Sunday, July 14, 2013
HSE management in Malaysia’s Oil & Gas industry
PETROLEUM exploration in Malaysia started in Sarawak when oil was first discovered in 1909 and first produced in 1910. Malaysia has the world’s 25th largest oil reserves and the 14th largest gas reserves. The oil and gas (O&G) industry is a complex and high risk field due to the location of its operations and proximity to hazards (Ken-Worgu 2011).
The Piper Alpha incident saw the destruction of an entire oil platform from fire and explosion, killing 167 people within 22 minutes. The Deepwater Horizon oil spill in the Gulf of Mexico in April 2010 killed 11 people and 4.9 million barrels of oil were discharged into the sea —- the largest oil spill ever. Both incidents indicate that accidents in the O&G industry can have catastrophic effects on people, the environment, assets and reputation.
In general, O&G projects take several years to complete and involve large capital outlays. Some are considered mega projects, due to the huge magnitude, high costs and significant number of interfaces, interdependencies, complexity, and risks (Jergeas 2008).
The use of time, cost and quality as indicators of project success have been applied to almost every industry. However, the inclusion of health, safety and environment (HSE) as a success factor in O&G projects has not been investigated; neither has it been included as part of project management models despite its big impact to the industry.
HSE involves protecting the health and welfare of people and the environment from adverse impacts due to human and industrial activities. It refers to a holistic approach of managing workplace hazards. Health and safety are defined as the degrees to which the general conditions promote the completion of a project without major accidents or injuries (Bubshait and Almohawis 1994; Ali and Rahmat 2010).
Research such as DeWit (1988) make two distinctions for project success (Prabhakar 2008). The first is between project success (measured against the overall objectives of the project) and project management success (measured against the widespread and traditional measures of performance against cost, time and quality).
The second distinction is the difference between success criteria (the measures by which success or failure of a project or business will be judged) and success factors (those inputs to the management system that lead directly or indirectly to the success of the project or business).
Murphy et al (1974) is the most authoritative research in the area of project success factors. This research outcome has a high level of agreement with the project success definition provided by Baker et al (1988) that project success is a matter of perception and that a project will most likely be perceived as an “overall success” if it meets the technical performance specifications and/or mission to be performed, and if there is a high level of satisfaction concerning the project outcome among key people on the project team, and key users or clientele.
As part of our research into HSE management as a success factor in addition to time, cost and quality factors, a quantitative study was undertaken with the administration of a questionnaire to project engineers and managers from major O&G companies in Malaysia. A total of 223 responses were received.
In the study, quality was ranked the most significant factor of project success. O&G companies define quality on more technical aspects and contractors, vendors and service providers who accomplish these requirements are deemed to have achieved quality in their deliverables.
Cost is the second most influential factor. It plays an important role in the success of a project (Atkinson 1999), which is why cost management and prevention of cost overruns is taken into serious consideration. This could be because O&G projects are usually mega projects with huge budgets and these costs have to be managed prudently.
Time ranks third in significance because scheduling is always an objective in most projects. However, unlike cost which can be reduced through various initiatives, it is very difficult to reduce time when running a project. It is usually unplanned circumstances such as bad weather, natural disasters or political instability which are not within the control of the project team, that lead to possible delays.
HSE is the least significant variable although the importance of HSE management is acknowledged during the execution of the project – integration of HSE in design, compliance to HSE legal and company requirements, management of HSE contractors and so on.
HSE is rarely placed as one of the criteria to measure project success. At the end of a project, when it is evaluated for success or failure, HSE performance is not accounted for, leading to the view that HSE is not key to project success.
But when there are no criteria for HSE, the outcome of HSE performance has very little or no influence on project success. Therefore, evaluation on a completed project might reveal that HSE is not significant to project success especially since HSE is not a criterion set upfront.
The finding that quality, cost and time are key components of project success also corresponds with the findings by Baccarini (1999).
Although HSE is not considered influential to project success, there is no agreement on what constitutes project success as iterated by past studies from Murphy et al. (1974), Pinto and Slevin (1988), Gemuenden and Lechler (1997) and Shenhar et al (1997).
Therefore, time, cost and quality may not be the only factors that lead to project success. The study believes that there are other factors which can impact project success which have yet to be researched.
Kulvinder Kaur is an environmental management executive with a major oil and gas company in Malaysia who completed her Master of Project Management at Curtin Sarawak and graduated in April.
Dr Anbalagan Krishnan is Accounting Department head and senior lecturer at Curtin Sarawak’s School of Business.