The ultimate guide to Operational Risk Management within the Oil and Gas industry

Mitigating your company’s risk using operational risk management.

In today's complex business landscape, the oil and gas industry face many operational risks that can significantly impact operations, profitability, and reputation. Effective operational risk management (ORM) has become critical for organizations in this sector to navigate through risks and achieve long-term success.

However, only some understand the effectiveness of ORM and how it can be applied across the organization to mitigate risks throughout the enterprise, ultimately bringing substantial value to the company. By leveraging ORM, companies in the oil and gas industry can drive operational excellence and enhance their overall resilience in a highly volatile market.

What is operational risk management?

Operational risk management (ORM) manages the risks inherent in an organization's operations and processes. It involves identifying potential risks, assessing their likelihood and impact, implementing controls to mitigate those risks, and continuously monitoring and reporting on the effectiveness of those controls.

An effective operational risk management (ORM) program proactively identifies and addresses risks before they negatively impact operations, service delivery, finances, or strategic objectives. This proactive approach helps maintain smooth operations and achieve long-term strategic goals.

ORM plays a crucial role in mitigating potential threats, minimizing financial losses, and protecting profitability. ORM provides a comprehensive view of risks impacting operations, finances, and strategic goals. It has a holistic view that helps decision-makers develop predictive models and choose plans that align with the organization’s risk appetite and strategic objectives. Implementing ORM demonstrates to stakeholders, including regulators and auditors, that risk management and compliance are priorities, building trust and helping avoid regulatory violations. 

 

How does operational risk management (ORM) help the oil and gas industry mitigate risk?

The oil and gas industry has stringent regulations, complex supply chains, and rapid technological advancements. Operational Risk Management (ORM) is vital to maintaining business continuity, resilience, and long-term success. While ORM contains many facets, four main areas are particularly challenging:

  1. Compliance
  2. Globalization and supply chains
  3. Technology advancement and cyber threats
  4. Well-being of personnel

By addressing these risks proactively, oil and gas companies can avoid financial and reputational damage and enhance their resilience and long-term success in a challenging and dynamic industry.

 

risk management chart

 

Meet compliance requirements

The oil and gas industry are heavily regulated, with strict guidelines for environmental protection, worker safety, and operational practices. Failure to implement adequate risk management processes can result in non-compliance, leading to hefty fines, legal penalties, or even the revocation of operational licenses.

Effective ORM ensures organizations adhere to relevant regulations and mitigate risks associated with non-compliance. With a sound risk management practice, organizations commit to stakeholders and avoid costly penalties.

Predict risk in globalization and complex supply chains

Global oil and gas companies operate across multiple jurisdictions and rely on intricate supply chains. This complexity increases the potential for operational risks, such as supply chain disruptions, cultural misunderstandings, or geopolitical events.

When organizations fail to utilize ORM, they are vulnerable to disruptions in operations. Problems could include product or service delivery delays, costly downtime, and lost productivity. ORM plays a crucial role in actively mitigating disruptions to business, ensuring business continuity and resilience in the face of global challenges.

Stay ahead of technological advancements and cyber threats

The rapid technological advancements and the dependence on digital systems in the oil and gas sector have introduced significant risks, particularly in the form of cyber threats. Data breaches, system failures, and cyber-attacks can have severe consequences, including financial losses, reputational damage, and operational disruptions.

Effective ORM helps organizations implement robust cybersecurity measures. Quality software identifies and addresses vulnerabilities in an organization's technology infrastructure and develops incident response plans. This proactive management mitigates the impact of cyber threats and avoids damage to public perception and stakeholder trust. Implementing comprehensive cybersecurity measures and ensuring regular employee training and awareness can significantly reduce the risk of cyber-attacks and the associated reputational fallout.

Safeguarding the well-being of personnel

In the sometime hazardous oil and gas industry, ensuring employee safety is paramount. Industry-wide, there are stringent safety regulations. Companies must implement comprehensive health, safety, and environmental (HSE) risk management strategies to meet them effectively. Focusing on human-centred design and safety culture reduces the likelihood of accidents and improves overall safety performance. 

A robust HSE program fosters a risk-aware culture where employees feel empowered to report potential risks, enabling rapid crisis response and reducing incidents. Integrating advanced risk tools, like Synergi Life and fostering a strong safety culture enhances personnel well-being, reduces accidents, improves morale and productivity, contributing to organizational success. 

 

Integrated risk management: combining operational risk management with other risk disciplines

For an organization to achieve a truly comprehensive and effective risk management program, it’s crucial to integrate ORM with other risk management disciplines. This integration helps align risk management with overall business objectives, reduce redundancies, and improve decision-making processes. Any integration between risk management systems requires a robust governance structure, clearly defined roles and responsibilities, and strong communication channels.

A robust digital solution is one of the best ways to integrate two systems. A good operational risk management software like Synergi Life integrates enterprise and operational risk management in one platform. It provides a single solution for your organization to manage operational and business risks and a tool to visualize the barriers and their status to improve risk prevention.

Centralized data management and reporting provide a unified platform for collecting, analysing, and sharing risk-related data, improving transparency and accessibility. These tools promote a shared understanding of risks and improve stakeholder collaboration and communication, leading to more effective risk mitigation strategies.

Advanced risk management software like Synergi Life uses continuous monitoring and delivers real-time insights. Organizations can detect emerging risks promptly, identify potential issues, enable timely interventions, and maintain operational resilience.

Health, safety, and environmental (HSE) risk management combined with operational risk management

Robust quality, health, safety, and environmental risk (QHSE) programs foster a risk-aware culture where employees proactively report potential risks, allowing for rapid response during crises. This approach creates a safer work environment with higher employee engagement.

Keeping the oil and gas work environment safe involves continuously monitoring and improving working conditions to prevent incidents and promote worker well-being​. With an integrated risk management software combining ORM and QHSE, all aspects of safety and risk are considered. For example, it offers a comprehensive approach to identifying potential hazards and implementing preventative measures. It also tracks compliance with international standards like ISO 45001, which systematically provides a framework for managing health and safety responsibilities.

Enhance safety measures in the oil and gas industry with barrier management

Barrier management is an integral part of risk management for the oil and gas industry. It focuses on the safety barriers designed to prevent or mitigate hazardous events. These barriers can be physical, technical, organizational, and human. Effective barrier management involves identifying, implementing, and maintaining barriers designed to mitigate risks and prevent accidents.

Digital tools play a significant role in modern barrier management. The tools help manage safety barriers with real-time data so operators can improve the predictability and reliability of safety measures and reduce the risk of significant accidents. Real-time management allows for immediate corrective actions, enhancing the reliability of safety systems.

 

Conclusion

Operational risk management (ORM) is essential for the oil and gas industry's success. By proactively identifying and mitigating risks, companies can avoid costly disruptions, maintain regulatory compliance, and protect their reputations. ORM supports strategic decision-making by providing a comprehensive view of potential threats and their impacts, helping align risk management with business objectives to drive long-term profitability and sustainability.

A vital tool in achieving effective ORM is robust software like DNV's Synergi Life. Synergi Life creates a central pool of data accessible organization-wide, breaking down silos across all risk categories. Its real-time monitoring capabilities enable early detection of emerging risks, allowing timely interventions and maintaining operational resilience. This holistic approach improves risk prevention, efficiency, and safety. Synergi Life also supports the rollout of new processes and workflows, equipping organizations with the data needed to identify trends and evolve their risk management approach.

Ultimately, integrating ORM with advanced digital tools like Synergi Life underscores the substantial value of comprehensive risk management in the oil and gas industry. Leveraging digital solutions helps companies navigate stringent regulations, complex supply chains, and technological advancements. ORM safeguards financial performance, compliance, and reputation, giving companies a competitive edge in a volatile market.

 

 

How can Synergi Life support your organisation?

Synergi Life, DNV’s HSE and Quality, Risk Management and ESG software, empowers organisations to proactively identify and mitigate risks, comply with regulations, and improve their operations.