severity to dramatically affect the company. Second, prioritise the risks balancing their probability and potential severity. Third, determine alternatives to mitigate the risks. Fourth, determine what actions are appropriate given the risks and the costs to mitigate these risks. Such a process can be conducted for chemical operations on a worldwide basis or limited to the US.

The Pilko & Associates experience has been that some relatively high risks facing chemical companies can be mitigated at low (or negative) cost- the proverbial 'low hanging fruit'. In some cases, companies have reduced risks in their business as they have cut the total cost of operations. In other cases, the cost of mitigating the risks has had to be balanced by the reduction of the risks. These decisions are often made at the executive committee level.

The four step process can most efficiently be accomplished in a series of facilitated meetings with a cross section of company personnel who are knowledgeable about the manufacturing and distribution of major products. These team members should have different functional backgrounds and broad perspectives.

The quality of the results depends upon selecting team members with broad, complementary skills; educating each individual on basic risk management principles; and ensuring the team delivers clear and actionable recommendations to senior management. The role of the consultant is to facilitate the process using their background in EHS risk management, scenario planning and broad based risk management consulting. A measure of the increased concern among US producers is the fact that currently the process requires 60-90 days - the timing is largely dependent upon the availability of company personnel.

By: Nigel Davis
+44 20 8652 3214

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