A Checklist for Predicting Corporate Disasters — Is Your Firm the Next BP?

You might feel far removed from the current oil disaster taking place in the Gulf of Mexico because your firm is not involved in oil drilling or sophisticated mechanical operations. However, assuming that there are not important lessons to be learned from BP’s handling of the issue would be shortsighted. Any organization experiencing a “critical incident” needs to look beyond equipment failures and natural disturbances to determine if human factors or people-management practices were an underlying or contributing cause. Apart from establishing accountability, investigations play a more strategic role in helping identify indicators of impending disaster that could serve as a warning moving forward.

If people management practices play a role in creating situations whereby a disaster is more likely, then it stands to reason that people management metrics (long collected, rarely leveraged) could provide vital insight into disaster risk.

Put more simply, HR functions have a strategic responsibility to determine if measures of overtime, absenteeism, temporary labor use, training hours attended, engagement, etc., can be used to predict potential business problems.

Do People-Management Factors Cause Failures?

In recent years, numerous scandals and disasters have demonstrated the far-reaching impact of corporate policy, and more importantly corporate practice. While firms like Enron, Bear Stearns, and “systems” best practice icon Toyota had well-documented processes, policies, and procedures, they also all engaged in management practices that led people to make bad decisions that ultimately cost the organizations billions.

Given the spotlight on bad management, it is somewhat disturbing that so few HR leaders are acknowledging their role and stepping forward with solutions to help predict and prevent disasters. Yes, most HR leaders react quickly to assist when disasters occur, but rarely if ever do they step forward to suggest that management systems may have played a major role in causing the disaster, and accept responsibility. Even fewer HR leaders attempt to proactively predict upcoming disasters.

If you were the new general manager of an NBA franchise and were presented with a set of people-metrics that revealed that your average team member is 5’9”, 40% of starters are on injured reserve, team salaries are the lowest in the league, and that scoring attempts per game result in success less than 9% of the time, would you really be surprised that the team lost every game? Would it be news to you that unless significant “talent-management” changes were made, that you would continue to lose?

While the investigation into the BP disaster continues on, like other recent disasters, it’s already clear that human factors played a major contributing role. Employees surviving admit damaging the blowout preventer prior to the incident and indicate that management routinely dismissed warnings and documented procedures to hasten making the well productive. A one-time incident BP could blame on a bad hire, but BP’s safety track record is one of the worst in the industry, indicating that a culture (established through management practice) of tolerance for sidestepping is present.

“Failure Prediction Checklist”

With the list of corporate scandals and disasters growing, it is becoming clear that people-management plays a major role in crafting situations that allow disasters to occur. What follows is a long list of people-management factors that, when modeled, can serve as predictive indicators. Not all factors will contribute to critical incidents in every industry, so investigate the linkage in your own organization and devise an appropriate set of warnings.

Short-Term Indicators (Weekly/Monthly Monitoring)

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  • Absenteeism % — a shorthanded team or one augmented with temporary underskilled labor, particularly in maintenance and safety roles, will result in increased errors rates and activity postponement. Significant absenteeism may be symptomatic of deeper problems.
  • Overtime utilization – like absenteeism, chronic fatigue and stress may contribute to increased errors rates and activity postponement.
  • Temporary labor % — when temporary labor makes up a high percentage of a critical work team, their unfamiliarity with processes and standards may give rise to the foundation of a critical incident.
  • Vacancy rate — a high vacancy rate could be indicative of important work being postponed, ignored, or reallocated to underskilled labor.
  • Performance/engagement/satisfaction rates — low or dramatically decreasing 360°, engagement, or employee satisfaction survey results may be an indicator of future problems with an individual or a team.
  • Productivity rates — sudden bursts or declines in workforce productivity may be indicative of policies being violated, process steps being side-stepped, or warning measures being ignored.
  • Cost-containment rates — cost-containment rates that exceed planned operational buffers may increase use of shortcuts and inferior materials. Oversight is needed to ensure that short-term savings do not result in long-term costly disasters.
  • Whistleblowing incidents — having no whistleblowing reports can be an indication that employees lack interest, have experienced retribution in the past, are unaware of how to report issues. Regardless, both too few and an abundance of reports may be an indicator of serious problems.
  • Accident rates — not only are they costly, but they may be an indicator that procedures are not being followed. Unresolved safety issues, the routine violation of safety rules, or lax safety training may all be a predictor of larger safety issues.
  • Error rates — although errors are not entirely a human factor, a high error rate may indicate that procedures are not being followed or that the training is lax. Delaying or not responding at all to major errors may be the most critical indicator.

Longer-Term Indicators (Quarterly/Annual Monitoring)

  • Turnover/transfer rates — managers with high employee turnover rates or high employee “transfer out” rates may be weak managers prone to higher rates of major problems.
  • Complaint levels — when complaint or grievance levels increase, it may be a predictor of upcoming major problems.
  • Training — an untrained team, an unevenly trained team, or one with “dated” training can dramatically increase short-term error rates and eventually lead to major disasters. Lax training of supervisors and managers may be a separate but more serious problem.
  • Staffing levels — whenever the ratio of employees to work falls below a certain point, fatigue and stress may eventually lead to major errors.
  • Management span of control — when the ratio of managers to employees exceeds a certain level, the likelihood of poor supervision increases dramatically. In the other direction, the likelihood of the micromanagement of employees also increases.
  • Performance management issues — an overall high percentage or an increase in the percentage of individuals on a performance management plan may be an indication of bad hiring or poor supervision. In contrast, having an extremely low percentage may also be an indication that management is lax and that it is unwilling to acknowledge and punish poor performance.
  • Excess accumulated vacation — an excess of accumulated vacation may mean that workers are overworked.
  • Managers fail to meet goals — a manager with a track record of failing to meet goals may continue that pattern unless proactive action has been taken. New managers unfamiliar with practices may cause more errors, as may a long-term manager that has grown complacent.
  • A history of problems — the mere existence of a pattern of problems in the past may be the best indicator of future problems in a team or business unit. (It has been widely reported that BP racked up more than 760 safety violations, while Exxon received only one in the same time period.)
  • Poor internal handoffs — whenever complicated interdependent work is handed-off between different internal functions or teams, the likelihood of an error increases dramatically. Poor or nonexistent coordination and integration mechanisms are an indication of continuous problems.
  • Disability rates — high short-term or permanent disability rates may be an indication of both current and future problems, if they are the result of high stress and poor working conditions.
  • Recruiting metrics — a slow time to fill and a weak quality of hire may be precursors to future problems.
  • Pay rates — when average pay rates are significantly below the prevailing norm, the likelihood of weak hires and unmotivated workers increases.
  • Incentives — whenever bonuses or incentives exceed 25% of base pay, there is a significant chance that the high incentive will drive employees and managers to violate rules or ethical standards.
  • Outsourcing % — miscommunication and poor coordination are always issues when critical work is outsourced. When a significant percentage of critical or sophisticated work is assigned to vendors, the handoff process may also be a source of major problems.
  • New procedures — whenever new or significantly revised processes or procedures are put into place, the odds of a significant error increases tremendously.
  • New technology — whenever major new technology is implemented, the likelihood of a significant failure increases dramatically.
  • No forecasting algorithm — the lack of a statistical process that forecasts and provides alerts by itself may be an indication of upcoming problems.
  • No if-then scenarios — the lack of a routine process for testing managers and employees on how they will handle likely worst-case scenarios may be a predictor that solutions will be slow in coming when problems do occur.
  • A rigid company culture — although there may be many benefits from having an established company culture, a rigid one may also be an indication of inflexibility and overconfidence that problems will not occur.

Review past major incidents in your own organization to determine which factors are indicative of increased risk of incident to come. Rank and weight each, then set a warning threshold based on safe operations. Be conservative as too many warnings are better than no warnings.

Future Developments

While simple analysis and a checklist are a decent start at being prepared, much more robust systems are needed that can analyze thousands of pieces of data in real time to determine where risks exist. The practice of analyzing risk isn’t new; many corporations already have a risk management function, but the focus of risk assessment related to people analytics is relatively new and rare. Risk modeling involves gathering massive volumes of data and applying sophisticated statistical models, the latter activity being one that few in HR are good at. As Dan Hilbert, founder of OrcaEyes and a pioneer in the space of risk modeling related to workforce factors, can attest, few in HR “get it.” When demoing his suite of business intelligence solutions, he often finds that while finance and operations professionals get it immediately, many in HR are overwhelmed and dismissive. The demand for robust workforce risk modeling is most certainly present in organizations, but the interest to fill that demand isn’t coming from HR.

Final Thoughts

“All the things that they told us could never happen, happened.”

This was the bottom line observation of Mike Williams, the chief electronics technician who was on board the ill-fated Deepwater Horizon drilling rig at the time of the explosion. Take heed of his observation and develop a process to more accurately predict upcoming problems in your organization. Start by realizing that there are precursors or early warning signs to most problems. The key is to develop a process for identifying these precursors and using them to trigger action early enough to prevent minor problems from becoming major problems. Finally develop a checklist of these factors and periodically use the checklist to identify potential problem areas.

Note: What additional people-management factors could serve as precursors and thus should be added to the checklist? Add yours using the comments function.

Dr. John Sullivan, professor, author, corporate speaker, and advisor, is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high-business-impact talent management solutions.

He’s a prolific author with over 900 articles and 10 books covering all areas of talent management. He has written over a dozen white papers, conducted over 50 webinars, dozens of workshops, and he has been featured in over 35 videos. He is an engaging corporate speaker who has excited audiences at over 300 corporations/ organizations in 30 countries on all six continents. His ideas have appeared in every major business source including the Wall Street Journal, Fortune, BusinessWeek, Fast Company, CFO, Inc., NY Times, SmartMoney, USA Today, HBR, and the Financial Times. In addition, he writes for the WSJ Experts column. He has been interviewed on CNN and the CBS and ABC nightly news, NPR, as well many local TV and radio outlets. Fast Company called him the "Michael Jordan of Hiring," Staffing.org called him “the father of HR metrics,” and SHRM called him “One of the industry's most respected strategists." He was selected among HR’s “Top 10 Leading Thinkers” and he was ranked No. 8 among the top 25 online influencers in talent management. He served as the Chief Talent Officer of Agilent Technologies, the HP spinoff with 43,000 employees, and he was the CEO of the Business Development Center, a minority business consulting firm in Bakersfield, California. He is currently a Professor of Management at San Francisco State (1982 – present). His articles can be found all over the Internet and on his popular website www.drjohnsullivan.com and on staging.ere.net. He lives in Pacifica, California.

 

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24 Comments on “A Checklist for Predicting Corporate Disasters — Is Your Firm the Next BP?

  1. This was really an interesting article. Not to pull away from what you’re saying, and to press the point that it’s not just HR managers who carry the responsibility of a certain amount of prescience, I just read another article that addressed the responsibility we all have in this massive ecological disaster.

    It’s called “Behold our dark, magnificent horror” and you can find it here: http://tinyurl.com/22mjpc6

    Your article, and this one, makes me think that disaster planning is really everyone’s responsibilty.

  2. Sorry folks, I take “NO SHARED RESPONSIBILITY” for the oil disaster! NONE! I don’t apologize for my cell phone, car or anything else that uses electricity. I find it ironic that some people blame big oil for all their problems but never hold big government responsible for the wrath that they cause which is much bigger. Dr. Sullivan’s advice is well thought out and comes with many good points but the “Behold our Dark, Magnificent Horror” article is full of left wing dribble that makes it as hard to swallow as castrol oil.

  3. The hypothesis is intriguing but the Corporation-bashing hyperbole is inappropriate. Risk assessment requires, above all else, OBJECTIVE assessments.

    Unfortunately an otherwise interesting and informative article has been offerred up with a blame-game perspective.

  4. Three Organizational Principles

    1) Go along to get along.
    2) The nail that sticks out the fartherst, gets hit down the hardest.
    3) It’s only a problem if the people in charge say it’s a problem.

    Any questions?

    Keith

  5. You asked at the end, “What additional people-management factors could serve as precursors and thus should be added to the checklist?” One comes to mind, which I think is one of the biggest. I didn’t see it listed, but there are several factors you listed (like disability rates) that are results of it.

    Not sure what you’d call it, but for now I’ll call it “intense pressure to perform.” I guess, depending on the company and industry, you could call it “stress,” though of course stress isn’t all bad, and stress doesn’t necessarily cause oil spills.

    I worked one summer at a furniture rental store in Cincinnati. Not in the store, but in the back, where you load up the furniture into people’s cars and trucks. Three types of furniture were very heavy and very awkward: 1) credenzas; 2) large pieces of glass for glass tables; and 3) “sleepers” (couches that fold out to beds). We were (sometimes subtly) encouraged to carry these pieces using as few people as we could (usually 1-2 people). At one point after I left, in the Fall and after I had gone back to school, a co-worker of mine got severely hurt when one of those big glass pieces he was carrying broke. I wasn’t there, so I don’t know precisely what happened. But certainly pressure to perform, or pressure to be more efficient, can serve as a precursor to many of the other items on your list.

  6. I found the article, as most articles by Dr. Sullivan, both thoughtful and filled with informative and useful information…I found the six comments that followed the article fascinating. Isn’t it interesting how quickly we Americans look to blame everyone and anyone for whatever disasters, both small and large occur in our country, in our jobs and in our lives. What is happening in America that causes us to constantly point to the “other guy” as always wrong and in need of change, while we are increasingly reluctant to accept responsiblity for anything that occurs around us as though we cannot (or choose not to) make a difference. Is that how our country will stay strong, prevent disasters and prosper?

  7. I had a similar experience to Todd. One summer during college I worked in a fiberglass plant in Ohio. The plant management learned that there were fewer defects and the products cured more quickly if the ambient temperature of the plant was close to the outside temperature (usually in the 80s or 90s). Only problem was that the flash point of some of the chemicals we used was 110 degrees, giving workers a thin 20 degree margin of life or death. The foreman would go over every couple of hours and knock the thermostat up. As soon as he left, the shop steward would go over and knock it back down. My take-away was that profit trumps safety in most workplaces unless procedures are in place to ensure that safeguards are enforced.

  8. Todd. Many thanks for the addition. One way to measure that work pressure would be through employee surveys where you ask about pressure levels. Another would be ststistically when idle work times approach zero.

    John Sullivan

  9. Dr. Sullivan,

    Thank you for your article. I hate to say it but I’m surprised disasters like this are not more common. I can not help but wonder if HR was involved at all. One of the more common themes I see is that HR starts out taking the bull by the horns but usually executive management wins out and/or HR becomes comfortable being a “yes” man. Either way, because these large disasters are rare, management is willing to take the risk and HR is unable to show how the risk will potentially effect the bottom line. The BP disaster will cost BP billions more than the safety precautions would have cost to be sure. However, I bet know one ran the numbers, because do so so would have made them unpopular and could cost that person their job.

  10. It is always interesting to see check lists generated and I was amused to see this one resemble the metrics that I as a construction manager and my safety department track on jobs. I don’t see where HR plays a role other than out processing the people who don’t live up to the safety culture.

    I pay safety and my field superintendents to keep track of that and have my loss prevention insurer audit my jobs. I’ve had a number of jobs with over a million hours without a lost time accident. Unexcused absenteeism is handled with a layoff notice.

    Safety and production is a line function and by the time you get staff involved or they start meddling it is to late. Corporate safety maintains a hot line for craft.

    Before jumping into an academic exercise you might want to read a couple of Sidney dekker’s books: The Field Guide to Understanding Human Error and Jut Culture: Balancing Safety and Accountability.

    Also each and every worker has a responsibility to be fit for duty and to self-report if not. They are either given light duty or sent home to sleep it off.

    It is also the responsibility of first line management to stand down the job if the conditions are unsafe. I’ve shut down a job with a 1,000 craft on site because schedule pressures were driving up minor cuts and abrasions. If you’ve read the trail of reporting the BP manager over ruled the drill crew because they were behind schedule. This isn’t an HR issue but a safety and management issue.

  11. This was a very interesting article. I sometimes wonder if an unintended (or possibly intended) consequence of some corporate cultures is creating organizations of “yes men”. Leaders are never wrong, those who question or critique are not collaborative, and short term results aimed at boosting stock prices isn’t just one metric, it is the only metric.

    If these things become too strong a factor in a culture, cutting corners, looking the other way, never raising contrary views or ideas become the norm. These cannot be good for the long term health of an organization. Profit should go hand in hand with social responsibility. There must be a mid-ground where profitibility does no harm to individuals or society at large.

  12. OSHA and the construction industry have a very strong safety program especially for large construction firms and projects. There are criminal and financial penalties that apply to both corporate management and field personnel. The NRC has a similar program. It would appear that neither mining (MSHA)nor the oil industry have similar accountability.

    It should be noted on the 25th anniversary of the BOPAL chemical release that some corporate management is being sent to jail. Management sets the tone and must be held accountable. Again-not an HR issue but a corporate culture issue tied to politics and the buying off of politicians and inspectors.

  13. Corporate culture not HR checklists – from CNN

    The BP official wanted workers to replace heavy mud, used to keep the well’s pressure down, with lighter seawater to help speed a process that was costing an estimated $750,000 a day and was already running five weeks late, rig survivors told CNN.

    In the CNN interviews, the workers described a corporate culture of cutting staff and ignoring warning signs ahead of the blast. They said BP routinely cut corners and pushed ahead despite concerns about safety.

    The rig survivors also said it was always understood that you could get fired if you raised safety concerns that might delay drilling. Some co-workers had been fired for speaking out, they said.

    It can cost up to $1 million a day to operate a deepwater rig, according to industry experts.

    He added that payroll records show seven of the 11 men who died had worked a 24-hour shift six days before the explosion.

    Cal OSHA limits work to no more than 6-12 hour shifts in a 7 day period. Most projects because of both safety and productivity have 10 hour limits. I worked 7-12’s in Iraw but made sure my crews had good down time when we knocked off. Again corporate culture not check lists

  14. This is an interesting article which sheds light to a lot of contributors towards a decline in culture. HR plays a vital role in ensuring that people are aligned with strategic goals, it is the Executives at the Top that set the tone for what the strategy and culture will be.

    Policies and procedures may exist but if there is a culture of side stepping that is accepted and unaddressed, the effectiveness of HR leaders is non-exsitent. Furthermore, if you see HR as a processing cost center rather than a contributor towards the organization, it will be impossible to ever fully take advatange of the human capital initiatives that have true effect on organizations that generally by default promote compliance, accountability and pride.

    Perhaps most interesting in the comments made thus far is that people think that Human Resources Management is the responsibility of a department and not rather the responsibility of team leads, managers and executives. Human Resources Management in a comprehensive approach towards the development of human capital within an organization.

  15. I find the articles posted in smartbriefs interesting and sometimes useful. Other articles offer interesting insights into different regions of the corporate world.

    Comment of pressure: to quote the chief operating officer of a major international company “The only time you don’t have schedule pressure is when you’re dead so live with it” This was on a 650 million dollar project that was two months behind schedule. We sucked it up and kept going while maintaining an excellent safety record.

    In my 40 years in industry, Aerospace, Nuclear Power, Mining, Research and Development and Semi-conductors I have yet to work for one of these dream corporations where HR is active in Human Resource Development. It is up to the individual at their own expense to stay current, participate in continuing education, and professional development. When I give performance reviews I try to provide guidelines and mentor my staff. My guidance on the development of human assets (think about assets vs. resources) comes not from HR but the professional societies that I belong too.

    Personally I’m happy if I can get an HR department to focus on hiring and firing in a timely manner rather than meddle in line operations. Guess I’m the gadfly here providing a view from the front lines.

  16. It’s a shame such an important article about objective judgement should use hyperbole and cheap rhetoric, then make such an unfounded statement as “… BP’s safety track record is one of the worst in the industry …”. Firstly there is plenty of published data to show that is not correct. Secondly BP was not even the operator of this rig and was not responsible for hiring ANY of the operational management personnel on board.

    Otherwise you’ve done a nice job of bringing focus to an area that is needed.

  17. BP has a history of safety violations. On March 23, 2005, a fire and explosion occurred at BP’s Texas City Refinery in Texas City, Texas, killing 15 workers and injuring more than 170 others. BP was charged with violating federal environment crime laws and has been subject to law suits from the victim’s families. Later an $87 million fine was imposed by the US Occupational Safety and Health Administration, which claimed that BP had failed to implement safety improvements following the disaster.

    Next, you have the issue of means and methods and client direction of a subcontractor. If it is proven as alledged that a BP manager overruled the recommendations of the subcontractor, TransOcean, then BP assumes liability for work. At this point we come back to a culture of safety where TransOcean should have had policies and procedures in place that would back their employees in refusing to commit unsafe acts. Again this is not an HR issue but an operational issue where you have an ombudsman embedded in the safety department who reports directly to senior management.

  18. And the blame game continues… quite predictably.

    Wouldn’t it be refreshing to just read an informative article now and then? But then, we’d be missing our fix of he said, she said, the website said, I’m right, you’re wrong, “culture of ________(fill-in-the-blank)”, corrupt and devious “Big ______ (fill-in-the-blank), “corporate policy” (bad, of course), obscene profits (oh, there’s another type?), and other dim-witted, broad-brush rhetorical analyses of things learned from SPAM and political campaign advertisements.

    Having vented my spleen, I can’t help but offer one of my favorite quotes:

    “Thanks to TV and for the convenience of TV, you can only be one of two types of human beings, either a liberal or a conservative”. – Kurt Vonnegut

  19. @Dave:

    Dave, I hear what you’re saying. At the same time, it continually irritates me that those few who wish a free, open, and civil exchange of useful recruiting-related information continally attempt to degrade, contaminate, and corrupt this and other similar forums whose purpose is the self-promotion, personal aggrandizement, or empty-headed pontification of those of us who frequent this cozy little nook in cyberspace. Consequently, I find your use of the “i-word” (“informative”) disturbing and inappropriate here.

    Thank You,

    Keith “Ironic or Sarcastic: You Decide!” Halperin

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