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EHS Regulatory Preparedness: The Ultimate Leading Indicator

August 4th, 2023 by Dakota Software Staff

EHS Regulatory Preparedness: The Ultimate Leading Indicator

Companies today exist within a complex and sprawling regulatory landscape that is constantly changing. One small misstep can mean serious consequences for an organization, from regulatory fines to heightened enforcement programs to workplace injuries that can change an employee’s life forever.

Conducting audits, training employees, and tracking incident trends are all critical to minimizing operational risk. At the same time, they aren’t enough to reduce EHS compliance risk. To do that, companies need to focus on leading indicators, including the determination of regulatory applicability for all of their locations and continually monitor internal and external changes to ensure their regulatory registers are up-to-date.

Below we explore why it’s so hard to achieve this, and how organizations should proactively measure regulatory preparedness as a leading indicator of EHS compliance management.

Keeping Pace with EHS Compliance Regulations

According to a report by the National Association of Environmental Managers (NAEM), the U.S. Code of Federal Register grew 28 percent, from 74,937 pages to 95,894 pages, between 2006 and 2016. While the growth rate changes from administration to administration, the sheer volume of requirements remains intimidating. Dakota Software’s regulatory analysts have supported our clients' proactive EHS compliance for more than three decades. In the course of their work, they’ve identified more than 100,000 action-forcing EHS-related requirements in the U.S. CFR, plus roughly 3,000 state exceptions. Of those, approximately 5,000 federal requirements are revised annually, as are approximately one-third of state requirements.

With this volume and complexity, it’s no wonder that keeping facilities compliant with federal and state regulations can require significant resources. Furthermore, minor updates to regulations can have big implications for how companies operate.

For example, proposed changes to OSHA’s decades-old Process Safety Management (PSM) standard are likely to have significant ramifications for industry. Not only does the proposed rule expand PSM regulations to oil and gas drilling, the final rule may also include new requirements around critical equipment, process hazard analysis, and third-party compliance audits.

In addition to keeping up with changing regulations, compliance with well-established requirements—or even knowing which ones apply to you—remains a struggle for many. Consider, for example, the fact that OSHA’s top 10 most frequently cited standards change little from year to year, highlighting the need for better visibility into compliance risk.

Using Leading Indicators and Lagging Indicators to Manage Compliance Risk

When it comes to managing EHS compliance, the end goal often targets performance outcomes like incident rate or injury costs. What’s important to understand, though, is that improving these outcomes requires companies to look upstream at inputs to the EHS management system itself.

In other words, they need to track leading indicators, not just lagging indicators. To grasp this better, let’s take a quick look at the difference between these two categories of EHS metrics.

Lagging indicators are rear-facing and reactive, describing past performance outcomes. Lagging indicators include metrics such as:

  • Total recordable incident rate (TRIR)

  • Days away, restricted or transferred (DART)

  • Workers’ compensation costs

  • OSHA inspection findings

  • Regulatory fines and penalties

Leading indicators are forward-facing in that they measure activities that correlate with and thus help predict EHS performance. Leading indicators include safety metrics like:

  • Percent on-time safety training compliance

  • Number of near-misses

  • Corrective action closure rates

  • Internal audit or inspection findings

Leading indicators can be harder to measure, and aren’t always top of mind for EHS leaders who spend a lot of their time fighting fires, so to speak. However, by making the effort to identify and monitor leading indicators, EHS leaders are empowered to proactively make critical adjustments before lagging indicators like incident rate tick upward.

Measuring EHS Regulatory Preparedness

While the leading indicators listed above can help identify potential safety concerns and compliance gaps, understanding your true compliance status requires looking further upstream. The NAEM report, Strategies for Managing Emerging Regulations, draws attention to the many challenges of staying ahead of regulatory changes. It offers strategies for staying up-to-date, mostly dependent on internal resources with the training and skills to effectively analyze and understand complex regulatory topics and the way they impact on the organization’s operations. As an alternative, they encourage the use of appropriate software tools, such as Dakota Profiler.

Profiler is built on an integrated regulatory database maintained by Dakota’s in-house regulatory experts who, as mentioned earlier, continuously monitor the federal register and state regulations for changes.

Within Profiler, site leaders are guided through a series of plain language questions to determine the applicability of regulations to their facilities. As regulations change, users are notified and guided through the necessary applicability checks to ensure their compliance profile and regulatory register are complete and up-to-date. This is visualized in the Profiler Gauge, which uses colored bands to represent Applicable regulatory domains, Not Applicable domains, and domains with Unknown applicability. Dakota clients will recognize 'yellow' as undesirable as it represents uncertainty and potential risk.

Thus, regulatory preparedness reflects the degree to which a site is aware of all the requirements they must meet—the very foundation of EHS compliance. In this sense, the regulatory preparedness score is the ultimate leading indicator, helping predict whether:

  • Compliance calendars are complete and accurate

  • A facility has the right permits and is prepared to meet the requisite deadlines

  • Internal audits verify compliance with the correct requirements and will effectively identify compliance gaps

  • A site is performing the tasks needed to meet their regulatory obligations

Tracking Regulatory Preparedness Across the Enterprise

Preparedness at the site level is important but corporate EHS leaders need to understand risk across the organization. To help companies do this, Dakota Software’s new business intelligence tool, Dakota Insights, provides a comprehensive view of each location’s Regulatory Applicability Status, presented as a percentage of unanswered applicability questions. With Insights, regulatory preparedness is no longer just a vague goal. Instead, it’s a quantifiable metric organizations can track to proactively minimize compliance risk at the highest level.

Insights allows teams to monitor regulatory preparedness by site, region, or business unit. It can also be rolled up across multiple locations, or the entire company, to provide visibility into enterprise-wide compliance. Users can incorporate this metric into custom dashboards and recurring reports, alongside leading and lagging indicators aggregated from the entire ProActivity suite, including:

  • Incident statistics such as DART and TRIR from Scout

  • Audit metrics and red flag findings from Auditor

  • Compliance task completion and overdue corrective actions from Tracer

Frequently changing EHS regulations mean that organizations today need a structured, systematic approach to staying on top of their compliance obligations. To make this more than just a lofty aspiration, companies must quantitatively track regulatory preparedness as a leading indicator of proactive compliance management. Combined with continuous regulatory updates, this provides a solid foundation for protecting workers and ensuring you aren’t caught off-guard by regulatory change.

Need help staying up-to-date? Sign up for Dakota’s free EHS Regulatory Alerts today!

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