What’s the most valuable asset of any organization? It is an organization’s human resources! What is an age-old approach to managing investments? Buy low and sell high! It’s interesting that in challenging market conditions, most organizations cut their workforce, their most valuable asset, which works out to the opposite, buy high and sell low, go figure!
When market conditions change such as the current supply and demand for crude oil, the typical response to the resulting price woes is to cut costs by reducing workforces. Every time an organization disengages with a good employee, they are losing the investment they have made and any future return on the investment that they could realize by remaining engaged with the employee. Exacerbating the situation is the loss of knowledge and skills the employee takes with them when they leave. It’s a conundrum why workforce reduction is the first act of responding to challenging market conditions.
The oil and gas industry in all phases of operations, upstream, midstream and downstream, require managing high risk and hazardous areas as part of any overall risk management plan. A few forward looking organizations recognize that tough market conditions represent an opportunity to increase investment by focussing their most valuable asset in finding cost-cutting measures in high risk and hazardous areas as an alternative to reducing the size of their workforce. During tough market conditions, rather than letting go of their most valuable asset, these organizations look for innovative ways to retain their workforce (think job sharing as one measure). They turn their attentions to increasing focus on improving their processes and realizing savings which in turn prepares them for optimum performance when the market conditions turn favorable.
Adverse market conditions don’t last forever and often afford the time and opportunity to invest by having resources assigned to perform enhanced audits, inspections and implement new technology that improves organizational performance. With this in mind, one high risk area in the oil and gas industry that could possibly benefit from additional scrutiny through risk mitigation is an organization’s adherence to legislated and industry compliance regulations concerning health, safety and environment specifications (HSE). Auditing compliance with external and internal obligations with regards to health, safety and the environment can identify areas of non-compliance, improve an organization’s management system for monitoring and tracking compliance, and reduce organizational risk.
Another high risk area is the integrity and reliability of equipment and processes. Equipment failures can cause process upsets leading to extended plant shutdowns, financial losses and worse, loss of life. Determining the probability of a piece of equipment or a process to function as specified for a certain period of time correlates directly with the quality of an organization’s integrity and reliability program. Reducing and/or eliminating the probability of equipment and process failure increases the integrity and reliability of an organization’s operations. This in turn reduces production cost and increases the return on investment for capital expenditures.
Another area of risk that companies can invest, is the development of their workforce. Investment in workforce competency development is paramount to optimizing organizational performance. One of the best times to increase workforce development activity is during an industry-wide slowdown.
While there will always be companies that during an industry-wide slowdown, cannot afford to keep staff on because they don’t have the financial “war chest” to do so, there are also those that do have the “war chest” but choose to disengage with employees anyways. When they do, they are doing so at potentially great cost to the organization’s long term success.
One of the best ways to determine the impact of disengaging with employees during an industry-wide slowdown is to engage actuaries. Actuaries are mathematicians that specialize in the financial impact associated with risk and uncertainty. They can look across an organization’s entire operation, pull in the necessary data to identify areas of risk and the financial impact if a risk manifests into a reality.
What’s the financial impact associated with the risk of letting go of an organization’s most valuable asset during an industry slowdown? The uncertainty can be reduced, and good decisions made when solid quantifiable information is provided by actuaries.