Avoiding operational inefficiencies

Regulatory Compliance has a strong correlation to operational excellence
The convoluted world of ever-changing regulations plays a significant role in achieving operational excellence. Noncompliance with regulations and standards can be very costly to the company. The regulatory ecosystem is becoming increasingly complex as the government, industry bodies, and regulators are more active in changing the laws, regulations and industry requirements and more proactive in enforcing them. Since 2009, there have been approximately 131 major rules and regulations that have been added in North America and 40% of those major regulations have been imposed by EPA and OSHA.

Every organisation depends on business processes to ensure efficient operations. As regulators require accountability, organisations should protect themselves from risks and errors that may negatively impact the company’s brand and reputation or the business itself. Excellent operational performance includes streamlining and automating business processes and workflows; an integrated and risk-based approach to improve overall operational excellence.

Oil & gas trends and pitfalls
In an environment where the demise of major institutions, the impact of GHG, the impact on the environment such as mocondo, the impact on the lives of human beings, and the ever-changing business landscape has led to stricter regulations in major industries around the world. The phrase “Regulatory Change Management” has taken on greater meaning and urgency in the oil & gas industry. The ability to manage the rapid-fire changes can make or break an organisation, its officers, and the communities we live in.

Historically, oil & gas companies have always looked for innovative ways to drill, refine, transport, and explore new reserves; this hasn’t changed but in that pursuit, compliance was often pushed aside. These companies were side-tracked by innovation and trends and failed to take a long-term view on compliance processes. This must change.
Organisations with small workforces and fewer facilities spread across one or just a handful of geographical regions have a lower risk profile by definition since the organization is comparatively simple; therefore, achieving operational excellence is relatively easy and straight-forward. For example, if you are an offshore oil drilling company in the Gulf of Mexico with one to three platforms, your risks would be low and to achieve compliance and operational excellence, it would be relatively simple and straight forward.

If an organisation has a large work force and multiple facilities spread across multiple geographical regions, it has a much higher risk profile. With complexity comes risk, especially with regard to regulatory compliance. These organisations require sophisticated business processes and automation to achieve operational excellence, reduce risk, and achieve compliance. For example, if you are an offshore and onshore producer with 20 plus platform, 30 plus land drilling site across multiple states or provinces with thousands of employees, then you are a complex organisation with higher risk. Therefore, you would require sophisticated and automated business processes to achieve operational excellence and compliance

Automation or regulatory change management software not only gives you a solution, but also a methodology and an architecture that can help improve operational excellence:
Most of the time organisations don’t know if they are over complying or under complying. In both cases it is expensive, and that expense can be a hard or soft cost in terms of safety, product, brand, and reputation. Many have heard me discuss the impact and probability of the risks that the regulations represent depends on how well an organisation understands the three I’s – the intent of the law, how well you interpret the law, how you implement compliance to the law. I believe it is necessary to amend this with another “I”: how well regulatory change management is institutionalised within your organisation.

It is critical that companies implement regulatory change management systems to effectively manage and monitor the compliance process and to ensure that these systems and processes are institutionalized in a way that compliance becomes part of the “culture”. How does a company do this?

First the company must define its objectives and determine which standards, requirements and regulations it must comply with. This defines the “Why” and gives the company a clear understanding of which regulations are applicable to the organisation, their various business units and sites. The inability to clearly define which rules apply or don’t apply will result in under or over compliance, driving unnecessary costs.

Once the company understands the “Why” part, it can then define the “What” part. The “What” part is essentially defining their risks and controls which also help them set priorities based on their risk levels.

Once the company understands its risk and priorities, management can define the “How” part. Determining the “How” part is essentially defining their business processes and workflows and streamlining compliance routines, processes and procedures into a coherent system. This system
should allow them to pull reports so that they are able to understand regulatory change impact and make informed and timely decisions. These days when regulators do their audit they are not necessarily only interested in determining if you are in compliance, but also in knowing the compliance process around personnel, product, equipment, policies, procedures, materials, assets, sites, events, assets and operating conditions.

Parallel to the company defining regulatory compliance workflows and defining processes for operational excellence, it is critical to define the “Where” part which means defining the site where the compliance activity will occur and any assets involved. Compliance is local. It happens at the site or asset level and is actioned by owners. For example, in hazard analysis, contamination assessments are done, they are typically done at the site level and even on specific assets and they are performed by a task or compliance owner.

This takes us to the last critical step in building a good, safe work practice: defining the “Who” part. It involves defining ownership, clarifying roles, responsibilities and resource capabilities and escalation procedures, as well as the information and reporting systems that govern business processes. It also entails the use of tools and systems to enable analysis, efficient monitoring, and reporting.

The Regulatory Change Management Methodology depicted above is a sophisticated, scalable way to manage applicable regulations. With regulatory change management software, you can dynamically manage your regulatory changes with transparency. Regulations change. Automate your process, reduce man-days, increase accuracy, and ensure compliance with surveys, history reports, tracking, and training.

Automation reduces the time needed to address the problems and gets rid of overlapping costs from people and multiple tools. If you look at the historical data across multiple industries and multiple technology-based business process automation implementations, the data clearly indicates automation helps in scaling organisations and in most cases, it is very cost-effective. Recently, KPMG released research that showed most regulatory compliance is performed in silos. You have various functional departments managing compliance through multiple tools. I have personally seen as many as seven tools in use by one division. Imagine six or seven departments using different tools! I recently spoke to a VP of Risk Analytics at a large financial services firm. She said she had an individual who was solely responsible for managing a Sharepoint compliance workflow = just for her group. There were 5-6 other supporting groups that funneled the data to the Chief Risk Officer through similar workflows and that most of the data and reports were manually done in Excel. The overlapping costs really add up.

The end result of implementing automation is that it provides you an embedded “Regulatory Change Management or Operational Excellence Methodology” and this will impact your culture in a positive way by breaking down silos and mapping regulations to risks process, people and assets.

How to measure ROI around operational excellence
When regulatory compliance is automated through a single platform, it is not only cost effective, but also increases the performance of the company with more efficient and timely reaction, mitigating risks. Further, the ROI does not just come from overlapping hard costs. The cost of non-compliance can be a huge factor that should be weighed heavily in the ROI calculation.

The use of technology enables companies to focus time and valuable resources on business drivers, and while not all processes can be automated, technology can be considered as a catalyst for growth and performance.

Once predominantly seen as an expense, technology is now viewed by more business leaders as a worthwhile investment and a source of strategic advantage. Additionally, the advent of cloud-based technology offers more affordable alternatives for mid-market companies as they work to drive growth in their organisations. Further, it is not simply a technology tool; it is a way to rationalize risk management and controls, giving management the information they need to improve business performance and achieve compliance.

Ed Sattar is the CEO of 360factors For more than a decade, Ed has made significant professional contributions to the regulatory compliance space across multiple industries. His experiences include extensive research and consulting to regulatory compliance consulting firms, training providers as well as state and federal regulatory agencies. During his tenure in the regulatory compliance workflow automation and eTraining space, he has identified key criteria and compliance standards that are currently being published and implemented.

Ed Sattar has been nominated for the Ernst & Young Entrepreneur of the Year award three times and was among the top seven finalists in 2009. 360training.com, the parent company of 360factors, has appeared on the Deloitte Fast 50 as the 6th fastest growing company in Texas. It has also been listed in Inc 5000 several times as one of the fastest growing companies.

Ed studied Electrical Engineering and Finance at the University of Texas at Austin