Peabody Energy - Project Risk Management for an Australian Mining Company - Example

Project risk management Name Date Course Executive summary Peabody Energy is an Australian company that has several mines and it intends to extend its mining operations at Metropolitan mine. The project is prone to risks and hence the writing of the report regarding the risk management using the AS/NZS ISO 31000:2009 framework. The main am of the project is to carry out the extension in order to produce more coal that will satisfy both the domestic and the international market. The main purpose of the report is to identify the risks that are likely to be encountered during the operations. Most of the identified risks in the project are fatal and also have negative economic and environmental impacts. The Australian AS/NZS ISO 31000:2009 method will be used for the purposes of managing the risks during the extension project. Various external stakeholders will be involved in the project. This includes the community, the government and the environmentalist groups. A proper communication and consultation mechanism will be put in place for the purposes of ensuring that the stakeholders have all the information regarding the risk management process of the company. A proper communication process will also plays an important role in terms of identifying any new risks during the operations and hence solving it. The project has also established the context that will be used for the purposes of defining the parameters that will be used during the risk management process. This mainly involves the risks, its severity and the consequences that it may have on the project. Each of the stakeholders in the project will have a different responsibility in the risk management process. However, the company has the greatest responsibility as it is will directly involved in the implementation of the project. Accidents during the extension project are one of the main risks that have been identified. Explosions and lack of adequate personnel is also a probable risk to the project. This is because of the complicated nature of the operations that need to be carried out during the project. Tables will also be used during the risk identification and analysis process. This is for the purposes of establishing the impacts of the risks in relation to the stakeholders and the environment. Three major risk assessment techniques have been used for the purposes of assessing the risks involved during the project. The monitori8ng and review process of the risks is also important during the risk management. It is also recommended that the risk management process should be followed closely for the purposes of managing the risks during the extension project. Project Risk Management Introduction The mining industry is a primary industry in Australia and it plays a significant role in building the economy. Coal mining is popular in the country and several companies have invested in it. Peabody Energy is one of the major mining companies in the country. The company operates several mines in the country which are mainly for extracting coal. The metropolitan mine is one of the mines that is operated by the company and it is located in New South Wales. It has a workforce of about 570 workers and it specializes in the production of coking coal for both the export and domestic market (Peabody Energy, 1). In the year 2012 alone, the mine was able to produce 2.1 million tones of saleable coal which is an indication that the mine operates on a large scale basis. The coal mining process is also risky as the mining operations takes place underground. This means that the workers face a huge risk incase it collapses. Safety measures and risk prevention strategies are thus important for the purposes of dealing with the risks during the mining operations. The mining processes in Australia have also been criticized in the past by the environmentalists. This is because of the negative impacts that some of the operations have on the environment. The risk management practices are also important in terms of controlling the negative environmental impacts from the mining operations. In the past accidents have occurred at different mines due to failure of putting in place risk management strategies. The laws and regulations in Australia are also aimed at ensuring that the risks associated with mining are reduced (Mason, et al, 6). It is thus mandatory for the companies to ensure compliance for the purposes of managing the risks. The Metropolitan mine has undergone several expansions in the past for the purposes of boosting its capacity and replacing the worn out components and equipment. The latest expansion was carried out in the year 2009 after it was approved by the government. A total of A $ 70 million was used during the expansion project. Currently the company seeks to carry out further expansion of the mine for the purposes of increasing its production capacity. The risks always increase whenever the mining operations are expanded. The paper thus discusses the risks that may result from the expansion by using the AS/NZS ISO 31000:2009 framework. Project scope The scope of the Metropolitan Mine expansion will be comprised of the following: Upgrading the existing operations. Increasing on the operations area of the mine. Increasing the production capacity. Building underground mining structures. Building the underground facilities and installing mining equipment. Project purpose The demand for coal in both domestic and international market has been on the increase. This means that company has to produce more in order to meet the demands of the customers. The production means of the coal also requires improvements for the purposes of preventing the negative environmental impacts. The expansion project will thus be useful to the company and the economy as it will lead to the generation of more revenue. Risk management Plan and purpose According to AS/NZS ISO 31000:2009, risk is defined as effect of uncertainty on the objectives. The risk management plan is therefore involves the coordination of activities to direct and control an organization with regards to risk. In the mining sector, the risks are known for causing economic losses as well as loss of lives. The main purpose of risk management is to safeguard the mine against the losses that may be brought about by the risks. The risk management plan for the Metropolitan mine will revolve around the engineering processes that will be carried out during the expansion of the mine. The risk management plan will involve the description, analysis, evaluation and recommendations. This is for the purposes of ensuring that all the risks related to the expansion project are identified in advance. The risks that are involved during the drilling and construction that leads to the expansion will also be analyzed during the process. Risk management processes The AS/NZS ISO 31000:2009 framework is the method that will be used for managing the risk. The diagram below shows the steps that will be used for the purposes of managing the risks during the expansion of the mining process. Risk management process Communication and consultation The internal and external stakeholders play an important role during the risk management processes. Communication and consultations with the stakeholders is therefore required at all stages of the risk management. The company will be required to develop a communication and consultation strategy at an early stage (Rampini, et al, 275). The basis on which decisions are made can only be understood by the stakeholders in the presence of an effective communication and consultation mechanism. It is also important to not that the stakeholders will be affected by the risks during the project expansion. During the project expansion, communication will enable the stakeholders to know their roles and responsibilities in relation to the management of the risks. The expansion of the Metropolitan mine is a complete process and it will require frequent communication and interactions between the internal and external stakeholders. Meetings should be held every week for the purposes of ensuring that each stakeholder is aware of the progress of the expansion project. Emphasis should also be placed on how to reduce the risks during the expansion project. On the other hand, it is also important to note that the external stakeholders will require information regarding the critical incidences during the expansion project. Some of the risks may also require the internal stakeholders to carry out emergency meeting in order to find ways of dealing with the risks (Hopkins, 110). The metropolitan mine expansion project should also consider using technology in order to enhance the communication process. Internal and external project stakeholders Internal stakeholders Responsibilities Peabody Energy Carrying out the expansion of the mining project. Offering technical expertise during the project expansion. Overall responsibilities of the project. Supervision of the project. External stakeholders Interest Environmental groups Monitor the environmental impacts of the project to ensure that the environment is not polluted. Local community Ensure that the company supports the community during the project. Employment Government Licensing and monitoring the project for compliance. Establishing the context Establishing the context will play an important role in terms of ensuring that the company is able to meet its goals and objectives in terms of the risk management. The internal and external parameters that guide the process are also identified through the establishment of the context (Saleh, et al, 770). The main objective of risk management during the expansion of the mining operations is to ensure that duty to care is exercised and negligence is eliminated. This is because negligence and breach of duty to care are usually linked to most of the risks in the mining industry during the expansion programs. The context is also for the purposes of ensuring that the environment is not polluted during the process (Christoffersen, 15). Mitigation, avoiding, sharing and transferring the risks are the actions that will be taken by the company whenever a risk is identified. The company will have to ensure that the internal stakeholders work closely with each other for the purposes of ensuring that the risks are controlled. The company will allocated the different personnel the responsibilities of managing the different risks that will be identified during the expansion process. This will play an essential role in ensuring that the company manages the risks effectively. Rating and evaluating of the risks will be carried out in accordance with the AS/NZS ISO 31000:2009 criteria. This will involve the categorization of the risks for the purposes of ensuring that the significance of the risk is established during the expansion process. Likelihood Consequence Negligible Moderate Extensive Significant Almost Certain Medium High Very high Very high Likely Medium High High Very high Possible Low Medium High Very high Unlikely Low Medium Medium High Rare Low Low Medium High Risk Analysis Matrix Risk assessment The risk assessment involves the general process of identifying, analysis and evaluation of the risk (Lins, 540). During the risk identification process, the company will be required to clearly identify the sources of risks and the impact areas. This will mainly involve the activities that will be used during the expansion process. Drilling, construction and installation of machines will be the main risk areas as heavy machinery will be used. A lot of focus should also be placed on the consequences of the risks as the risks in the mining industry may lead to loss of lives. Appropriate tools and techniques should be applied during the process of identifying the risks. Hiring the services of the experts will also be required for the purposes of ensuring that the risks are identified and managed. Developing the understanding of the risk is should also be carried out by the company during the process of risk analysis. The positive and negative impacts of the risks will also be identified during the process of analysis. This will ensure that the company is able to put in place measures that will be useful in dealing with the risks. The tangible and intangible impacts of the risks can also be used during the analysis. This will equip the company with adequate knowledge that will be useful for making decisions. The risk evaluation should also be carried out by the company by making a comparison between the risk identified and criteria established. The company should rely on the results of the evaluation for the purposes of making decisions. However, the decisions should be in accordance with the legal and regulatory requirement. Risk Impact Mining accidents The mining accidents may lead to loss of lives and financial losses. Incorrect coal resource calculations The company will suffer financial losses and will be unable to meet its demand. Gas explosions Gases are usually encountered during the drilling process and may explode leading to death of workers. Poisonous gases Poisonous gases may cause suffocation and death of workers. Shortage of machinery and local manpower The project expansion will be delayed as productive time will not be well utilized. Harsh climatic conditions Delay of the project and death of employees Gas leakage A mixture of gases including large amounts of carbon dioxide may be released in the atmosphere resulting to pollution. Denuding of the mountains and soil erosion The ground may be left bare and mountains denuded due to the mining expansion activities. Waste disposal Some of the wastes from the mine may be poorly disposed leading to environmental pollution. Risk identification table Initial risk rating Final risk rating Risk ID Risk description Likelihood Consequences Rating Treatment Likelihood Consequences Rating 1 Mining accidents Almost certain Significant Very high Safety measures should be put on at the site Possible Extensive High 2 Incorrect coal resource calculations Possible Extensive High Technology will be used for the resource calculation process. Unlikely Negligible Low 3 Gas explosions Possible Extensive High Safety measures will be put in place to protect the workers and technology will also be used to detect explosive gases Possible Moderate Medium 4 Poisonous gases Possible Extensive High Mechanisms for detecting the types of gases will be put in place Possible Moderate Low 5 Shortage of machinery and local manpower Possible Extensive High Outsourcing of equipments and manpower will be done Unlikely Negligible Low 6 Harsh climatic conditions Almost certain Significant Very high The project managers will work closely with the weather department Possible Extensive High 7 Gas leakage Almost certain Significant Very high Environmental impact assessment will be carried out Possible Extensive Medium 8 Denuding of the mountains and soil erosion Possible Extensive High Structures will be put in place for the purposes of preventing soil erosion Possible Moderate Medium 9 Waste disposal Possible Extensive High A consultancy firm will be hired to advice on the best mechanism of waste disposal Unlikely negligible Low Risk matrix for the project Risk assessment techniques Failure mode and effect analysis This method is essential in identifying the risks and also gives solutions that ensures that the risks are minimized (Shashi, 8). This technique will be used in the project and it will ensure that the identified risks are assessed. Probability, delectability and severity of the risks are usually the main concepts of risk assessment using this technique. The risk probability numbers are also used for the purposes of determining the severity of the risks. Initial risk rating Risk ID Risk description Probability Severity Detectability Rate priority number 1 Mining accidents 8 10 8 640 2 Incorrect coal resource calculations 4 10 4 160 3 Gas explosions 3 10 3 90 4 Poisonous gases 5 10 5 250 5 Shortage of machinery and local manpower 6 10 6 360 6 Harsh climatic conditions 8 10 8 640 7 Gas leakage 4 10 4 160 8 Denuding of the mountains and soil erosion 5 10 5 250 9 Waste disposal 3 10 3 90 Failure mode and effect analysis table Final risk rating Risk ID Risk Treatment Probability Severity Detectability Rate priority number 1 Safety measures should be put on at the site 6 10 6 360 2 Technology will be used for the resource calculation process. 2 10 2 40 3 Safety measures will be put in place to protect the workers and technology will also be used to detect explosive gases 2 10 2 40 4 Mechanisms for detecting the types of gases will be put in place 3 10 3 90 5 Outsourcing of equipments and manpower will be done 4 10 4 160 6 The project managers will work closely with the weather department 5 10 5 250 7 Environmental impact assessment will be carried out 2 10 2 40 8 Structures will be put in place for the purposes of preventing soil erosion 4 10 4 160 9 A consultancy firm will be hired to advice on the best mechanism of waste disposal 2 10 2 40 Risk matrix The risk matrix plays a vital role in determining the likelihood of a risk. Scores are also assigned to each of the risks for the purposes of determining its consequences. The company will have to utilize this method in order to determine the likelihood of the risks that it may face during the mining extension. However, it is also important to note that this method is not conclusive and it only gives a brief idea regarding the risks. Fault tree analysis This technique of risk assessment involves the establishment of the system failure. The top system failure which is known as the event is usually established through the use of this method. This technique can be used in the project for the purposes of analyzing how the top events can lead to the failure of the whole project due to risks. Monitoring and review According to AS/NZS ISO 31000:2009, the monitoring and review process should be planned as part of a continuous surveillance of the project. The project should also ensure that the responsibilities for monitoring and review are clearly defined. All the aspects of the risk management process should be considered during the monitoring and review. The controls should be efficient and effective during the process of monitoring and review (McShane, 649). The lessons learnt from the previous events should also be taken into account during the monitoring and review process. This is important for the company as it has carried out mining extension projects in the past on the same mine. Records for all the risks should also be kept for the purposes of ensuring that the risks can be traced and future improvements made. It is thus important for the company to ensure that the results of the monitoring and review process are recorded both internally and externally as it will provide an input for the risk management framework. Recommendations and conclusion In conclusion, the mining extension project will involve various activities and it will also have a huge financial implications. It is evident that the risk management will play an important role in terms of managing the risks during the mining extension project. This is because the project is likely to encounter a lot of risks that may be costly to the company. Some of the risks may result to the death of the workers while other risks may lead to economic losses to the company. It is also evident that the risk management in the company will require the efforts of different stakeholders in the project. Each of the stakeholders should however play their roles in order to manage the risks. Communication and consultations between the stakeholders will also be useful during the risk management. This is because it will ensure that the stakeholders are aware of the progress of the risk management. It is also evident that the risk management process will involve three major steps. This is for the purposes of ensuring that the risks are identified in advance and managed. Accidents during the mining extension process forms the bulk of the risks and it may negatively impact on the project. It is also evident that the environmental problems may also be experienced as a result of the risks during the project. This is because the project involves the extraction of coal which can produce high levels of carbon dioxide. It is recommended that the company should ensure that the risk management plan is followed strictly. This will ensure that the risks are identified and managed effectively. It is also recommended that the company should seek the services of an expert during the process of identifying the risks. This is for the purposes of ensuring that more risks are identified in advance. All the legal and regulatory requirements should be considered in the risk management plan in order to ensure compliance. This means that the organization has to carry out extensive consultations to identify all the legal and regulatory requirements. Past experiences regarding the risk management practice should also be considered during the process. This is for the purposes of ensuring that improvements are made and past mistakes are not repeated. It is also recommended that the company should work with the members of the community for the purposes of ensuring that the community is not impacted negatively by the project. The company should also recruit experts in the environment in order to ensure that the activities of the project do not impact negatively on the environment. An environmental impact assessment should also be carried out in order to identify the environmental risks. It is also recommended that the project should strive at attaining high standards by using the concepts of AS/NZS ISO 31000:2009 when developing the risk management plan. It is also recommended that the company should be fully prepared to deal with any other risks that may occur as projects are usually prone to new risks. Works Cited AS/NZS ISO 31000:2009. Risk management— Principles and guidelines. Australian/New Zealand Standard, joint Technical Committee. 2009. Peabody Energy. The metropolitan Mine. Retrieved on 12 March 2014 from, 2009. Mason, Claire M., et al. "“For the benefit of Australians”: Exploring national expectations of the mining industry." Resources Policy 41 (2014): 1-8. Rampini, Adriano et al. "Dynamic risk management." Journal of Financial Economics 111.2 (2014): 271-296. Hopkins, Andrew. "Risk-management and rule-compliance: Decision-making in hazardous industries." Safety science 49.2 (2011): 110-120. Saleh, Joseph et al. "Safety in the mining industry and the unfinished legacy of mining accidents: Safety levers and defense-in-depth for addressing mining hazards." Safety science 49.6 (2011): 764-777. Christoffersen, Peter F. Elements of financial risk management. Academic Press, 2012. Lins, Karl V."Does fair value reporting affect risk management? International survey evidence." Financial management 40.3 (2011): 525-551. Shashi Van de Graaff. "Corporate social responsibility, mining and “audit culture”." Journal of Cleaner Production 24 (2012): 1-10. McShane, Michael K. "Does enterprise risk management increase firm value?" Journal of Accounting, Auditing & Finance 26.4 (2011): 641-658. Read More