# Presentation: 410969

## Operational Risk Management

- Developed as part of the National Emergency Services Curriculum Project

## OVERVIEW

**OVERVIEW**

**Why ORM?**
**What is ORM - The Essentials**
**The Integration Imperative**
**USAF ORM Maturation**
**ORM Leadership Opportunity**
**ORM Applied**

## Why ORM?To Ensure Necessary Risks are Taken

**Why ORM?**To Ensure Necessary Risks are Taken

- ORM:
- Is an important tool for training realism
- Provides potential to expand capabilities
- Assures necessary risk taking to enhance superiority

## What is Operational Risk Management?

**What is Operational Risk Management?**

- Natural evolution from traditional risk management

- Systematic decision-making tool that balances risk cost & benefits

## OBJECTIVE AND GOALS

**OBJECTIVE AND GOALS**

- IDENTIFY, CONTROL, AND DOCUMENT HAZARDS

- IDENTIFY, CONTROL, AND DOCUMENT OPPORTUNITIES

- EVALUATE AND MINIMIZE RISKS

- EVALUATE AND MAXIMIZE GAIN

- PREVENT OR MITIGATE LOSSES

- ADVANCE OR OPTIMIZE GAIN

- CONSERVE PERSONNEL & RESOURCES

- MAXIMUM
- CAPABILITY

**Notes:**
KEY POINTS:
* Understanding the pyramid:
   - Left side is risk reduction.
   - Right side is opportunity-risk.
* ORM will significantly alter the traditional distribution of effort.  More impact on the right side, more emphasis on prevent (performance) rather than simply compliance.

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## 4 KEY ORM PRINCIPLES

- 1.  Accept no unnecessary risks.

- 2.  Make risk decisions at the appropriate  level.
- 3.  Accept risks when benefits outweigh  costs.
- 4.  Integrate ORM into doctrine and  planning at all levels.

**Notes:**
KEY POINTS:
* By understanding these key ideas, you understand the basis of ORM.

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## BUT.... NOBODY TAKES “UNNECESSARY” RISKS?

***If all the hazards that could have been detected have not been detected then unnecessary risks are being accepted.***

*The single greatest advantage of ORM over traditional risk management is the **consistent detection of 50%+ more hazards.*

**1.  Accept No Unnecessary Risks**

## 2.  Make Risk Decisions at the Appropriate  Level

*2.  Make Risk Decisions at the Appropriate  Level*

- Factors below become basis of a decision- making system to guide leaders
- Who will answer in the event of a mishap?
- Who is the senior person at the scene?
- Who possesses best insight into the full benefits and costs of a risk?
- Who has the resources to mitigate the risk?
- What level makes the most operational sense?
- What level makes these types of decisions in other  activities?
- Who will have to make this decision in combat operations?

**Notes:**
KEY POINTS:
* In our discussion of step four - Make Control Decisions, we will outline the procedures for building effective risk control decisions systems in your organization.  These systems resolve these various factors into a consistent routine process.

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## WHAT HAPPENS WHEN AN ORGANIZATION STOPS TAKING RISKS?

*WEBSTER:  “BUREAUCRACY:  A system of administration*
*characterized by lack of initiative and flexibility, by indifference*
*to human needs or public opinion, and by a tendency to defer*
*decisions to superiors or to impede action with red tape.”*

**MAINTAINING A BOLD, RISK-TAKING **
**ORGANIZATION IS ALWAYS A CHALLENGE **
**WHEN YOUR UNIT IS NOT ON A MISSION.  **
**ORM HELPS.**

**3.  Accept Risks When Benefits Outweigh Costs.**

**Notes:**
KEY POINTS:
* In the late 1960’s, the USAF failed to take the risks associated with realistic air-to-air combat.  As a result, the kill ratio with the NV Air Force reached nearly 1 to 1.  The risks were taken when Red Flag was developed.
   - Result:  The kill ratio quickly increased to a favorable 10 to 1 or more.  ORM can assure that we never make a similar mistake.

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## 4.  Integrate ORM Into Doctrine and Planning At All Levels.

- Operational
- Process

- Operational
- Process

- Operational
- Process

- Loss Control
- Staff Injects

- Operational
- Leaders Add-On

- This is the one we
- want!!

*4.  Integrate ORM Into Doctrine and Planning At All Levels.*

## WHAT IS AN “OPERATIONAL PROCESS”?

*WHAT IS AN **“OPERATIONAL PROCESS”?*

## ORM IS BASED ON SYSTEMS MANAGEMENT CONCEPTS

**Notes:**
KEY POINTS:
* ORM is a systems based concept.  This means that ORM users understand that operational mistakes and errors have their origin in the design of the system (man, machine, media, management) and that mission success depends on overall system effectiveness.
* We will refer to this model at several points in the six step process.  It is a key concept of ORM.

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## THE ORM 6-STEP PROCESS

**Notes:**
KEY POINTS:
* This model illustrates the overall process.

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## Step 1 - Identify the Hazard

- Process: Emphasize hazard ID tools. Adds _rigor_ and early detection.

- Output: Significant (50%+) improvement in the detection of hazards.

## 7 Primary Hazard ID Tools

- Operations Analysis/Flow Diagram
- Preliminary Hazard Analysis
- What If
- Scenario
- Logic Diagrams
- Change Analysis
- Cause and Effect

**BROAD RANGE OF APPLICATION AT ANY LEVEL**

## Specialized and Advanced Hazard ID Tools

- _Specialized tools_ accomplish specific ORM objectives.
- 	Map analysis, interface analysis, mission protection tools, training realism, opportunity assessment

- _Advanced tools_ are used by specialists and professionals to add depth to ORM applications

## EXAMPLE:

*THE DRIVE TO WORK *

- What if the car catches fire.

_*WHAT IF ANALYSIS*_

- What if a carjack is attempted.
- What if I have to take an unknown detour.
- What if I run out of gas.
- What if another car rear ends me.

## Step 2 - Assess the Risk

- Process: All hazards evaluated for total impact on mission or activity. Root causes determined and risk levels assigned (EH, H, M, L)

- Output: Personnel throughout the organization know the priority risk issues of the command and of their function.

## THE ASSESSMENT TOOLS ADD OBJECTIVITY TO THE EVALUATION OF RISK

- _Risk assessment matrix:_  Requires specific evaluations of severity, probability, and when necessary, exposure

- _Totem pole:_  Induces the prioritization of risk issues across functions and across the organization

## THE RISK ASSESSMENT MATRIX 

**THE RISK ASSESSMENT MATRIX **
**KEY TOOL FOR RISK ASSESSMENT**

## EXAMPLE:

*THE DRIVE TO WORK*

- What if the car catches fire.
- What if a carjack is attempted.
- What if I have to take an unknown detour.
- What if I run out of gas.
- What if another car rear ends me.

**MED**

**HIGH**

**LOW**

**MED**

**MED**

## Step 3 - Analyze Risk Control Measures

- Process: Comprehensive risk control options are developed for risks based on a worst-first basis.

- Output: A full range of cost effective, mission supportive, risk controls for the consideration of the decision maker.

## The Risk Control Option Tools Add Scope & Depth

- _Basic or “macro” risk control options:_ Reject, Avoid, Delay, Transfer, Spread, Accept, Compensate, Reduce

- _Risk control options matrix:_ 46 specific “reduce-focused” control options - applicable at up to four levels in the organization

## EXAMPLE:

*THE DRIVE TO WORK*

_***What if the car catches fire***_
- Macro options:
- Transfer - Insurance
- Reduce (use Control Options Matrix) -
- Engineer gas tank
- Drive defensively
- Focused maintenance
- Emergency response plan & equipment

**MEDIUM**

## Step 4 - Make Control Decisions

- Process: A decision-making system gets risk decisions to the right person, at the right time, with the right support.

- Output: Personnel know their decision-making authority and limitations and take necessary risks.

## ORM Uses Proven Decision-making Tools

- _Decision-making systems_ get the decision to the right person, at the right time, with the right support

- _Basic cost benefit and return on investment analysis_ assure maximum benefit for the risk control $
- _Decision-making matrices_ and other modern decision-making tools improve decision quality
- The _leader question list_ induces better staff inputs

## ESTABLISHING A DECISION MAKING GUIDELINE

**    ****EXAMPLE**
- 	_RISK LEVEL__	__	__	__DECISION LEVEL_
- 	Extremely High			Wing Commander or specifically 					authorized designee
- 	High				Group Commander or 						specifically authorized designee
- 	Medium				Flight leader, or senior leader on 					the scene
- 	Low					Any  person in a leadership 						position

## EXAMPLE:

*THE DRIVE TO WORK *

_***What if the car catches fire***_
**Who decides:  **Vehicle owner(s)
**Control:  **Emergency response plan & equipment
**Decision: **

**MEDIUM**

- _Cost of loss_

- _Cost of control_

- $500 - Deductible
- Rate increase?
- Car down-time
- Repair/Replacement hassle

- $15 Fire extinguisher

## Step 5 - Risk Control Implementation

- Process: Leaders lead, operators are involved, all are accountable.

- Output: ORM initiatives always have positive mission impact.

## ORM Implementation Tools & Guidelines Help Controls Click with Operators 

- The _involvement_ _continuum_ guides the high degree of operator input to ORM actions

- The _leader involvement actions list_ and the _leader opportunity job aid_ help assure effective leader influence
- The _motivation_ _model_ makes application of modern behavior management techniques easier

## EXAMPLE:

*THE DRIVE TO WORK *

_***What if the car catches fire***_
- Transfer - Insurance 	OPR: Dad
- Reduce -
- Engineer gas tank		OPR: Ford
- Drive defensively		OPR: Driver
- Focused maintenance	OPR: Dad
- Emergency response plan & equipment	OPR: Team Mom & Dad

**MEDIUM**

## Step 6 - Supervise and Review

- Process: Progress measured through increased mission effectiveness, mishap results and _direct indicators_ of risk.

- Output: ORM performance status determined real time.

## Review and Feedback Procedures Measure & Leverage ORM Results

-  Eliminate invalid statistical uses of mishap             rates and numbers

- Refocus measurement on direct measures of risk (critical behaviors, knowledge, conditions, etc.)
- Radically improve the effectiveness of feedback systems through modern data and communications systems

## USING THE 6-STEP PROCESS THE RISK MANAGEMENT CONTINUUM

*USING THE 6-STEP PROCESS *THE RISK MANAGEMENT CONTINUUM

**Notes:**
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## USING THE 6-STEP PROCESS LEVELS OF EFFORT

- USING THE 6-STEP PROCESS LEVELS OF EFFORT

- Little
- Time
- Resources
- Risk

- Lot of
- Time
- Resources
- Risk

- TIME CRITICAL                 DELIBERATE                  STRATEGIC

- SELECTED
- PRIMARY

- PRIMARY

- SPECIALIZED     ADVANCED

**Notes:**
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## Why integration is critical?
12 Strategies for ORM integration.
The importance of pace.

- Why integration is critical?
- 12 Strategies for ORM integration.
- The importance of pace.

- Integrating the ORM Process

***Overview***

**Notes:**
We’ll cover system safety.  Notice the similarities to ORM.  It is in fact the predecessor of ORM - many of the gurus of ORM got their start in system safety. AFMC has identified it’s system safety guys as the point men for ORM
Why we need it - mishaps, cost vs. benefit, If we keep doing what we’ve been doing we’ll keep getting what we’ve got.  There will be some burps in the statistics but overall things won’t change much.
A little how it works - again similar in many ways to ORM
Where are we going?  What are the obstacles in our path?
Summary
Very briefly - how do you use it?

## WHY INTEGRATION IS CRITICAL?

- _Integration: _
- Forces balancing of loss control and other mission needs

- Captures more of the knowledge and experience of large numbers of operators
- Reduces the number and diversity of references needed to do the job right
- Eliminates redundancy and gaps between loss control functions
- Strengthens accountability
- Reduces costs and workloads (in plans, materiel development cycles, etc.)

**Notes:**
KEY POINTS:
* It is these characteristics that are key to the potential of ORM to reduce risk levels up to 90% below current levels.

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## THE TWELVE STRATEGIES FOR PROGRAM INTEGRATION

- THE TWELVE STRATEGIES FOR PROGRAM INTEGRATION

- Accountability
- Teaming
- Partnership
- Integrate in Training
- Risk Decision Points
- Organization & Policy Structure

- Employee Activities
- Process Integration
- Direct Change
- Gain a Champion
- Integrate in Strategic Planning
- Integrate into Measurement

**Notes:**
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## THE IMPORTANCE OF PACE

- Don’t use the shotgun
- Don’t get out in front of the organization - too far
- Don’t “inspect-in” ORM

- Do focus on “targets”
- Do expect crawl, walk, run
- Patience, patience, patience

## USAF ORM MATURATION

**USAF ORM MATURATION**

**Vision**
**USAF Approach**
**Background**
**Strategy**

**Notes:**
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## VISION

- _Macro:_  Every Leader, Member, & Employee Manages Risk in All They Do... *On- & Off-Duty*

- _Micro:_
- 	_*On-Duty*_   	- Every Organization Manages Normal   Operational Risk Profile
- 			- Unique Operations Identified & Assessed
- 	_*Off-Duty*_  	- Every Individual Applies Risk 			  Management Process to Activities

## CAP APPROACH

- Top-Down Approach

- Strong Senior Leader Backing
- Decentralized Implementation
- Moderate Implementation Tempo
- Safety Lead Role for Cross-Functional Implementation

**Notes:**
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## ORM STRATEGYMiscellaneous Initiatives

- Automated “Tools”
- Doctrine Integration
- Crosstell
- NEWS Release(s)
- Video(s)

## The leader’s role will be a decisive factor in the success or failure of ORM

## ORM Leadership Opportunities

- _1. Commit to Breakthrough Improvement_
- 	Objectives: Put improvement of risk performance (control-opportunity) 	on a competitive level with other important mission concerns.

- _2. Set Goals & Objectives_
- 	Objectives: Establish periodic ORM performance and programmatic goals.

## ORM Leadership Opportunities Continued

- _3. Set a Personal Example_
- 	Objectives: To assure credibility of the ORM process through personal behavior.

- _4. Build an Aggressive Opportunity Mindset in the Organization_
- 	Objectives: Create an organization as conscious of the opportunity aspects of ORM as it is the risk reduction

## ORM Leadership Opportunities Continued

- _5. Induce Loss Control Community Functional Integration_
- 	Objectives: Build increasing cooperation and integration of the loss control community

- _6. Establish an ORM Management Structure_
- 	Objectives:  Provide the necessary leadership and staff resources to adequately guide the ORM process

## ORM Leadership Opportunities Continued

- _7. Resource ORM Activities_
- 	Objectives: Allocate resources to ORM (control-opportunity) at a level it can competitively justify

- _8. Heat Shield Subordinates_
- 	Objectives: Protect subordinates who have taken prudent, mission supportive risks, but experienced severe losses, from negative consequences.

## ORM Leadership Opportunities Continued

- _9. Detect & Correct Gambling_
- 	Objectives: Develop an organization in which risk “gambling” is deterred even when the gambler “wins”.

- _10. Use the Power of Question_
- 	Objectives: Use pointed ORM questions to induce ORM activity and culture change.

## ORM Leadership Opportunities Continued

- _11. Regularly Monitor ORM Progress_
- 	Objectives: Periodically assess a set of data that effectively monitors organization ORM status

- _12. Exploit the ORM Value of Major Mishap Reviews_
- 	Objectives: Consistently induce consideration of the ORM implications of mishaps

## QUESTIONS?

**QUESTIONS?**

**THINK SAFETY**