Saudi Aramco in Saudi Arabia - Embedding Business Continuity Management in Oil and Gas Industry - Research Paper Example

EMBEDDING BUSINESS CONTINUITY MANAGEMENT IN OIL AND GAS INDUSTRY - A CASE STUDY OF SAUDI ARAMCO IN SAUDI ARABIA: LITERATURE REVIEW CHAPTER

Research Question:

1. To discover how Saudi Aramco implement Business Continuity Management within its organization.

2. To evaluate the awareness of staff and managers of the existing BCP in the organization.

3. To explore whether there is a periodic training of staff -so that they know their responsibilities in case of a disruption.

4. To evaluate whether the firm undertakes periodic testing of the plan to review and update the plan.

• Introduction

The oil and gas industries play a fundamental role in the global economy since arguably all economic activities on the planet depend on the sector in one way or the other (Cowie and Mously, 2008).Thus, given the significance of the petroleum industry, mechanisms have to be put in place to ensure its operations are cushioned from the effects of the risks that the sector is susceptible. It is worth noting that risk management is an integral element in all business activities. Sustainability can only be accomplished by forecasting and mitigating risk factors (Gibb and Buchanan, 2006). Notably, despite the lucrative nature of the petroleum industry, the sector is susceptible to numerous risk factors that can jeopardise its operations if no handled appropriately. The advent of huge volumes and toxic materials, extremely high pressures and temperatures, high capital costs for equipment and plant infrastructure as well as potential off-shore impacts that span hundreds of kilometres from the site makes it prudent for risk management techniques to be employed in the sector (Bradfield et al., 2005). The essay will explore the concept of risk and business continuity with regard to the oil and gas industry. Ideally, it will analyze the primary sources of risk in the petroleum sector as well as the manner in which business continuity management tends to solve those issues (Clas, 2008). Similarly, the paper will analyze the implementation of business continuity management in the United Kingdom as well as Saudi Arabia by comparing the practice in the two nations. Ideally, it will evaluate the success factors in each case as well as identify some of the obstacles or rather challenges that face successful implementation of business continuity management.

Background of Business continuity management

According to Herbane, Elliott, and Swartz (2004), business continuity management is about organizations taking responsibility of their operations in the sense that they ensure the firm stays in control even in the face of disruptions. Ideally, business continuity is all about developing and improving a company’s resilience when it is susceptible to all manner of hazards and disruptions. The practice of business continuity has been in practice since the 1970s however, its scope has changed over time (Niemimaa, 2015). Traditionally, business continuity was employed Vis a Vis with risk management. However, with time its scope changed and focused on responding to operational and technical risks that threaten the firm’s recovery from interruptions. Currently, business continuity management is a fundamental element in all types of organizations especially those whose operations are technical in nature (Paton and Hill, 2006). As much as firms might imply risk contingency plans, business continuity management is the only process that is response in ensuring continuity of operations even in the event of disruptions. All the other techniques offer alternative mechanisms to deal with hazards and disruptions but they do not guarantee resilience.

It is prudent that a majority of projects fail merely because they fail to implement elaborate business continuity management techniques (Clas, 2008). The oil and gas industry is a critical sector but a cross analysis indicates that it has strong business continuity management practices. Given the potential impact in disruption in the petroleum industry, firms have invested in business continuity techniques to ensure production continuity in the face of all manner of disruption (Niemimaa, 2015).

• Risk Management, Business Continuity Management and Continuity Plan

Risk management serves to isolate all manner of risk events within an organisation’s operations including strategic, financial, technical, managerial, legal, environmental as well as geopolitical that can adversely affect the productivity of the firm. In essence, risk management enables organisations to mitigate the risks that pose adverse effects to the accomplishment of its goals and objectives.

Source: Moelich Project Management (2016).

According to Watters (2014), business continuity management is a mechanism for reducing the impact upon an organisation after a risk event has occurred through the restoring the normal operations at the company. A case in point, in the financial sector, risk management is employed to identify fraud by implementing business process analysis and as a result, it will control the risk events that will be determined. However, failure of the systems that will be tasked with identifying and analysing risk activities is beyond the scope of risk management; thus, business continuity management is implemented to ensure the sustainability of the firm’s operations (Zhou et al., 2010). Alternatively, Planning and Planning (2005) define business continuity management as an integral business function that includes frameworks, standards, procedures and policies that are aimed at ensuring critical operations are maintained promptly in the event of any form of disruption.

Source: Cambridge Risk Solutions(2016)

It is evident that business continuity management is composed of four primary phases that include risk impact analysis and risk assessment, business continuity strategy, implementation of business continuity procedures and finally exercising and testing of business continuity processes (Rothwell, 2010). Evidently, business continuity management is a separate organisational function whose scope is not embedded in risk management as a strategic regulatory procedure (Al-Taiban et al., 2013). Conversely, Smith (2003) asserts that a business continuity plan is a collection of information and systems that are developed, compiled and maintained for implementation in the event of a disaster or emergency. In other words, a continuity plan is a contingency framework that will be employed the moment a company’s operations are prone to a disaster or any other extraordinary event that will jeopardise normal business functioning (Cowie and Mously, 2008).

BCM play a key role in crisis management

Business continuity management plays an integral role in managing crises once they erupt in organizations. Ideally, risks are unforeseeable and at times might catch firms’ of guard despite contingency and mitigation measures being in place. In such scenarios, business continuity management plays a key role in mobilizing the right individuals to play key roles that will ensure the resilience of the organization (Clas, 2008). Ideally, the primary role of business continuity management is to implement the continuity plan that stipulates continued productivity even in the face of disruptions. In that light, business continuity management will ensure that the operations of the company will continue despite the impact of the disruption to ensure perpetual continuity of supply of goods and services (Cowie and Mously, 2008).

Notably, the oil and gas industry has been prone to numerous crises in the past that have threated to derail its operations. For instance, the cyber-attack on Saudi Aramco’s workstations in 2006 significantly affected the operations at the firms since it took it two weeks to recover from the crisis (Graham and Kaye, 2006). Despite the fact that the attack did not affect the physical operations of the firm, it exposed the vulnerability of one of the world’s most critical energy companies (Niemimaa, 2015). Ideally, after the incident, the government of Saudi Arabia partnered with the United States of America to come up with a more resilience business continuity plan that would cover any disruptions caused by such events. Similarly, civil war and ethnic clashes are yet another set of crises that have hit the global oil and gas industry. Ideally, the war in Darfur as well as the one in Iraq affected the operations of oil and gas exploration. The companies concerned were adversely affected since the war almost brought their operations to a halt ((Paton and Hill, 2006). Despite the peace deals that have been signed together with the implementation of continuity plans the two regions still remain susceptible to disruptions as a result of conflict.

• Sources of Risk in the Oil and Gas Industry

The petroleum industry is prone to numeorus risks given the nature of its operations. The primary sources of risks in the industry include health and saferty, infromation technology as well as operational practices.

Health and saferty

The oil and gas industry is the main producer of nearly all hydrocarbons that are consumed onearth. Thus, the amount of carbon and other ozeone gases that are emitted from the process are significantly high posing health problmes to the workers that are involved in the process (Paton and Hill, 2006). Notably, the fact that most of the exploration activities are conducted in complex geological locations makes the workforce to be vulnerable to health riks that can jeopadize their ability to work effectively and thus ensure continuity of operations (Hansson, 2004). Ideally, if an epidermic erupts in the operational camp of a petroleum compnay it is likley to adversely affect the operation of that firm since a significnat portion of the employees will succumb to the symptoms of the disease thus resulting into labor shortages that will affect productio operations (Graham and Kaye, 2006). The occupational environmnets for petrochemical organization are significantly dangerous since they expose the workers to flameable substances that can easily lead to disaters that willl jeopadize their saferty within the premises (Anchor and Sawalha, 2012).

Operational

The operation of oil and gas firms is prone to natural calamities such as earthquakes, flooding as well as tsunamis. Ideally, such occerences adversely affect the operation since they will hinder exploration of oil from the wells thus impacting the producivty of the compnay (Graham and Kaye, 2006). Unlike other technical risk that can be avaioides these can only be mitigated to reduce the risk of their impact since they are beyond the control of human beings. Additionally, terrorism and war pose serious riks to petroleum companies since they seek to jeopadize their operations through conflicts that spread to the areas of exploration (Randeree, Mahal, and Narwani, 2012). For instnce, in 2008 a terror group in Saudi Arabia attempted to attack the main production facility of Saudi Aramco but the mission was foiled. In other areas such as Iraq, Iran, Afaghanstan as well as Sudan the effects of war has greatly affected the operation sof the petroleum industry (Aleem, Wakefield, and Button, 2013).

Information technology

Cyber attacks are yet another source of risk in the oil and gas industry. Several attacks have been reported in the past targeting the systems for petrochemical companies with the aim of jeopadizing their operations. For instnce, the Shamoon, and Stxnet are some of the notable cyber attackts that have posed serious thtreat to the operations of oil the oil and gas industry (Pheng et al., 2010).

The technical nature of oil and gas industry makes it susceptible to safety, health and environmental risks. Employees in the sector are exposed to a wide range of risk factors that pose health and security risks thus jeopardizing the quality and quantity of the human resource in the industry. According to Rose (2006), human resource continuity is equally essential just like operational sustainability since a reduced labour force will adversely affect operations in the sector since productivity will significantly reduce affecting the supply chain in the market. That notwithstanding, the industry is experiencing new operational challenges as a result of the unfavourable environment in new exploration projects (Al-Qahtani et al., 2010).

• Business Continuity Management in Oil and Gas Industries

The petroleum industry is composed of several operations that include exploration, production, and transportation, refining and marketing of the end products. These operations are conducted at different stages thus forming the basis of categorising the oil and gas industry into two primary classes namely upstream and downstream. Upstream is the core to the oil and gas industry since it involves exploration and production of petroleum products (Al-Shehry et al., 2013). The upstream operations include activities such as searching for underground oil fields, drilling wells as well as redirecting the recovered commodities to the surface. On the other hand, downstream operations are concerned with processing, storing and marketing of oil and natural gas products. Despite the fact that gasoline and fuel oil are the primary commodities in the industry, there are other products that include, asphalt, jet fuel, lubricants as well as solvents and petrochemicals that are crucial in other in sectors of the economy (Gelb, Eifert, and Tallroth, 2002).

The petroleum industry is essential in numerous sectors of the economy since nearly all economic activities depend on oil and gas as a source of energy. In 2014, petroleum products accounted for 35% of the global energy demands (Clark, Doshi, and Maestro, 2016). The oil and gas industry is scattered around the world with oil majors being concentrated in the Middle East, Europe and the Americas.

Natural and artificial disasters can equally affect both offshore and onshore operations in the petroleum industry. For instance, a health pandemic will adversely impact on the health of employees in the sector thus resulting in reduced labour force that will ultimately impact overall productivity. It is thus prudent that ensuring human resource continuity is equally essential since it assists in maintaining sustainable operations in the industry (Jaatun et al., 2009).

• BCM in A Developed Economy Case of the United Kingdom

Business continuity management is an established function in the United Kingdom for managing risk from both internal systems and external disruptions. Krell (2006), states that with the Civil Contingency Act of 2004 empowers the local authorities to conduct sensitisation programs in enlightening organisations on the importance of embedding business continuity management in their operations (Adeniyi, Perera, and Zhou, 2014). In essence, the practice of business continuity is a function that has been ingrained in the organisational culture of firms across the country. The British Standards for Business Continuity BS25999 provided the benchmark for developing and implementing business continuity. Ideally, the standards are not only applicable in the United Kingdom alone, since organisations have adopted the same in different parts of the world. Pettigrew, Thomas, and Whittington (2001) point out that BS25999 are designed in a manner that suits all firms irrespective of their size of the sector in which they operate. Ideally, that is among the factors that have facilitated the implementation of business continuity management practices in a majority of firms across the United Kingdom.

Business continuity management in the United Kingdom oil and gas industry is elaborate since a majority of the firms have complied with British BS 25999. Once a company is certified with BS 25999 it implies that it has sufficient continuity frameworks that will enable its operations to continue even when faced with disruptions (Järveläinen, 2012). For instance Teed Oil Company is among the petroleum companies that have employed elaborate business continuity management in their operations (Sadgrove, 2015). Ideally, the company has provisions for all manner of disruptions ranging from personnel, process, supply chain, telecommunication, technology as well as critical information. In essence, the continuity plan that Teed Oil company implements has provisions for a wide range of risks that the firm is susceptible to in its line of operation (Hiles, 2004). Similarly, Cryotrol Petroleum Company is yet another firm that has made a god use of business continuity management. Ideally, the firm has incorporated BCM in its strategic operations thus ensuring that business operations are always perpetual in all manner of eventualities.

• Business Continuity Management in Saudi Arabia’s Oil and Gas Industry

The petroleum industry is fundamental to the Saudi Arabian economy. Petroff (2016) points out that the Saudi Arabian economy depends on proceeds from oil since they account for nearly 87% of the country’s gross domestic product (Cammett et al., 2015). Saudi Aramco is a state-owned company that is a tasked with managing all the country’s oil reserves right from exploration, production and marketing. Evidently, Saudi Aramco is the largest oil producer globally accounting to 12% of the global oil share (Al-Khudiri et al., 2010). The company pumps an estimated 10.3 million barrels of oil per day more than any other single petroleum producer globally. Its closest competitor, Russia’s state-owned oil company Rosneft comes second with less than half the volume of Saudi Aramco (Petroff, 2016).

Source: Petroff(2016).

Oil and gas are so fundamental to the economy of Saudi Arabia to the extent that its economy essentially depends on proceeds from this industry to remain competitive globally. Despite the overreliance of the Saudi economy on oil, the country possesses one of the largest oil reserves in the world. It is estimated that the oil reserves in possession of Saudi Aramco are in the excess of 267 million barrels accounting for 16% of global reserves (Petroff, 2016). The resources give Saudi Aramco a competitive edge since its future operations are assured of continued oil supply. However, the massive oil reserves available in Saudi Arabia are not only critical to the local economy but also by other global trading partners (Ismael, Ismael, and Perry, 2015).

Business continuity management is increasingly growing popular among Saudi Arabia petroleum firms as a result of a more risk operational environment (Tammineedi, 2010). The Saudi Arabian oil industry is prone to numerous risks that threaten its sustainability if they are not managed effectively. Saudi Aramco is the main oil firm in the country and it has put in place an elaborate business continuity plan following a spate of attack on its facilities (Järveläinen, 2013). Ideally, for a long time the company faced the danger of terrorist attacks however, it is the cyber-attack in 2006 that revolutionized the business continuity mechanisms of the organization (Anchor and Sawalha, 2012) The company came up with measures that elevated the function of business continuity to be strategic and among the key aspects of planning. In that light, Saudi Aramco has implemented several contingency plans that will shield its operations from disruptions in the event of disasters. Information integrity has been enhanced since the firm off-site data backup plans that will ensure the safety of critical information in case the main servers are comprised by cyber-attacks (Tempel and Walgenbach, 2007).

Ideally, a few years ago, the industry was attacked by the Stuxnet virus that threatened to halt operations in the sector causing massive disruptions and millions of dollars in terms losses. It is evident that practices in the industry have not distinguished or rather isolated business continuity functions from risk management. Rogers and Ethridge (2013) state that for efficiency to be obtained in any given industry business continuity management ought to be isolated and employed as a distinct function from risk management since both serve different strategic purposes (Selley et al., 2013).

Conclusion

The chapter has explored the concept of risk and risk management by making an in-depth evaluation of the two terms with regard to the oil and gas industry. Relatively it analysed business continuity management, its application and the manner in which it influences efficiency in organisations. The chapter has been able to distinguish between risk management and business continuity management operations on the manner in which they are implemented to ensure sustainability of organisational operations. Similarly, the chapter explored business continuity management implementation in the United Kingdom where it analysed BS25900 and the manner in which it is employed across organisations. Finally, the chapter was able to investigate the Saudi Arabia oil and gas industry by exploring the economic significance of the sector to the local and international economies. Additionally, risk factors in the industry were examined as well as the measures that industry players have instituted in ensuring business continuity and sustainability in the sector.

It is evident that elaborate business continuity management ought to be incorporated to the strategic plans of an organization to ensure synchronization when responding to situations. Similarly, continuity plans ought to be formulated by taking into consideration the risks that are eminent to the operation of a firm with the contingency measures that are put in place. Ideally, organization should fashion their business continuity management practices in a manner that is in compliance with the international standards of organization to ensure uniform and acceptable practice. Based on the literature it is prudent that business continuity management is advanced in the United Kingdom oil and gas industry since a majority of the firms have complied with BS 25999 and at the same time they are ISO certified. In that light, it is evident that business continuity management has been elevated to be a strategic function that is critical in the sustainability of business operations. Ideally, the literature review has made insights into the practice of business continuity management both in the United Kingdom and in Saudi Arabia. The study informs a further investigation that will seek to evaluate the extent to which implementation of business continuity management influences positive outcomes in Saudi Aramco’s operations.