The Risk Analysis (RA): Increasing the Size of the Net

Wow!  What a world we live in right now; volcanic eruptions that disrupt air travel (and more) in Iceland, Chile and Argentina; earthquakes in Haiti, Turkey, Pakistan and Japan; massive floods in Pakistan, China; devastating tornadoes in the US and brush fires in Australia.  That doesn’t even cover turmoil in the Middle East of the nuclear disaster that occurred inJapanas a result of the earthquake. Then you can add the hurricane’s in the Gulf of Mexico (Hurricane Katrina anyone?) and the massive tsunami in theIndian Ocean. 

Those are, for the most part, natural disasters and risk that exist; I haven’t even touched all the man-made risks that are out there.  This article alone could be pages and page long just listing the possible risks that exist to regions, countries, cities, communities and individuals; and you can add corporations in there too.  The list of risks and their potential to cause business impacts can be anything from something minor to something unbelievably major. 

With these events – and many others I haven’t mentioned – corporations need to be more vigilant when determining risks.  ‘Well, d’uh!’ I hear you say but it’s more than what you might think. 

Often, corporations look at the financial risk of doing business with clients, suppliers and partners (though many hit by the financial crisis may differ with that basic view) and to many times, they fail to see beyond this.  Sure, we can determine the risk of a flood, a fire or a hurricane (if you’re in an area that is impacted by them) but with the recent events occurring in the world, the viewpoint might need to be expanded.  Look at a couple of bizarre events I capture below that probably were never considered by risk professionals or BCM/DR/ERM professionals.

  1. In theUS, an eagle carrying a deer it had just caught dropped it on power lines and the power went out for a large area (Montana,USA).  Who would have thought of that as a risk that could (and did) cause a power outage?  Probably no one.
  2. InJapan, Jellyfish have been a problem for a nuclear power plant where it can’t get the water it needs from the ocean into cool the various components.  Why?  Jellyfish have been plugging up the intake valves and causing blockages.  Again, would anyone have thought of this? 

Both of these events had significant impacts and both were probably never identified as risks prior.  I mean, who would have thought of either of these as potential threats/risks?  In many cases, the most bizarre and overlooked items are now becoming real.

            Think of the multiple volcanic eruptions; many corporations would have dismissed these as risks with an incredibly low probability and impact because they were no where near a volcano.  But, the Icelandic, Eritrean, Malaysian/Indonesian and Chilean eruptions showed us that they can have far reaching impacts and not just on those that live near by.  Dust clouds stopped air traffic and caused widespread problems for thousands (if not millions) of people. 

I think the basis risk matrix is coming to an end or at least it’s time to expand it from the probably right through the highly imaginative and improbable.  Don’t get me wrong, it is still valuable as it is and is a point of reference every corporation needs to ensure it performs.  The viewpoint that many risks will never occur can’t really be utilized any more because what was thought as ‘silly’ or ‘beyond worst-case’ is becoming every day occurrences and very real. 

            The world is still a big place no matter what anyone thinks yet at the same time it’s getting smaller.  There are more and more inter-relationships amongs people, corporations and communities and the dependencies are only becoming more and more prominent as time goes by.  No one (person or corporation) survives on their own (OK, hermits maybe…).  No company is an island anymore and based on the ever increased focus on supply chain management, the risks are becoming greater.  Even some ‘way out there’ ideas such as the bird and the dropped deer mention above, is becoming a real risk for corporations to consider.  As more and more humans increase their presence and encroach on forests and build roads and power lines, so to does the risk of animals causing issues. 

            The previously thought of worst case scenario is becoming a thing of the past and being replaced by newer – and stranger – worst case scenarios.  The net – or matrix – used to determine corporate risk (for BCM/DR/ERM) should be ever expanding to take into account current events.  If a deer was dropped on power lines inMontana, it can occur in other areas.  Sure, the probability may be smaller – if it exists at all – but it now should be considered. 

            The point is improbably and imagined risks (those that we used to laugh at) are becoming reality.  Current events are proving that day after day and corporations need to catch up and consider these risks.  Some of the risks – as bizarre as they may be – can be folded into other, previously identified risks and just be another trigger.  For example, I’m sure many thought of a power outage as a risk (the deer and the eagle) but would anyone have thought of jellyfish as a cause for problems?  Doubt it.  It might be time for corporations to widen their thinking because the bizarre is coming true bringing more disasters and crises with them. 

 

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One thought on “The Risk Analysis (RA): Increasing the Size of the Net

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