News Article 28/08/2008

Knowledge management can reduce risk and save money (MEC/ August/September 2008, p.32)

Applied in the right way, a knowledge management system can help reduce risk and avoid inefficiency, writes Dimitris Lyras*

For insurance companies, risk management is a calculated affair. They measure the probability of a certain event occurring and multiply it by the likely financial and social consequences. But because they are dealing with thousands, if not millions of policies, the calculations are statistical ones. Furthermore, because there is safety in numbers, if one policy goes wrong, an insurance company’s reputation will remain intact and the consequent likelihood of criminalisation will be virtually zero.

The concept of risk management for a ship operator is rather different. In his case, risk is not a matter of accounting or probability calculation, but a crucial factor in making decisions. Rather than using a mathematical formula, a ship operator’s decision depends on timely retrieval of relevant previous experience.

In addition to so-called ‘corporate memory,’ other factors for effectively managing risk include good coordination between personnel, sufficient discussion of issues at hand between everyone affected, experience in identifying potential risks, the ability to index this experience, and the ability to recall and apply this knowledge when needed.

A shipping company is comprised of many different actors who each pursue their own goals. These actors are often ignorant of the goal pursuits of the other actors in the organization which can result in inefficiencies. However, because ships have a captain to ensure a strict hierarchy and resolve conflict situations, different goal pursuits do not result in the attempt to pilot the ship in two different directions simultaneously.

Nevertheless, the fact is that the inefficiencies remain as there may still be instances when the captain cannot communicate with his staff in a timely fashion. For example, he may be working with the port pilot or dealing with a charterer when the chief engineer wants to let him know it is the ideal time to undertake some repairs. In such cases, one or more actors has to sit idly by while time and money are wasted.

How can these situations (and financial losses) be avoided? A system is needed for tracking multiple goals and plans, which in turn depends on managing the information – or ‘enterprise data’ – that is being generated on board and ashore. In this way, it is possible to take mitigating steps to avoid complicated problems such as a crucial spare delivered to the wrong port due to a last minute change in sailing itinerary and the knock-on effects this has on safety.

The irony is that this information is known in advance but tends to be scattered across multiple e-mail conversations, internal documents, or in the heads of crew-members who had to deal with situations when they first arose. As a result, the larger picture is blurred because of too much attention to detail.

Knowing what is going on at the highest level is possible through the intelligent indexing of enterprise information that takes into account shipping processes and understands where every piece of data fits in. In very small organizations, this indexing can be done by an individual, but in larger enterprises, this task is more efficiently performed by a knowledge management system, such as Task Assistant from Ulysses.

Such systems are designed to recognise whether a company has seen a given situation in the past and whether the actions that were taken at that time were correct or if they were problematic and need to be adjusted. At the root of this approach is the ability to quickly retrieve similar past information that closely matches the situation at hand. For this to work, it is important for operators to insist that documentation, discussions, and decisions taken to reduce the risk or solve previous events are captured and stored. In this way, the software can begin to discover trends and make generalizations about them.

For software-based knowledge management to be successful, it has to be programmed to understand the goals of an organization in order to determine what information is relevant and what is not. It also has to be designed to quickly and easily absorb information about unfolding events. While this talent is second nature to humans, it has traditionally been difficult to reproduce mechanically. However, recent advances in software engineering has produced ‘smart software’ capable of improving information flow within an organization, which results in more effective risk management and less lost opportunities.

* Dimitris Lyras is advisor to the board of directors at Ulysses Systems, which has recently launched a new blog where you can read and comment on articles on the application of knowledge management principles in the shipping industry: