Commentary | Risks and Rewards: Risk Management Strategies

Is Your Business Prepared for the Worst?

Tags: Supply Chain Management, Security, Risk Management, Logistics, Supply Chain

Raymond G. Monteith, MA, CRM, is Senior Vice President, Risk Control Services Leader – Canada, HUB International Limited, 604-269-1962

Disasters and tragedy happen every day. From fires and theft to severe weather events, we experience disruptive incidents on a regular basis. So how prepared is your business to withstand a crisis? How well have you incorporated risk analysis and crisis preparation into your business operations?

Effective risk assessment depends on using our imagination to evaluate multiple risk indicators and combine them into scenarios that might be outside of normal experience. This is the realm of rare events that are often conveniently characterized as black swan or perfect storm events. The terms suggest the events have never been observed or experienced before and are therefore impossible to predict and prepare for.

But the use of these terms may simply be an excuse for ignoring signals and failing to anticipate events despite the evidence provided by industry experience and near-miss accidents.

The 2011 tsunami that damaged the Fukushima nuclear reactors reached a wave height of 14 meters. That wave height was not unprecedented and had been exceeded by wave heights estimated up to 20 meters in previously recorded events. Despite evidence of the potential for significantly higher wave heights, the Fukushima Daiichi nuclear reactors were designed to withstand only a wave height of up to 5.7 meters.

Recent changes in rail tank car standards following the tragic derailment in Lac Mégantic in July 2013 have focused on the failure of DOT-111 rail cars to withstand rupturing, the need for enhanced braking systems, and the need for speed regulation among other requirements. This is a positive and necessary step toward safer rail transportation.

Lac Mégantic was a mobilizing event that generated a number of recommendations for improvements to rail operations and the transportation of dangerous cargo, particularly crude oil and ethanol, in Canada and the United States. But the events that led to the derailment in Lac Mégantic were not without precedent either.

In January 2007, four runaway train cars rolled approximately 20 miles before colliding with two unoccupied engines outside of Irvine, Ky. The National Transportation Safety Board has warned of the inadequacy of the DOT-111 cars for decades, citing their well-documented tendency to rupture or puncture. The cars have failed catastrophically in derailments involving flammable or hazardous liquids. The need for speed regulators and positive train controls (PTC) is also well understood by the industry and is required under the Rail Safety Improvement Act of 2008. The recent Amtrak derailment in Philadelphia—which may have been avoided had PTC been implemented—highlights the importance of rapid implementation of acknowledged safety best practices.

While these two diverse and extreme events were outside of normal experience, neither was unimaginable. Had key risk indicators been acknowledged, it is conceivable the events could have been anticipated and their consequences less severe.

Clearly, a resilient business is one that identifies the signals and anticipates and prepares for a critical event well in advance. While not all critical events can be accurately predicted or prevented, planning for them is crucial. Thorough crisis preparation will enable a company to anticipate events and adapt operations accordingly.

There are four key steps required in crisis preparation:

  • Identify the risks. Understand what events could arise and imagine the worst-case implications of those events.
  • Develop a plan for rare events and worst-case scenarios that may never happen and develop effective and adaptable response protocols for managing through the crisis.
  • Communicate and implement the plan across the organization. Identify key actions and responsibilities and identify and train the people who will carry them out.
  • Test and evaluate the plan frequently. The midst of a crisis is not the time to discover the plan’s weaknesses. Crisis plans should be evaluated against and adapted for changing circumstances.

Because an event has not occurred in a company’s experience does not mean it will not occur. Effective risk analysis and crisis preparation is an essential business strategy.






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