Framework: An Integrated Approach to Portfolio, Program and Project
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IV. TOTAL COST MANAGEMENT ENABLING PROCESSES - CHAPTER 11 - ENABLING PROCESSES
11.6 Environment, Health, and Safety Management
Environment, health, and safety (EHS) concerns the physical well being and stewardship of people, other life forms, and the space, air, land, and water they occupy and interact with. Security is also increasingly recognized among EHS concerns. Security is a somewhat unique concern because it has to do with securing well being from malicious intent. Other EHS risk factors and drivers may be intentional but are generally not malicious nor hold much threat of violence. Concern for such matters is spawning what McDonough and others have termed the "next industrial revolution."
EHS issues are concerns for all stakeholders in TCM and must be addressed in one way or another in all TCM processes. EHS is not a separate process, but rather a recognition that there are critical stakeholder and customer EHS needs and expectations that must always be considered in the application of the TCM process. In other words, EHS is viewed from a quality management perspective. Section 11.4 defines quality management as what an enterprise does to ensure that its assets meet the requirements, which are focused on customer needs.
In TCM, the health, safety, and security of the stakeholders, including the environment, is assumed to be a main priority of the enterprises business strategy that will be translated into requirements. The well-worn phrase "safety first" is increasingly being recognized by enterprises to mean "EHS first."
After decades of often ineffective efforts to manage EHS issues, changes in how enterprises manage EHS issues are underway and gaining traction worldwide. Specifically, there is a growing recognition and acceptance that attention to EHS issues can no longer be treated as an after the fact concern, but rather must be integrated into all aspects of everyday living. At the consumer level, interest in recycling and in "green" products and processes is an example of this new paradigm. In industry, this translates into the recognition that EHS (like quality management) is not just the job of an EHS department, but it is "everybody's" job; it must be built into the management system. Enterprises have learned that a reputation for poor EHS performance can damage the bottom line as much as a reputation for poor quality. Continuous improvement must become a cornerstone of EHS performance, just as it has become a cornerstone of quality management.
Building EHS into management strategy makes sense because enterprises that position themselves to perform effectively in an EHS sense will enjoy a competitive advantage over those who don't. This is true because the enterprises stakeholders all have EHS performance high on their needs and expectations list; these stakeholders include the public, investors, lenders, the mediaand perhaps most importantlycustomers. The competitive advantage can be negated by getting locked into business relationships with other enterprises prone to accidents, pollution incidents, or lack of concern for employee or public health; that is, enterprises have learned they cant outsource the problem. They are also learning that EHS is not a challenge to hide from; building EHS requirements into a quality management system can spawn innovations that yield both cost savings and better business performance than can be achieved through just "compliance" with regulations. So, in reality, EHS expenditures are not so much "cost" as "investment" issues for which a return on investment can and should be expected.
In addition to the inherent benefits of a quality management EHS approach, governments sometimes offer economic incentives that provide an additional competitive advantage. These include advantageous tax structures, tradable permits, rewards for best practices, or exemption from some regulatory requirements if best practices are used.
Building EHS requirements into a quality management system like TCM has a profound impact on how corporations view EHS costs and account for them. In the past (and too often at present), management focus was on minimizing the costs of compliance and control (i.e., cost of non-conformance)inspection, fines, penalties, treatment facilities, site remediation, and so on. However, more proactive enterprises are taking TCMs quality management approach and focusing on cost prevention through better design while considering the life cycle costs of their assets. TCM plans, measures, and assesses the full economic costs (including hidden opportunity costs) of the enterprises asset and project portfolio including prevention, appraisal, and failure costs in regard to EHS requirements.
11.6.2 Key Environment, Health, and Safety Considerations for TCM
This section highlights some key considerations for addressing EHS issues using TCMs quality management approach for assets and projects. These can be categorized as process and stakeholder considerations.
.1 Process Considerations
EHS Functional and Supply Chain Integration
EHS issues come into play in all aspects of an enterprise. Consequently the management of these issues must be strategically integrated into management of the business, not just tacked on at the end. As noted previously, the traditional approach of viewing EHS matters as separate functions or processes is giving way to viewing them and managing them as integrated components of a common whole. As was also mentioned, management must concern itself with the entire supply chain for its assets and projects; EHS failure in any link can affect the others. Finally, regulations for environmental, health, and safety issues are beginning to cross reference each other, and costly management redundancy can be eliminated when the three areas are managed more holistically.
Life Cycle Awareness
Assets, products, and services have potential EHS effects throughout all aspects of their creation and delivery. No longer can concern be limited to addressing failures (e.g., injuries, illness, emissions, etc.) that occur during asset operation or project execution. From the early phases of asset planning or product development, many decisions must be made on how to prevent EHS failures and improve performance. The consumption of resources (e.g., raw materials), use of processes (e.g., methods of manufacture), and product features (e.g., recycleability) must be planned and decided. How a product is distributed must also be considered. Consumption or use of the product, and the potential for misuse and the EHS effects of these also merit close attention. And final disposal of the product and by-products, in whatever waste stream it is likely to find its way to, is also a major source of EHS effects that needs to be considered from the early planning and design stages.
Sustainable development is another life cycle issue to consider. As economic development proceeds throughout the world, development actions must be carried out in a fashion that does not use resources in a manner or degree that compromises the ability of future generations to sustain such development. In other words, as a matter of strategy for an enterprise, planning must not only consider the life cycle of the asset, but the life cycle of the environment and its asset value as natural capital.
Standards and Performance Beyond Compliance
Governments at all levels have established EHS standards of compliance. These establish legal responsibilities regarding EHS issues. For example, in the United States, the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), Superfund Amendments and Reauthorization Act (SARA), and Resource Conservation and Recovery Act (RCRA) identify hazardous contaminants, specify the levels of contamination that require cleanup actions to be initiated, and establish cleanup or disposal methods that are acceptable.
However, enterprises increasingly recognize a broader duty to society, if not moral responsibility, to do more than the minimum legally required. In that respect, organizations are increasingly developing voluntary codes of EHS conduct and charters. These are used as models for companies to benchmark their EHS performance and they often establish more stringent requirements than government standards for compliance. The number of organizations and standards is enormous, often addressing just a small segment of an industry. However, one example of an industry-wide EHS standard is the Responsible Care® program that is used by much of the international chemical industry in the United States.
For environmental management, arguably the most significant voluntary standard is the International Organization of Standardization (ISO) ISO 14000 standard. As with ISO 9000 (see Section 11.4), the ISO 14000 series of standards pertain to the management systems that an organization employs to manage environmental matters, not to the environmental performance of the organization. The standard provides a framework for setting environmental requirements and for implementing them and assessing performance against them. ISO also publishes numerous safety standards that are usually for very specific applications.
For safety and health management, a consortium of international standards organizations developed the Occupational Health and Safety Assessment Series (OHSAS) 18000 standards. The OHSAS 18000 series was developed to be compatible with the ISO 14000 environmental management series.
Also worthy of note in the environmental arena is the ICC (International Chamber of Commerce) Business Charter for Sustainable Development. This Charter contains 16 principles that hundreds of companies worldwide have adopted voluntarily as a public expression of their commitment to apply the concept in their business management.
Continuous improvement is one of the principle goals of any quality management system. For the regulated community, EHS performance will increasingly be judged by standards in addition to regulatory compliance. These standards may be explicit and readily imposed such as the industry examples provided, or they may represent unstated needs and expectations that must be elicited from stakeholders. In any case, compliance should be considered "table stakes"; that is, the minimum expected to have the privilege of being in business.
In TCM, risk is considered the same as uncertainty; that is, it includes both opportunities and threats. Stakeholders often perceive EHS issues as threats. Therefore, their EHS needs and expectations for a solution to a business problem can be driven by fear or other strong emotions, particularly if the EHS issue affects the stakeholder personally. Some of the emotion can be dealt with through communication or other means (see Section 11.1). However, the risks are often real as evidenced by the many EHS disasters that appear regularly in the media. The risks should be addressed directly and objectively by using the risk management process (Section 7.6). However, as systems become more complex and less understood by the stakeholders (e.g., nuclear power, genetics, etc.), it becomes more challenging to address the issues.
Adding to the challenge is the issue of security. As was mentioned, security has to do with securing EHS well being from malicious intent. The challenge comes from the fact that the threats are malicious, possibly violent, and purposeful in seeking to bypass prevention features.
.2 Stakeholder Considerations
Consumers are becoming increasingly sensitive to the EHS performance of enterprises and their products. In response, some major companies such as Wal-Mart have set environmental standards for the products they carry. Increasingly, companies that respond to consumer interests in "greener," safer, and healthier products will enjoy a degree of competitive advantage over those that do not. The trends are unmistakable in areas such as automobile safety and emissions, concern with food additives and labeling, and so on. However, special care must be exercised not to send contradictory messages to EHS literate consumers; a heavy price in lost business (or even malicious action) can be levied for misrepresentation.
Just as the EHS sensitivity of consumers is on the increase, so is the sensitivity of employees. People like to work for EHS responsible companies, and are taking more interest in the EHS performance of their employers. Companies that acknowledge and respond to this interest will gain an advantage in competing for highly skilled and trained employees.
The investor community has also developed an interest in the EHS performance of companies. In 1993, the Sun Company, Inc. became the first large corporation to endorse the CERES Principles, a 10-point code of corporate conduct for environmental performance and accountability. CERES stands for Coalition for Environmentally Responsible Economies and represents groups of socially concerned investors that control several hundred billion dollars of investment capital.
Investor interest is not limited to social goals; however, investors are also concerned with bottom line returns on their investment. Companies with below par EHS performance may acquire liabilities that can significantly detract from the value of their stock.
Banks and other lenders are more willing to lend money to companies that manage EHS performance in a preventative way because they are better financial risks. Banks are also becoming more interested in the EHS overtones of proposed uses of borrowed money. Few financiers are willing to loan money for major development projects with particularly significant EHS effects (e.g., the Three Gorges Dam). For smaller projects, they are increasingly requiring verification that the asset being constructed will not be soon rendered uneconomic or regulated out of existence due to environmental or related health and safety factors.
Similarly, insurance companies are much more amenable to writing coverage for companies with a good EHS performance track record. Again the reasons are very pragmaticsuch companies are a better business risk. And from the insured's point of view, a clean record is a definite asset in negotiating lower rates.
In summary, for an enterprise to compete and succeed, the EHS agendas of stakeholders, in addition to those of regulators, will have to be tended to. Expanding stakeholder interests in corporate EHS performance will go hand in hand with more public scrutiny. Mandated public reporting requirements will increase. More proactive companies have voluntarily begun to publish corporate EHS annual reports. For example, some consider the guidelines developed by the Global Reporting Initiative as a "gold standard" for such reports.
As discussed, EHS is not a separate TCM process. EHS is factored into TCM by making sure that customer and other stakeholder EHS needs and expectations are always considered in the application of the process.
11.6.3 Environment, Health, and Safety Methods for TCM
While each TCM process must consider EHS issues, the processes themselves do not include any specific methods for EHS management. For example, the schedule planning and development process (Section 7.2) must consider EHS activities (e.g., permitting, inspection, safety meetings, reviews, etc.), but the activities themselves and the methods used in their performance are not TCM processes and methods. However, two TCM processes hold particular relevance for EHS issues from a prevention viewpoint: value analysis and engineering (VA/VE; Section 7.5) and risk management (Section 7.6).
VA/VE supports prevention through the intensive questioning, challenging, and analysis of the functionality and validity of constraints that takes place during VA/VE function analysis. In general, functions are attributes of an asset or project that give it a purpose (i.e., allow user/operator to accomplish a task) and make it useful or desirable (i.e., have value). When function and value are viewed from an EHS perspective, the VA/VE process supports the prevention through design philosophy.
The risk management process includes steps for identifying asset or project risk factors (or drivers), analyzing them, and mitigating them as appropriate. Risk factors are events and conditions that may influence or drive uncertainty (i.e., either opportunities or threats) in asset or project performance. EHS and security issues, particularly the effects of failures (e.g., injuries, illness, emissions, etc.), should be evaluated using risk analysis. Based on the risk analysis outcomes, the EHS risk factors and/or their effects should be mitigated by planning alternatives that reduce the risk without reducing the value of the outcomes.
11.6.4 Environmental Assets and Projects
As was mentioned, the environment (land, air, water, other life forms, etc.) can be viewed as an asset on which society, including the enterprise, ultimately and collectively depends for its health, safety, and well being. Increasingly, societys expectation is that enterprises will not only do no harm to the environment, but will also remediate harm done in the past by the enterprise or others that may have owned or controlled the asset before them. These expectations mean that most enterprises now monitor and assess the environment in relation to the life cycle of their asset ownership and operation and remediate the environment through projects for which measurement and assessment (or regulations) demonstrate a need.
The measurement process entails evaluating the environmental conditions and effects of the asset, including the history of asset (e.g., Who owned the site and how did they affect it?) and development of a baseline (e.g., water, soil, and air quality parameters) against which environmental performance can be effectively measured. As with any resource managed through TCM, if there are performance problems, corrective actions must be evaluated and taken as appropriate. Risk management (Section 7.6) may also indicate that mitigating actions should be taken before a risk factor becomes an environmental failure.
Because of societal and political concern for the environment, which is often charged with emotion, environmental mitigation and remediation projects require an open and comprehensive approach to establishing requirements and resolving such issues as cost growth, environmental regulation concerns that impact the schedule and cost of a project, static and dynamic baseline development, cost estimating, calculating contingency, risk and uncertainty analysis, innovative claims, and dispute avoidance.
Because environmental mitigation and remediation projects are often associated with other projects, one goal is to be cost effective without disrupting the other projects. The control systems for risks, safety, health, and quality as well as for cost, and schedules for associated projects should complement each other. The development of a baseline that integrates the scope of work, cost, and schedule becomes an important management tool that allows for early identification of potential schedule delays and/or cost overruns.
Environmental remediation is a particularly difficult operation that generally combines unique construction expertise (e.g., ability to work with hazardous materials) with unique scientific and engineering requirements. The planning of remediation projects is arduous because environmental and work conditions are often variable and uncertain, and environmental restrictions present problems that often require unique execution strategies, construction practices, and so on. Some examples of the types of special planning concerns and cost drivers for an environmental remediation construction project include:
hazardous or contaminated waste material and waste water handling
personal protection required (e.g., encapsulation)
energy (kilo calories) expended by and productivity of encapsulated workers
first aid facilities
vehicle, equipment, and tools decontamination
testing and monitoring equipment
field laboratory setup and operation
site communication and emergency warning systems
dust and emissions control and mitigation
environmental due diligence
community and public relations
These and other uncertain or hidden costs associated with remediation work often have to be accounted for through assumptions, allowances, and contingency. The issue of cost drivers and cost growth has plagued environmental projects for several decades. Consequently, risk management and the ability to adequately estimate and manage contingency for environmental projects has become a critical project control process (see Section 7.6).
11.6.5 Key Concepts for Environment, Health, and Safety
The preceding discussions touched on a few principles and considerations regarding EHS in the TCM process. A key point to remember is that EHS is not a separate processEHS issues are considered in TCM by making sure that customer EHS needs and expectations are addressed. By doing so, assets and projects are managed with a view toward prevention of EHS failures and continuously improving EHS performance through design. This is a quality management perspective; therefore, Section 11.4 on quality management is a lead-in to EHS management.
The following concepts and terminology described in this section are particularly important to understanding EHS management in relation to TCM:
.1 Quality Management. (Section 11.4 and 11.6.1). TCM is a quality management process and EHS issues are considered using this process approach.
.2 EHS Standards/Compliance. Compliance with minimum standards and regulations should be considered the minimum behavior expected to have the privilege of being in business.
.3 Non-Conformance/Prevention. (Section 11.6.1). As in quality management, management effort should be focused on preventing non-conformance with EHS requirements and improving performance rather than after the fact appraisal, failure, and correction.
.4 Sustainable Development. (Section 188.8.131.52). Enterprises should not use resources in a manner or degree that compromises the ability of future generations to sustain such development. It extends TCMs perspective from the life cycle of an asset alone to include the life cycle of the environment and its asset value as natural capital.
.5 Natural Capital. (Section 184.108.40.206). The monetized value of the earths ecosystem services.
Further Readings and Sources
The references on EHS are too numerous to mention. However, the following references and sources provide basic information and will lead to more detailed treatments.
Barcott, Bruce. "Whats Wilderness Worth?" Outside Magazine, March 2005.
BSI, OHSAS 18001, www.bsi-global.com.
Brauer, Roger L. Safety and Health for Engineers. New York: John Wiley & Sons, 1994.
Gibson, Will. "A Practical View of Life-Cycle Assessment." In Implementing ISO 14000 by Tom Tibor and Ira Feldman, Editors. Chicago, IL: Irwin Professional Publishing, 1997.
Global Environmental Management Initiative (GEMI). New Paths to Business Value: Strategic SourcingEnvironment, Health and Safety. Washington, DC: GEMI, 2001.
Global Reporting Initiative. Sustainability Reporting Guidelines. Washington, DC: GEMI, 2002.
Goodman, Susannah Blake, Jonas Kron, and Tim Little. The Environmental FiduciaryThe Case for Incorporating Environmental Factors into Investment Management Policies. Oakland, CA: The Rose Foundation for Communities and the Environment, 2004.
Hawkins, Paul, Amory Lovins, and L. Hunter Lovins. Natural CapitalismCreating the Next Industrial Revolution. New York: Little Brown and Company, 1999.
Hirsch, Dennis D. "Second Generation Policy and the New Economy." Capital University Law Review, vol. 29, no. 1, 2001.
Hoffman, Andrew J. Competitive Environmental StrategyA Guide to the Changing Business Landscape. Washington, DC: Island Press, 2000.
International Organization for Standardization (ISO), www.iso.org.
McDonough, William, and Michael Braungart. "The Next Industrial Revolution." Atlantic Monthly, October 1998.
Morris, Alan S. ISO 14000 Environmental Management Standards: Engineering and Financial Aspects. New York: John Wiley & Sons, 2003.
Reed, O. Lee, Peter J. Shedd, Jere W. Morehead, and Robert N. Corley. The Legal and Regulatory Environment of Business, 13th ed. New York: McGraw Hill College, 2005.
Selg, Richard A. Hazardous Waste Cost Control, 1st ed. New York: Marcel Dekker, Inc., 1993.
Selg, Richard A., Editor. Professional Practice Guide (PPG) #11: Environmental Remediation. Morgantown, WV: AACE International, 2002.
Stavins, Robert N. Economics of the Environment, 4th ed. New York: W.W. Norton & Company, 2000.
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