Energy Risk Engineering Insights

In the world of industrial risk management, there’s a crucial distinction between code compliance and true risk consulting that many organizations fail to recognize. This difference becomes particularly apparent when comparing engineering approaches across different market segments, from middle-market commercial operations to multi-billion dollar energy companies.

The Code Compliance Trap

Many engineers, particularly those serving middle-market clients, rely heavily on codes and standards as their primary tool for driving risk improvement. While this approach provides clear, actionable guidance, it can sometimes miss the forest for the trees. Code compliance becomes a checkbox exercise rather than a strategic risk management tool.

The challenge with this approach is twofold:

1. It assumes codes are universally applicable and always represent best practices
2. It fails to consider the broader business context and operational realities

The Risk Management Evolution

In contrast, engineers serving larger industrial clients, particularly in the energy sector, often take a more sophisticated approach. These risk management advocates understand that while codes provide important baseline requirements, they’re written to protect general safety and property—not necessarily to optimize an owner’s operational efficiency or profitability.

This more nuanced approach considers:

• Total cost of risk versus operational needs
• Custom solutions rather than one-size-fits-all standards
• Business objectives alongside safety requirements
• Performance-based alternatives to prescriptive requirements

Market Dynamics and Risk Perception

The divergence in approach often stems from different market realities. Smaller organizations frequently believe they can simply shop their insurance program for competitive bids, assuming there will always be a carrier willing to take on their risks. This mindset can make them resistant to implementing substantive risk improvements.

Larger organizations, particularly in specialized industries like energy, understand that their insurance capacity is limited. They recognize that poor loss history can effectively lock them out of markets, making strategic risk management crucial for long-term sustainability.

Case Study: When Code Compliance Increases Risk

Consider NFPA-850’s requirement for protecting power supplies to steam turbine lube oil pumps. The standard requires separation or fire wrapping of AC and DC power supplies to prevent simultaneous damage from a single fire. While this might seem logical at first glance, it actually demonstrates how blind code compliance can sometimes increase risk.

The requirement assumes maintaining power supply is always beneficial—a principle borrowed from nuclear industry standards where continuous cooling is crucial. However, in a turbine lube oil fire scenario:

• System integrity is already compromised
• Bearings are likely already damaged
• Continuing oil flow only feeds the fire
• Rapid shutdown becomes the primary safety goal

This example illustrates why sophisticated risk engineering must go beyond code compliance to consider:

• The intent behind code requirements
• Operational context and realities
• Actual risk mitigation priorities
• System-specific safety goals

Moving Forward

The evolution from “code cop” to risk advisor represents a crucial maturation in engineering consultation. It requires:

• Deeper understanding of client operations
• Sophisticated analysis of risk-reward trade-offs
• Ability to quantify risk improvement ROI
• Courage to recommend deviation from codes when appropriate

For engineering teams making this transition, success lies in developing the confidence to move beyond prescriptive requirements while maintaining rigorous analysis to justify alternative approaches. It’s about understanding that true risk management often requires more nuanced solutions than any code can provide.

The future of risk engineering lies not in rigid adherence to standards, but in thoughtful application of risk management principles that balance safety, efficiency, and business objectives. This evolution becomes increasingly crucial as industrial operations grow more complex and traditional insurance markets more constrained.